Credit to you Mr Redwood, you do keep saying that.

Cameron has done a thing several years after the deadline he promised to do that thing.

Not at all impressive.

On the other hand he has abandoned the policy that Howard, I think proposed to repatriate British fishing rights in British waters around the British Isles.

The result of the common fishing policy, introduced you will recall by the Europhile Edward Heath, has bee the decimation of the british fish stocks and the almost complete destruction of british fishing fleet.

If Cameron wants to build up some conservation credentials he should announce a complete morotorium on fishing in British waters, other than licenced british registered vesels – until fish stocks have recovered, then the licencing should be introduced gradually to other applicants countries.

This way, both the British fishing industry and fish stocks in British waters could recover.

The existing banking problem was indeed caused by regulation, but I’d say that it was bad regulation, rather than too much or too little regulation.

That’s why I prefer a simpler, broken up system. It makes it easier to apply the appropriate regulation to the things that need it (safe retail banking), or no regulation where it isn’t required (investment banking). Simplicity also make it easier for the regulators to see what is happening clearly – less chance for impending doom to be missed.

Free market capitalism is fine if there is a practical and informed choice. However, when the entire UK retail banking system risks imploding, what exactly is plan B? We can’t all go back to a barter system overnight.

There are some things that need to be considered “infrastructure” and protected. Realistically, when every bank in the country is relying on risk to maximise profits, the consumer has no opportunity to chose a safe option. I would accept a compromise in having free market retail banking that has no tax-payer safety net, as long as there is also a regulated alternative that is protected – a safe haven.

Some of the existing banks have ridden the crisis better than others. However, as consumers, we had no way of knowing which ones we should have been using for security. So, if there had been an institution that was not risky by design (perhaps like the Building Societies before they most of them went after the money and demutualised), we (as clients) could have made that choice.

If the free market is going to regulate itself successfully, random chance should be removed from the result of the decisions that we make within that market. If we can’t design chance out, the next best thing is to have a safe place created by regulation, in parallel with the completely free market. This safe place won’t be as profitable, but that’s the trade-off.

When I needed a replacement brake parts for my wifes car, I had a choice of product from different sources; there were new dealer parts, pattern parts and reconditioned parts available. I know something about maintaining a braking system, and chose a pattern part from a manufacturer that I have faith in. The free market, working for me, but not a choice that everybody is equipped to make. Even with hindsight, I can’t see how I had a comparable choice the last time I changed retail bank – they would all have claimed to be a safe place.

I think that where we disagree is in the scope of regulation. The free market is a wonderful thing, but not everybody wants to ride that particular rollercoaster all of the time. For those (like me – cowards!) who want some security, it can (co-)exist under a suitable regulatory umberella.

He is a Labour placeman. Cameron will have his work cut out if he really means to make a change.

He should sweep whole swathes of these orginisations away overnight. The BBC should go at the same time, all together they comprise a parasite at the heart of the british economy that will eventually suck the life out of it altogether.

Unfortunately, Cameron being a Europhile, will bend his need to the European Union and knuckle under to their broadly similar and equally damaging policies.

When Cameron isn’t prone in front of the European Union, hs is fawning at the feet of the Green movement. Really, we are doomed!

Reply: He is no Europhile. Europhiles would not have pulled out of the EPP grouping in the EP.

It borrowed “short” and lent “long”, so when the short term money dried up it was left with unrealisable assets, and a massive immediate debt. It seems as though it was using “investment bank techniques” to support its otherwise unviable business model.

There is also an argument to say that if NR has been allowed to fail, perhaps all the other vulnerable UK banks would have spent the intervening year trying to put their collective houses in order.

Were retail banking restricted to lending what is on deposit (or a small amount of leverage backed by the BofE), the amount of potential damage would be restricted to manageable levels. Keeping investment banking (and the methods associated with it) separate stops the “risky” part from pulling down the “tax-payer protected” part.

It’s only by breaking the interdependancy apart that potential problems can be managed in the future.

I am not interested in anything (I got a Labour peerage – ed) ‘Lord’ Myners might have to say.

‘Lord’ Myners ( My investment(ed) fund is doing very nicely, thank you very much), now I intend in typical socialist manner to stop anyone else managing to scrape more that two pennies together.

We should really be concentrating on what bankers have done that is harmful to society, such things as negative amortization mortgages, where if you pay every interest payment on time in full, you still end up owing more at the end of the term that at the begining of the term.

Loans made ‘for social’ reasons, where you loan, as a result of governing party pressure, to groups of people who you know will not be able to repay the principle, because of lack of income, fecklessness or simply any money at all.

‘Socially useful’ banking – that is lending to bad risks, 100% or greater mortgages, negative amortization loans are ‘economically damaging’ and hence socially damaging.

