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WANT A CRASH? NOBBLE THE BRAKES

Classic or just venal (but legal) free-market Austrian/Chicago school anarchism?

Is there any practical difference judged on outcome?

Lord Turner's interview is about protecting the FSA - and god knows it needs protecting!

They were dormant, even a dormouse wakes up once a year, but the FSA have been asleep since they were formed - and this is pretty much what Lord Turner's interview shows.

Now, that it is fashionable to decry 'light touch regulation' the FSA too says it was always against it all along - sorry, but history shows that the FSA was the chief apologist for 'light touch regulation'.

I do not think the organisation's claim that it is fit for purpose stands up to any form of scrutiny.

The FSA, like 99.999 percent of bankers and directors of banks, simply had no idea what the liabilities were in the exotic synthetic financial instruments (swaps etc.), and they still do not.

Many independent observers from outside the establishment have been calling for change and warning for well over the last decade, but their warnings fell of deaf ears and before blind eyes.

In the UK the insane multiples of income that banks have been permitting mortgagees to use to apply for loans and the absurd 125 percent loan-to-value were always insane and the FSA should have said so. They didn't because they were full of junior staff who had come from the banking 'profession' who wanted to move back into the banking business.

Now Lord Turner simply proposes to pay higher salaries to the same bankers - this does not seem to be a sensible suggestion. The new regulation staff must be independent of the industry they regulate.

No member of the regulator's staff should be able to move from the regulator into a bank for a decade after working as a regulator.

All bank and financial products must be pre-regulated (rather like pre-moderation on this blog.)

If a financial product has not been pre-approved than it should be forbidden (or at least, represent an unenforceable legal contract.)

No member of the FSA's staff who was responsible for regulation up to this date should be responsible in the future.

If a bank or financial company cannot explain a financial product to the regulator so that the regulator understands it then the product cannot be traded.

All directors of banks and regulated financial industry companies should have to certify that they personally understand the risks in all of their products - if this turns out to be untrue than criminal sanctions should apply (prison). No off balance sheet assets and liabilities should be permitted.

You want proper regulation then I (and many other outsiders) can construct a strong regime! If you want to carry on as usual then keep Lord Turner and his present staff!

As I have just written to Larry Elliott, this seems like a big turn around at a high level, especially on trashing the silencing rhetoric.

BUT the silencing rhetoric on a much bigger picture, ie international trade agreements (under which, I remind you, financial deregulation occurred) continues as silencing as ever.

Sucked in?

Actually the media is so silent, blind, stoopid on these issues anyway - the rhetoric is just kept in the background, just in case any public reference to any of it actually comes out. But generally, they can jsut count on silence anyway.

All the trade agreements, at multialteral, regional and bialteral levesl , and the EPAS being signed up with Africa, Caribbean, Pacific, for instance include labour liberalisation - that is, cheap workers coming in from many many countries, under irreversible trade law. Once n place - no readjustment of policy.

In a time when unemployment is tipped to rise dramatically.

Neither the financial crisis nor the unemployment predictions stopped the EU signign us up this week to the trade agreement with the Caribbean.

Der???

When needed, the silencing rhetoric on this part of the trade agreements includes - skills shortages (nb 'staying competitive'), and for the less business-minded developing country interest - such labour entry is 'development'.

And if you still try to raise any of this, the last, crass, silencing rhetoric of last resort - you must be BNP!

That is just one aspect of the trade agenda. There is much much more and not least the very negative aggressive and intrusive assault on the economies of developing countries.

This interview at the FSA level is then a red herring. But will be effective unless someone with a media voice wakes up and brings this stuff out in the open.

Anyway, sounds like what Adair wants most is a big fat budget to pay the 'poachers turned gamekeepers'. Tide them over in the bonus lull?

its not light touch or heavy touch but the right touch?

if a regulator isn't being criticised then its probably not doing its job? For me criticism would be a sign they are doing something right?

footballers shout at refs when they book them for diving? Does that mean the ref is wrong?

it is insightful that a regulator fears being criticised? What kind of watch dog is that? what honour is there in that ?

As for all roads leading back to Tony Blair it shows the guardian class is so befuddled that they side with those exploiting the public and creating instability in society? What kind of record of service s that?

The evidence is the guardian class is not guarding except in pressurising the regulators into not regulating?

when Tony felt the 'hand of history' did he omit to say it was throttling him by the throat?

PROOF IF PROOF WERE NEEDED -

that it is the PERSONALITY of those in positions of power that matters.

Blair was charisma and oratory underwritten by raw, un-met psychological need.
That he rose to be PM, is an indictment on the Westminster model of Government (and voter gullibility).
If we are to clean out 'pernicious money', let's clean out THE CAUSES OF 'MONEY'.

