Nov 16 2009
The Queen’s speech – a case of excessive risk taking
One of the things that is most bizarre about Nulabour spin is the way they tell the opposition about the traps they are digging for them. Today we learn that this will be the most political Queen’s speech ever. We are told that each Bill is chosen to smoke out the Tories. Strange that. I remember that was what we were told about the last Queen’s speech as well.
I have a message for Labour. How the Conservatives vote on each of these proposals is not going to make much difference to the opinion polls. Nor will it make any difference to the legislation, given the large majority Labour enjoys. Conservatives might as well oppose the Bills, as that is what an Opposition is for. They can do so with impunity, on the grounds that these are not serious measures, but just crude examples of party politics.
I’m old fashioned enough to think that a Queen’s speech should be for a government to announce new legislation it thinks is needed in the public interest. Sensible governments legislate only when necessary, and only when they think the legislation will make our lives better. I also think it was better when we were not told what was in the Queen’s speech before it was delivered. I now have to write my response to the Queen’s speech two days before I can hear it and debate it in Parliament. Once again Parliament is marginalised.
Let’s take the headline Bill, the one to give the Regulators powers to retrospectively remove bankers’ bonuses. Any politician facing a close election will be tempted to support, given the low public esteem towards bankers. Yet this Bill is just another political stunt.
The regulators we are told, armed with this power, will be able to stop excessive risk taking. They can already stop excessive risk taking if they can identify it. The problem in the last cycle was not lack of powers, but lack of ability to see that too many risks were being run. The modern regulator can order a bank to raise more capital or to lend less, through the controls it operates on cash and capital. It can also limit or ban certain products if they are thought to be unduly risky. My main argument against this latest Bill is I do not think it will work.
Many of us do find excessive bonus payments unacceptable. If the bank paying big bonuses is already in receipt of taxpayer subsidy, we say there should be no such bonuses for the higher paid. You do not need an Act of Parliament to stop such bonuses. Taxpayers own these banks, so as owners we can put in an appropriate remuneration policy. What’s stopping the government from doing this? Why does it do the opposite, and offer huge bonuses to executives in loss making banks?
If a bank reaches the point where it needs taxpayer support, owing to poor management and weak regulation, then at that point the government can insist on bonus cancellation as part of the deal to support the bank. Why didn’t they do this when they moved against RBS and Lloyds?
If a bank is able to pay high bonuses because it is very successful, or because its shareholders are happy to subsidise pay for their own reasons and the bank is not going to need taxpayer support, there is no need to intervene. As a general rule the high bonuses of the past have only been possible because there is too little bank competition, so the sooner the authorities get on and create some more competition the better. That will solve the problem.
30 Responses to “The Queen’s speech – a case of excessive risk taking”
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
Dear John. surely if there is more competition between Banks, the need for talent will increase and drive remuneration higher?
Reply: NO, prices of services will fall and banks will have to pay realistic wages
If the Government wanted to do something for the benefit of the country, it could start by removing the vast majority (if not all) of the new laws it has passed in the last twelve years.
Even if there are a few gems lost as a result (and I can’t remember any), compared to the gains involved in losing all the bad laws, they won’t be missed.
Labour has to be seen to be doing something – it’s a shame that this never includes removing obviously bad legislation, only trying to add new amendments.
Mr Browns approach to Parliament is once more shown as complete contempt for anyone he can’t see in his shaving mirror.
THE ESSEX BOYS Reply:
November 16th, 2009 at 2:31 pm
Did we not hear of an intention to repeal unworkable and unnecessary legislation introduced by Labour in a single Act of Parliament?
A sound idea we reckon.
Mick Anderson Reply:
November 16th, 2009 at 8:13 pm
I’ve a sneaking suspicion that it was a comment on one of the MPs blogs some months ago, rather than a proper proposal. I can see the appeal, though.
You know the old saw – if it seems too good to be true, it probably is.
This stated intention to make this a ‘political’ Queen’s Speech is another example of Labour’s abuse of Parliament and of democracy. Ministers who have the honour to hold their positions of high responsibility should use their power in the best interests of the Country, not in order to play political games. We are reminded again that Gordon Brown is not a fit and proper person to be Prime Minister.