Why wasn’t the FSA regulating these practices over the last ten years? Was the FSA ’socially useless’?

“[We] show how government regulation actually encouraged US institutions to lend to bad risks. The US government was also strongly supporting the process of securitisation of mortgages through its corporatist, nominally private institutions Fannie Mae and Freddie Mac.”
“Paul Tucker, recently promoted to deputy governor of the BoE said in a speech as late as April 2007: ‘So it would seem that there is a good deal to welcome in the greater dispersion of risk made possible by modern instruments, markets and institutions.’.”
“Even if one does not accept that government action was a considerable contributory factor in the boom and following crash, it is quite clear that government agencies did not spot it before market participants did.”
“International banking regulation encourages the creation of opaque financial instruments.”

The analogy I use to explain why state intervention was the cause, not the solution to, the financial crisis is this. Imagine that the state owned all the iron and nickel ore in the world and controlled its production and pricing. After a period of carefully modulating output, it decides to slash prices. The steel industry notices the price incentive and adds capacity. Because steel is now cheaper and more plentiful, the car and shipbuilding industries, amongst others, are able to increase capacity and reduce their selling prices.

The world economy booms, more steel is consumed, more iron and nickel ore is mined, factories are opened and profits soar. The captains of the steel industry are awarded substantial bonuses by their shareholders, who are impressed by their ability to steer the ship in such strong tailwinds, and they are lauded by the state. They are awarded knighthoods and peerages and invited to sit on governmental advisory panels to share their expertise with the public sector.

Then the state notices that the boom has got out of control. Too much capacity has been added throughout the economy and it needs to be reined in. It hikes the cost of iron and nickel ore. The steel companies are forced to pass on the price increases to their customers. Demand shrinks and the steel companies are left with huge overcapacity. With their high fixed costs they are suddenly bankrupted. The state then turns around and says to the captains: “You villains! Look what you have done to the world’s economy with your greed and ambition! Look how you failed to steer your ships properly when the storm was brewing! Return your bonuses and your pensions!”

The state then nationalises all the steel companies, and tries to get the whole bandwagon rolling again by slashing the cost of iron and nickel ore.

Now, like all analogies, this has its limitations. Iron and nickel at least have an intrinsic value whereas the raw material that the state manufactures to allow the banks to conduct their business – fiat money – does not. The banking industry is much more heavily regulated than one could imagine the steel industry ever being. But if anything, this just underlines the point – the root of this problem lies with state intervention in free markets. The solution to it lies in true free market capitalism which is the only source of wealth creation.

Bankers, who do their socially useless casino banking, should be hit with high taxes and masses of regulation, all designed to make them earn less money.

And yet they say that the unemployed, who it cannot be argued are providing any kind of socially useful activity, should get more money.

The inconsistency is there for all to see. Of course we all know that they are just using ’socially useless’ as some form of flimsy justification, and their real goal is to soak the rich, regardless.

I would argue that anyone who is a net contributor to the state cannot be classed as socially useless.

You’re right that HBOS failed because it made too many bad loans. However, if it had only lent out money to the value of that which was on deposit, perhaps it would not have been able to dig itself into such a deep hole. They may still have not survived as an independant institution, but their liabilities would not have done so much damage to the Lloyds balance sheet when rescued. I expect that Lloyds would have then been able to avoid taking tax-payer money to survive.

This issue has indeed been done almost to death, but it’s still twitching, and will come back to life (and we are in the chestnut season, after all!). The framework that allowed this disaster to happen (if you think disaster is too strong a word, talk to the newly unemployed) is still in place – nothing of substance has been changed. The Government would claim that they have “improved” the regulation, but in reality that was just a bit of tinkering.

There is not one simple cause of the problem, and I know it’s not just “investment banking” that caused the crash. To my mind, a big part of the problem was the abdication of responsibility – banks were trading in unassessed packages of loans, and relying on insurance policies to cover them. Had they been using traditional retail banking methods (Mr Mainwaring as the example), the loans would have been made with due diligence – for example, a sensible loan-to value for a mortgage, and proper proof of ability to pay.

If money had not been so easy to come by, the housing bubble would not have been able to inflate so far. The economy would have grown more slowly, and this would have been more sustainable. At the very least, any recession “started in America” would have been less painful. With less debt in the system, the Labour government would have been less able to afford to hire such a massive and wasteful Public sector. The taxman has his sticky fingers over every transaction – for example, lower house prices means less Stamp Duty going to the Chancellor. Fewer people spending borrowed money on new sofas means less VAT raised. There are lots of unexpected consequences when the system goes out of balance in this way.

The banks felt that as long as somebody would insure any deal, it had to be a good one. Insurance companies seemed to take the view that if the bank thought it was a safe loan, due diligence had ipso facto been performed. This philosophy of passing responsibility seems to have perculated throughout the financial industry and needs to be changed. Change is going to have to be forced on them, because they still like the old system – it was rather lucrative!