STILL LIVING WITHIN THE LIE (#3)

". . unless someone with a media voice wakes up and brings this stuff out in the open."

Nothing to add.

The new FSA has one thing going for it: Adair Turner! Not only is he one smart cookie but, from my (albeit limited) contacts with him, I can vouch that he is genuinely independent. That is a quality which is in desperately short supply in the financial markets.

Good.

Tax Justice Network's Richard Murphy is picking up on the 'RBS-PFI-get it back into public hands' point.



'Bring back bonds - Richard Murphy'

PFI structures are a loan by any other name, and we are set to pay the price for them. Time to think again.

Richard Murphy guardian.co.uk
Thursday October 16 2008

The government has acquired a major stake in the Royal Bank of Scotland. There is something extraordinarily perverse about this. RBS is Metronet, the risk returned to the public sector when the contractors failed. The premium had been paid without benefit being provided. Second, in very many cases the premium has been pure profit, which the contractors have been able to exploit by re-financing projects and realising considerable short-term profit soon after the construction phase of the project has been completed.

As informed commentators have shown, the result is that the government pays what it claims to be a rent in exchange for an asset to which a few services of relatively limited value have been attached (often worse than those previously provided within the state sector) and all this to disguise the fact that this is financial engineering simply designed to let the government move the PFI loan off its own books and so meet Gordon Brown's "golden rule" on borrowing. The result is that government accounts have been misstated, it has borrowed more than it could really afford according to that rule, and now it faces the ignominious prospect of overpaying banks it owns for the privilege of using inferior assets it should have financed itself at lower cost in the first place.

Quite obviously this cannot continue. Soon, new accounting rules will bring all liabilities, including PFI, on the government's balance sheet and will reveal just how expensive these arrangements are. And the myth that they are not a government liability, always known but never acknowledged, will be shattered.

More significantly though, if it can be shown that the government can produce cash, literally out of thin air, to fund the banks that so nearly failed while providing PFI finance, then it is obvious that the scheme makes no sense. Wouldn't it have been more sensible to have simply borrowed sensibly in the first place, at low rates, for projects subject to proper due diligence and contractual oversight, and pay for them using that age-old government financing mechanism called bonds?

There was a golden era of bonds. It was from the late 19th century through to the end of the era of the postwar consensus. Bonds paid for local housing, trams and then buses, local waterworks, power stations and the entire infrastructure used to transform the quality of life for ordinary people in the first half of the 20th century. They were finance designed to suit a social purpose and provided a safe, secure, comprehensible medium for investment that paid unspectacular, but guaranteed, returns to the person who wanted to save for the long term in a medium they understood.

They could do the same thing again. This is exactly the sort of product that needs to back deposit accounts saved in the new mutual or state-owned savings banks that must also form part of the post crash financial architecture, based on Post Offices in all probability.

And it is vital that we now have the infrastructure that these bonds can finance just as much as it is vital that the usurious PFI arrangements already in force be ended wherever possible.

It is vital that we know how our governments are funded and it is vital that the government provides the mechanisms people so clearly want to enable them to invest in the future of their own communities. Bonds do that.

PFI never did and never will. It is time to sweep them away and create a new, transparent investments and savings medium in which people can secure their own and their community's future.'

The major stumbling block of A.I. was said to be The Credit Assignment Problem. But what most in classic A.I. could never grasp is that intelligent (operant) behaviour doesn't work the way they think. It's actually an instantition of credit assignment. Most politicians won't grasp that, nor will most of the public, because they aturaly think in the language of common-sense folk-psychology, not behaviour.

Its just politicking as he sees the winds of influence have changed direction.

A lot of this crisis is about human egos, firstly looking bruised and damaged and then those egos that survice, are looking to bolster their positions, even to the extent of shuffling the threads of blamse in every direction but towards them.

bw

COSMETICS AND LA-LA LAND POLITICS

bigwaldo (#10) "A lot of this crisis is about human egos".

Spot on, and until we stop selecting and reinforcing , things won't get any better. The problem is, the only way we'll ever likely do that is by returning to traditional 'family values' and a lot of the current mess has been generated through undermining these allegedly in pursuit of freedom, equality and Civil Rights (cynically, it's just served to expand the consumer base by doubling those with incomes, tilted the birth-rate and broken down social and economic stability). There's some very bitter medicine we'd need to swallow too, as in recent times we've been encouraged to associate the most salient vendors of the cure (Islam) with terrorism (it's anti-usury and thus bad for free-market anti-statist economics?).

here's some demographic doom and gloom (besides jj's usual recipe).

the baby boom generation is about 5 years from retirement. how many held onto their family home during the boom years after their kids moved out, because it was a nice investment? how many have pension funds still invested in equities instead of cash and bonds (let's hope they are all defined benefit)?

unfortunately, i think it is a fair surmise that imminent retirees's spending is particularly sensitive to changes in wealth. perhaps if keynes were alive he would recommend baby boomers behave as if the long term will arrive sooner rather than later..

benagyerek (#12) That looks like an astute analysis and sound, benevolent, tacit advice. Maybe you should explicate?

Interesting Paul, but don't be too optimistic, when the dust finally settles these voices of regulatory change will fade away. There's always a lot of hot air in situations like this. Believe me there's no way these rogue bankers and their friends in high places will allow this. I recall something mentioned about the 'poacher turned gatekeeper'. Mmmmmm a tentative step towards change? No, not really, just a scam. Give it a year or two and then we'll see what's changed and what hasn't, my bet, not much'll change, well, maybe they'll talk the talk a bit, but that's about all.

Congratulations on getting hold of the FSA letter which completely undermines what Adair said in the Guardian interview.

So what are you going to do with it?

Apart from passing it on to The Guardian to correct the PR impression to the public it had been conned into giving.

How come Obama (pretty high profile?) is proposing tax deterrents to offshoring, but no one is mentioning it here?

Could it be that all 3 main political parties in the UK are now definitively to the right of Obama policy?

Yes!

Yes, if the FSA had done their job, we would not be in the mess we are in now. But whose idea was it to split the banking supervision from the monetary operations of the Bank of England? Answer: Gordon Brown. When Northern Wreck happened, no one knew what to do as a result.

And it was not only the banks which were regulated with a light touch. Ever heard of liabilities being taken off an organisation's balance sheet, repackaged and sold without the real risk being transferred? For banks, it is called a SIV or a conduit. But for the government it is called PFI. For the last 10 years Flash Gordon done exactly the same as the banks. No wonder he is feeling a bit exposed at the moment.

Meanwhile, the FSA is trying to make amends by appearing extra tough - the pendulum of regulation has swung. But beware: by putting extra tough rules on all the banks in terms of capital adequacy and liquidity, these banks will be able to do even less lending and under more onerous conditions than they would normally in a recession. As a result, expect this recession to be extra deep.

Meanwhile, the government is the only one who is still able to hide liabilities off their balance sheet because it is holding up changes to accounting rules which would make them more accountable and bring certain PFI liabilities onto the balance sheet. Few people know this which is why they are getting away with it - for now. No prizes for guessing why Gord is less enthusiastic about this than about blaming the bank managers for the mess in the banks.

Both Brown and Bush are at the wire now, talking ideology. They will not, they say, deviate from the free market path.

Fine, let's talk ideology.

Let's really mull over what free market means - privatisations, liberalisations, commodification of just about the whole of life into 'investment opportunities' (and we are all a little wiser about investment opportunities now, though not wise enough).

The international division of labour being used at home and abroad to undermine workers to increase profits and reduce worker power. Colonial power pitted against class.

AND the permanent locking in of all this, through international trade agreements; trade agreements set up specifically to advantage corporate accummulation through diminishing national governments' ability to regulate for social needs or to control corporate activity. (Just in case we ever had such a govt!)

Lets talk about what it means at the personal level, and at the national level (its at the EU level that this happens), and the globally; for this generation and for future generations.

Let the people know the score - and they can decide what ideology they do or do not want.

No chance of protecting the environment with free market ideology.

Labour liberalisation is a big part of the free market neoliberal strategy. It is in just about every trade agreement in the form of promises to developing countries' populations that they will be able to come here and work, if they open up to investment. It is now the major trade off in this regard, but has all been kept very secret.

It is time the meaning of this agenda was known and discussed, all of it, not least so that people are not inadvertently supporting that agenda through lack of information.

And it needs to be heard from people who have the cred and the nerve to go for it.

Good stuff, thanks.
All the talk is of more regulation;dangerous, when what is clearly required is better regulation.
Can we stop saying more in every report and say better?
Do we really have to employ more people and pay more to get better regulation from the existing, large budget?
New Empires are on the point of being built.
John C.

#18

Don't worry, we can reconcile all of the negative consequences of capitalism without having to accept the unsavoury taste of a different ideology:

Take all prominent negatives (e.g. pollution, risks to health and safety etc.) and put it on the balance sheet. Yes, by converting such things as human lives and carbon emissions into pounds and dollars, we can let the free market trade these "commodities" and sit back and watch the invisible hand deal with the inherent conflicts that exist.

Voila! An economic solution to an economic problem..........

#20 Good Morning Hawkeye

That was roughly how the business model to use the Millennium Dome as a global environmental centre was constructed.

They might be called diseconomies.

Eg if climate change causes £500 billion of costs to the global economic system, what would it have been worth to 'sort' the situation out.