I can fully understand the French and Germans wanting to take our banking system into Paris/Frankfurt. That is what the EU does.
But why are we Brits determined to destroy it too?
Is it because, as usual, we are slavishly following the EU?
Or is it just the old fashioned Labour chip?
How can they talk of “tearing up” legal contracts between two independent parties? This is the stuff of Robert Mugabe.
They encouraged the 120% mortgages and the like because of the feel good factor which kept them in power, and they loved the extra taxes from house price inflation.
Stuart Fairney Reply:
November 16th, 2009 at 1:58 pm
Sadly it’s not new, look at the unfair contract terms act for example where the government gets to play ‘nanny-auditor’ between two parties when one decides he suddenly doesn’t like the contract he freely entered.
Mugabe indeed.
Surely, it should be illegal for the ruling party in Parliament to spend vast quantities of taxpayer money in the six months running up to a general election when the only aim of such spending is to keep themselves in power.
chris southern Reply:
November 17th, 2009 at 12:49 pm
Many things are illegal that this goverment has willingly done, rules don’t stop tryants and power simply attracts them.
For once, I agree with Nick Clegg who wrote in today’s Independent :”The Queen’s Speech will be dressed up as the way to ‘build Britain’s future’ when it will be little more than a rehearsal of the next Labour Party manifesto, an attempt to road-test policy gimmicks to see whether they might save this Government’s skin.”
HM Government, and their associates are just a bunch of looters trying to hang onto the swag. If a bank is functioning properly, the accounts are reliable, and the profits justified high salaries, so be it if the pay is high, and if those recieving them pay their UK taxes.
Wasn’t one of Speaker Becrow’s pledges when he came to the position that he would drag any minister over the coals who made announcements on the Today programme rather than in the House? In other words the business of government should come before the business of politics. Will be interesting to see if Gordon Brown (or the Leader of the House or whoever is responsible) is taken to task over this.
Seriously, I’m not sure if the Queen’s speech counts as a ministerial announcement or not but it leaves a funny taste in the mouth when these things happen. It’s like Gordon Brown when he assumed (and he certainly did that) the Prime Ministership he promised the nation a new type of government free of spin yet we now look back at the Blair and Campbell double act with a sense of nostalgia for the good old days.
I think it’s this rather than expenses (sorry for saying the e-word) that really riles the public – being treated as fools. Expenses just gave us an excuse to have a bloodletting.
As for bankers bonuses nothing really needs to be said about that, it should be obvious to anyone that this is simply a vacuous policy from an intellectually bankrupt government. Much along the lines of Harriet Harman’s risible ‘Court of Public Opinion’ speech after Lord Myners approved a bumper payoff for bankers to compensate them for losing their jobs!
“Many of us do find excessive bonus payments unacceptable. If the bank paying big bonuses is already in receipt of taxpayer subsidy, we say there should be no such bonuses for the higher paid. You do not need an Act of Parliament to stop such bonuses. Taxpayers own these banks, so as owners we can put in an appropriate remuneration policy. What’s stopping the government from doing this? Why does it do the opposite, and offer huge bonuses to executives in loss making banks? “
Yes I agree as we are currently major shareholders in a number of the banks. One has to wonder at Labours incompetence in managing the often shocking and inappropriate levels of money paid out in bonus payments. I worked for a few years at Nationwide a mutual building society that was and is proud to be different. I cannot of course comment on the Bonuses paid to the senior management, but the bonuses paid to every member of staff were very welcome, and paid for either a Summer Holiday or Christmas for many staff. We are certainly not against bonus payments for those who it is regrettable to say, are often paid relatively poorly. I would add that pay at Nationwide was related to performance and did rise quickly in my case.
“If a bank reaches the point where it needs taxpayer support, owing to poor management and weak regulation, then at that point the government can insist on bonus cancellation as part of the deal to support the bank. Why didn’t they do this when they moved against RBS and Lloyds?”