So, splitting banking in two is partly about keeping “risky investment banking” away from the tax-payer protected retail banking. However, it’s also about making changes to show those in the financial industry that society is not prepared to tolerate being held to ransom.

Some of us dared to point out that the Great British “economic miracle” was built on a mountain of debt, a ballooning trade imbalance (after you and your mates literally decimated UK manufacturing between 1979-82 and entire product sectors are now unrepresented in the UK) and was as robust as a sand-castle with the tide coming in. For the trouble, we were portrayed as doom-mongers “unable to face up to the wondrous economic changes brought about in Britain after the Thatcherite revolution [principal cheer-leader: one Redwood J]….” The same was as true under BluLabour as under the OldTory party.

Professor John Kay, writing in the Financial Times last year made the entirely apposite point that were anyone in the FSA to have, at any point, queried the business models of any of the leading banks or financial institutions (let us not forget that the FSA is indeed PAID for by the self-same institutions…), then he/she would have received a response along the lines of “just who do you think you are sonny and just what do you (not being one of the “Masters of the Universe”) think you know about anything….?!” The levels of hubris demonstrated throughout the upper reaches of the directocracy in charge of UK financial institutions was only matched by their greed, gullibility and ignorance of the risk profiles across much of their balance sheet. Many of them probably believed that they could walk on water.

If you want to do any good out of this mess John, then try addressing the heart of this issue: not the FSA but the limited gene pool from which the FTSE directocracy is drawn from. This stems from the wholly closed shop nature of the FTSE directocracy: to be a non-Exec, you have to be a main board director elsewhere. Whilst at London Business School, a study was undertaken re: how to obtain such positions. Conclusion: don’t bother. Most are reserved for golfing mates of the chairman/ head of the remuneration ctte/ CEO etc. What was it you spent so much time attacking during the 1980s…? Oh yes, “Spanish practices” in the Trades Unions… Don’t recall a peep from you (ever) about the cosiest closed shop of all: in the FTSE board room. No open advertisements and only the identikit breed of chartered accountants need apply. But what position did your wife hold?

But was it not ever thus that the City is able to fleece the rest of us in good times and bad? And they can always rely upon faithful satraps like you John to attempt to divert the focus of attention and culpability away from where it ought to be focussed. You give every impression of having learnt precisely nothing from this experience other than to recycle the tired old claptrap you’ve been peddling for the past twenty plus years. Doesn’t quite fit with “Dave’s” attempt to rebadge you all as “liberals” methinks.

Reply: You belong to that sorry school which blames a successful government – the 1981-8 Thatcher era – for errors and disasters that are happening almost 20 years after she left office. I fully understand the weaknesses of some companies and have never argued that all large PLCs are engines of moral authority, efficiency and success – if only. I have always argued that we need more competition to keep them all more honest and under pressure to perform. I spend more time discussing the obvious failings of the public sector because it is my job as an MP to exert some “shareholder” and customer power over the monopoly service and activities which government does, usually badly and inefficiently. Where I find badly performing PLCS offering poor product at high prices I exercise choice, refusing to buy from them and backing their competitors. I can’t do that with monopoly public services, where I have to pay under threat of prison if I don’t. The regulatory system we set up in the 1980s kept good control of banking cash and capital That control was lost on Brown’s watch by the new regime he put in place.

It bothers me that most people can’t see through this obvious and deliberate act of financial vandalism.

Come on people, it’s even written in the Communist Manifesto, how much evidence do people need.
Does anyone really think that lending fractionally reserved thin air credit then marketing these debts and selling these on is not one day going to collapse.

http://en.wikipedia.org/wiki/The_Communist_Manifesto

Might I, against my nature, defend the requlators?

Regulators, even if nominally independent, work within the current political & economic climate. They would not have called for increasing capital requirements during the boom, as there was no visible reason to do so. After all, we had “ended boom & bust” – due to the prudent handling of our economy by the then Chancellor. Where was the risk factor that justified such a measure?
If a Regulator had called for tougher rules, he would have been lambasted by the press, and criticized by most expert economists. Financial Experts would say capital requirements could be lower (not higher), as risk was now diversified throughout the global financial system. Politicians would have said that such unilateral action would jeopardize London’s position as the World’s No.1 financial centre. If the Regulator had sufficient stature, then the £ would have gotten a bit jittery, and some shares in the banking sector would have taken a tumble. A government spin doctor would have then come out we a speech saying “what I think you will find the Regulator actually said was .…” – and then say something that was the opposite, or renders the comments meaningless.
After a few days of ducking the issue, the Chancellor would have given his full support, followed the next day with the Regulator’s “voluntary” early retirement (or movement sideways).

Serves them all jolly well right too.

http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine