Tuesday, 13 September 2011
Spod Miliband’s call for bad bankers to be struck off made for a good soundbite. Back in the real world, the FSA appears unable to do even its (ineffectual) best to sweep things under the carpet with some of its famous “you accept you won’t take a senior role in a company we regulate ever again and in exchange we’ll not say you actually did anything wrong” specials. The FSA clearly wants to be seen to be claiming some scalps, but it being fucking useless, unable/unwilling to breach customer confidentiality to actually substantiate some of the shenanigans that took place and having a fundamental vested interest in not wanting its own failures exposed means it ain’t getting things its own way. But, then that’s only to be expected – hubris was a fundamental cause of the financial crisis in Britain and the FSA is currently contending with some of the living embodiments of that self-same character flaw, which is where the Independent Banking Commission’s final report comes in.
My reading of the report is straightforward. It takes very, very seriously the moral hazard argument made repeatedly by the Governor of the Bank of England wherein its wrong to privatise profit and socialise (nationalise) losses, by making it that bit harder for banks to end up in such a state that we have to pick up the tab.
Hence, the proposals in the report like British banks should hold mucho more capital than anyone else to absorb potential losses, that lenders to banks should cough up before depositors and on top of that ring fencing off anything vaguely complicated that might suddenly pop up in times of trouble saying you owe me two squillion quid NOW! appear geared to comprehensively avoiding moral hazard in future.
As such they highlight what I think is a fundamental difference between the British approach and that of any other major economy. Like in France (as we could well find out sometime during the next few months), the approach has been to obfuscate i.e.; the government has been in cahoots with the bankers. In the US the approach was blank cheques all round with barely any strings attached cos anything else is Anti-American. In Ireland, its fuck knows, the government/bank/property developer links were so close and so dodgy you just don’t want to go there. No idea about Germany, but then if the French banks go kerphut they’ll presumably be next or almost next in line.
Anyhoo, back in Britain there’s still this same old same old about ring fencing. Like on R4 yesterday the news person trotted out the party line about fencing off risky investment/wholesale banking business from dull, but necessary retail banking stuff and again this simply can’t be reconciled with the reality, which is that nearly all the banks that failed/had to be rescued/taken over in Britain were actual or former building societies that did very little of the “risky” investment bank stuff to be ring-fenced. Rather, the Northern Rock reliance on wholesale market funding outlier aside, they did too much shite property lending. Full stop(1).
But, I think I get it despite that fact; the report isn’t about causes, rather it’s about heading off potential consequences. Do shit property lending? Don’t care you’ve masses of capital. Got a big portfolio of synthetic CDO squareds no one other than some bod with a PhD in theoretical physics understands? Don’t care, they’re ring fenced and you’ve a massive capital base. And so on and so on and ...... what does that say about financial regulation then?
Hmmmm, let me see ………… I know, that it doesn't so much render regulation irrelevant as signal the perceived limitations of regulation and regulators. Or to put it another way if the British banking system hadn’t and didn’t have supine fucktards regulating it, then there would have been no or much less need for the Independent Banking Commission to have made the recommendations that it has.
By the way this isn’t to blame the regulators for the credit crunch in Britain, that was the banks fault, rather its to highlight the regulators as they were and still are are fucking useless, hence when cunts like Spod Miliband talk up some soundbites the accompanying deep failure to appreciate the reality of the situation it implies leaves them looking like tits.
Back to the Independent Commission, you’ve got to love their longer term view on shit. Like when bank mouthpieces squealed about how the recommendations would undermine the economic growth banks facilitate, the commission neatly and rightly responded with a so we leave you to your own devices and get say 4 mebbe even 5 years of reasonably good times followed by a fuck off financial crisis that knocks the entire economy back 6 years? No thanks.
There again given the shit going down in continental Europe right now the whole exercise could prove academic.
(1) This fact also has an international dimension given it was the simpler souls that fucked up overseas as well e.g. Spanish cajas, German Landesbanks and Countrywide in the US, although am guessing some of these also had Irish based debt/capital markets teams that pished away money on US residential mortgage backed securities and related products ie.e investment banky bits.