The agenda for the 2005G8 climate change and Africa and the climate change risk assessment were derived from a Cabinet Office model of Regulatory Impact Assessment.



By combining economic, social and environmental factors it is possible to predict the trajectory of a strange attractor which follows the path of 'something like' those Kondratieff Waves you wrote about.

I had used a related system to predict the 2007 flooding in the UK in 1991. I told 2 local authorities, 2 police forces and the Gov via the Dome competition, but no one was interested.

So used flooding as an example in part of the work for the Cabinet Office in 2002.



I do think we have to have one of those paradigm shifts you talk about to make it work most effectively though.

You can visualise what a really effective financial services regulator would be like.

Not 'light touch' or 'heavy touch' but always appropriate regulation.

Rule number 1 would state that banks will not trade in any financial instrutments are not themselves part of a regulated market.

Better late than never.

PS. I have been impressed by Turner and hope that he can deliver. Not so sure about Sants, has he really thought through the demand for such a high Tier 1 ratio as I understand there could be some undesirable side-effects.

Someone needs to raise the suggestion of taking back hte PFI schemes into public hands.

Just heard on World at One - huge national debt, PFIs still a cushy investment, being refinanced through the massive cash injection to the banks - and that further PFI could be the way to 'prime the pump'.

Well done World at One - not!

This is the moment when the PFI schemes can be taken back into public hands by banks foreclosing on those cushy risk free loans, which involve payments to shareholders over the next 25years (some of them extended to 60 years). This can be done simply by the bansk , which are now essentailly publicly owned, not refinancing the loans. This is what Northern Rock is doing to mortgagees - with the difference that this would be socially useful.

It can be done at this point, because doing it through this means avoids the huge compensation payments that would under other circumstances, make it prohibitively expensive.

This would test Brown's mettle - how far he is prepared to make cuts to business welfare, when he is seemingly so oblivious to social welfare.

I know its not on message for the blog, apart from Hawkeye introducing Kondratieff Waves.

Did anyone see Senator Gary Hart talking about Republican and Democratic 'cycles', on Newsnight?

#24

Yes, guilty as charged, but I think that was on another thread. I read this rather short and pallatable article referenced from Wikipedia on the Kondratieff wave:



Key take out is that the first 2 crashes were rescued by labour innovation, the second 2 by debt. The author (rather prophetically writing in 1998) claimed that the US might find it tough to borrow their way out of the (current) fifth wave.

Also, just a quick comment on post #20 "economic solutions to economic problems". I highly suspect that this approach will be the one adopted by the "new economic order" Gordon & Barack will develop. However, I'm not overly convinced of it's long term prospects. The potentially destructive practical consequences are too numerous to mention here - imagine if Second World War Rations were openly traded (people would have sold their own mother's quota!). Finally, it just doesn't fit the bill of offering a new paradigm, in fact the opposite - an even more fanatical version of free market capitalism. The film "The Corporation" gives this a better treatment than I could do justice here.

#25 Hawkeye

Yes it was another thread, then Citizen Thompson acknoledges your contribution of the Waves on another thread.

Then I used them again here #21 in reply to your #20.

So I put the Hart thing after your last posting.

Having said that I agree with what you say. Its that Prof Jay Forrester thing about getting the opposite outcome from intended.

Thanks for the introduction and links.

Frjof Capra in The Turning Point introduced similar concepts I think.

It has raised some interesting concepts, but that's for a future thread.

I think it's about time that someone corrected uneducated media correspondents on a small matter pertaining to BRITAIN.

The media is all in favour of using the term 'Britain' in articles relating to the current banking crisis. However, I suggest they consider the following :

Fact : The UK government has, for some reason, not employed a 'level playing field' approach in compensating depositors of Icelandic banks on the mainland.
They are providing 100% compensation for depositors of certain banking institutions (IceSave), and applying the £50,000 rule to others (Kaupthing).

Fact: The government has, for some reason, suggested that depositors of an Icelandic bank in the Isle of Man (Kaupthing) are 'on their own', despite the fact that UK government actions directly resulted in the problems being encountered by that institution in the Isle of Man.

Whilst the UK government remains totally hypocritical and duplicitous in it's approach to these problems, I would very much appreciate if the media would educate itself very rapidly in the difference between the UNITED KINGDOM and the BRITISH ISLES.

This would avoid confusion, especially for those with financial interests in both UK and Isle of Man Icelandic financial institutions.

I intend to post this to as many relevant blogs, 'Have your Say', and feedback forums as I can find, in the hope that someone, somewhere, might take note of the fact that the entire British media, banking system, and governing establishment has completely abandoned
constitutional arrangements, in favour of political and institutional expediency.