´óÏó´«Ã½

> It is very difficult to see how
> the collegiate, tripartite system
> of Bank, Treasury and FSA for
> steering the City through storms
> can survive such tensions.

Yes, but they have different lifecycles. The Bank has lasted centuries, the FSA is 20 years old, and the people running the Treasury get dumped by the electorate even more frequently than that. We can say with certainly that the Bank will still be there until we use Euros, the FSA will have to try to fit in and the Treasury will duck and dive to avoid the politics.

The FSA doth protest too much, methinks. Has anyone mentioned to those fellows that this is only excusable _before_ the event has occurred?

I'm afraid Robert that you are looking at this from wrong angle. You may, perhaps, justly criticise the BOE for the way it attempted to clear up the mess that was the failure of the Rock's business model. It could, again perhaps, have been done better.
But was the BOE to blame for the Rock's problems - the answer is no. The cause of this mess was an unsustainable business model designed and operated by people who lacked foresight. They were aided and abetted by the FSA who allowed them to carry on along the path to destruction because to do otherwise would have inhibited innovation in the city!
In the position of Callum McCarthy I too would be desperately attempting to divert the spotlight away from the massive failings of the FSA in any way possible.

Seeing the FSA squirm for the best part of a couple of hours, it was enevitable that they would make the statement that had the BOE provided liquidity sooner the whole mess might have been avoided. So the Committee has now come full circle in its quest to discover who did what when. The BOE blames the FSA, and the FSA blames the BOE. What about the Treasury you ask? Yes the BOE blamed them for putting place unworkable and control freakery legislation which made it impossible for them to act in covert manner. Other than good television, we have got absolutely nowhere. Our regulatory system is in a mess and in need of some serious pruning and or surgery. As for market manipulation, well there is no shortage of that under the FSA's softly-softly watch. The leaking of market sensitive information is rife as is the trading on it. I think one finally become clear to the Committee today - the FSA lost the plot when it was confronted with a real life situation that somehow didn't come up in their "stress-testing" exercises.

It will be extremely interesting to see Mr Sants statement in context so as to establish whether it was a criticism as implied in the reporting or merely an observation.

It would be interesting to know what the FSA wanted to do during the time that Northern Rock approached the bank for support.

I suspect that they wanted the bank to act more decisively by providing liquidity, but would they have offered it anonymously and at a non-punative rate?

It doesn't seem to matter now, because now both the FSA and the Government have got what they want: a scapegoat.

Something about honour and thieves springs to mind.

CORRECTED VERSION

It sounds like the person in with the first knife is putting up some flak against anticipated attack.

The Bank of England by nature will keep quiet and monitor the approaching credit crunch. Maybe they will pick up some tips from Mr Sants who at the Hedge Fund Roundtable of Global Thought Leaders on November 20th at The Brewery in
London, will deliver a keynote speech on the topic of “Hedge Funds and Systemic Risk – Are Hedge Funds a Threat to the Global Financial System?"
....interesting times..with expertise like this we are in good hands.

Thius is not just about NR, Its about sub-prime lending. Anyone sold a mortgage without proper credit and an a'bility to pay' check has been sold sub prime. What did the FSA do about the continual criminal activities of many brokers over the past 3 years?

I did see Panarama last night and there were many examples where the FSA should have stepped in and prevented the lending from being approved.

Problem is, while there is continual house price growth, this practice will continue, the Govenment can not afford ther to be a house price crash that will bring property prices into a more realistic market value...

There does need to be some common policy and strategy fomulated between the FSA BoE and Treasury, otherwise we'll be in one hell of a mess come the middle of next year.

Saying the BoE could have avoided the crisis by giving more free liquidity is like saying the drug addict who stole your car to feed his habit could have been prevented from doing so if only he'd been given free drugs.

It's about time that the ´óÏó´«Ã½ disabused people of the peculiar idea proposed by Hector Sants of the FSA; namely that the Northern Rock crisis would have been avoided by pumping funds into the system at a non-penal rate. In those circumstances, the more liquid banks would have taken the opportunity to hoover up more liquidity to store in reserve, leaving precious little for Northern Rock.
I'm also heartily sick of hearing how Northern Rock's business model is sound, when it's patently obvious to many observers that what we have is not a liquidity crunch, but a collateral crunch: i.e. investors are at last starting to realise that the real-estate assets underpinning the virtuous (?) circle of securitised money generation might not actually be worth as much as previously thought.

referring to my earlier post,4, i have now read the report of this committee in the FT.

My view is that once again Mr P has put his own intepretation on what was actually said.

As i understand the (balanced) reports Mr Sants pointed out what would have prevented/reduced the problem rather than criticising what was actually done (or indeed not done).

Still, Mr Pestons comment made fun reading which i expect was the point.

The crisis at Northern Rock was ultimatley the symptom of the massive monetary inflation that has taken place in recent years and solving a problem caused by excessive liquidity by increasing the money supply further is not the solution, just a short term fix which only delay and indeed worsen the final outcome.

Teh problem that has exposed the inadequacies of the FSA is that it is staffed by those ( barring a few) who have absolutely no business experience and work on theorhetical understandings of the financial services industry. Perhaps teh thinking is that an outsider will have a more pragmatic observation of a problem than an insider.
Either way their 'stress testing' and conclusion that Northern Rock was solvent have proven to be totally wrong. Save for the demented levels of support offered by the Bank of England, Northern Roack was anything but solvent. The FSA truly has been shown to be plying teh fiddle while the sysytem imploded and then sought to infer blame lays squarely with the Bank of England.
The main culprit was teh then Chancellor now Prime Minister who does not know how to be specific and has to tinker and mess with everything to leave no definitive basis. Look at out tax situation now to what it was like 10 years ago.
It is the instictive socialist/ communist need to interfere on the basis that teh state knows best when it clearly never has or will.
The FSA screwed up big time of that there can b no doubt and buck passing is the natural response hen trapped in a vice of ones own creation. The Bank was between a rock and a hard place but no one could deny the Govenors principle that supporting the indefensible position of bailing out a bankrupt bank and irresponsible financial product developers at the main banks sent out totally the wrong message. Teh only party that showed real guts was the Bank in holding to the principles of hojnesty and integrity. Something which politicians of all sides now lack because looking after number one is all that counts in their world and something the FSA has yet to showbecause it is merely a puppet of big financial operators and has no concept of what goes on at street level. How else could it allow billions of pounds of profits to come form Payment Protection Insurance yet only find the ability to fine the perpetrators of this nonsensical product a few milion pounds. The public tried to take the FSA seriously but it was a false hope and it now is seen as an unmitigated disaster, save by the large finance houses and Banks who pay its fees. Its a total shame and this has given New York the opportunity to work its way back to supremecy in the financial regulatory field. A position rightly held before, and will once again show itself not to favour those who abuse the system as the UK model has done.

Robert

Internecine hostilities are not what's required and the juvenile FSA should grow up, quickly.

The simple fact is the fiat currency (debt bonds) generated by the global banks has evaporated when somebody gave the 'assets' a tap and found them to be hollow.

There is not enough money to replace this defunct currency.

So the BoE are dancing with the banks to avoid printing too much money too quickly, which would see the demise of Sterling and an impetus to inflation. The banks, no doubt sensing this discomfort, will take us all for another ride, particularly if the FSA start getting sniffy with the BoE.

By the by, talking about confidence and hollow things check out the £35k deposit guarantee scheme.

First, you have to assign your right to FSCS for your deposit. Then you have to wait for bankrupcy proceedings, litigation etc. It could take years to get your money back. One top of that, FSCS could charge you fees and expenses for recovering any money. (rule 7.2.1 - 3). As ever, the devils in the detail. Who's detail? The FSAs! Some watchdog!