Indeed not only do Labour appear to be the party of high unemployment they do not appear to have the courage of conviction when it comes to stamping out such blatant abuses of the tax payers investment.
Brown of course has a bad record in the sense of taxpayers investments. Throwing away much of our Gold at rock bottom prices, so he could cosy up to the EU, by buying a very few Euros. Seems rather than being prudent he is simply stupid.
Of course we will all be better served if the publicly owed parts of the Banking sector as sold of and new banks created. I do not trust Labour to do anything properly so again it is vital that the next Government is a determined Conservative one
“.The regulators we are told, armed with this power, will be able to stop excessive risk taking. They can already stop excessive risk taking if they can identify it”
Although this may be to take the thread of subject just a little. There will be a number of popular alternate drugs banned on the 23rd of December. Here I must agree with the government, in regard to BZP, and GBA precursors, all of which are clearly dangerous. Indeed BZP was being sold in strengths well beyond sensible. The other ban relates to Cannabis analogues that frankly have not been tested and which are sprayed on herbal mixtures. Clearly such excessive risk taking should not be encouraged and in the case of these few new bans, they do make sense.
Sorry I must remember to keep the jargon down. Mr O being President Obama and his misreading of the strengths of Dave and his team. I do apologise, as they say on the American side of the Internet, “my bad”. Personally I cannot see any logic in voting for UKIP, it will only weaken our ability to fight Europe. If the leaders of UKIP were indeed so committed to being outside the E.U. you might think, as principled politicians, they would
give up their seats and refuse to take a penny from the E.U. Frankly the more of us who vote for D.C. the stronger our hand will be. I am in favour of being in Europe but prepared to get out if the Continent again slips into psychotic politics. I would also point out that had we not become split on the E.U., we would have been the party in power, and we could be drinking to the good health of a newly liberated Great Britain. As it is, we frankly only have ourselves to blame. As for UKIP its going to be a wasted vote and as a result you will be represented as well as you could have been. Bin & Boo are both sceptical of Europe, we are indeed a euro sceptic party. However the leaders of UKIP are in my opinion, playing a lot of people for suckers. As I have said if they meant what they say, wouldn’t they demonstrate that by resigning their seats? As it is you would be far better represented in the E.U. by the Conservative party, who at least are being honest, and not pretending that withdraw would be either easy, or frankly in the national interest. The most important consideration right now is getting our economy running again. So market confidence has to be our overriding concern, any question of a frankly crazy withdraw without negotiation would send many business men and women scurrying as fast as possible for the Exit, taking their money and vital skills with them. So far from being lightweights we are Rational, sensible and honest and determined to what is best for G.B.plc.
Sorry that should have been:
So far from being lightweights we are Rational, sensible and honest and determined to do what is best for G.B.plc.
Sorry about the missing word there.
I hope The Tory HQ is better prepared for Labour nastiness than they were for the equally obivious Lisbon Treaty bull dozing.
Sorry John I have put these posts in the wrong place, so please do not publish them here…I will try to be more careful in future
Ross.
Are you going to vote against the 50% tax rate as Boris argues in the DT today?
JR “They can already stop excessive risk taking if they can identify it. ”
On TV last night a city trader said “‘Never forget that banks are populated by greedy, ruthless, clever people and they will find ways around this”
Why don’t HMG recruit some of the poachers as gamekeepers?
Oh.
I guess they have.
That was the problem.
ManicBeancounter Reply:
November 17th, 2009 at 7:57 pm
On the subject of greed and ruthlessness, it is worth quoting Dr Bernard Mandeville (a 17th century writer)
“the worst amoung the multitude do something for the common good”. This works so long as there as there are checks and balances. In a free-market economy the excesses lead to a downturn. In the last couple of decades, when there has been signs of a downturn it has been checked. First when the dot.com bubble burst and then after the terrorist attacks on the USA in 2001. It was not helped that on both sides of the Atlantic government spending increased, providing a fiscal stimulus to fuel the fire. The market-based checks and balances were undermined, and the goverments cheered on the risk-taking.
There is a gross conflict of interest between a democratic, but valueless and image-consious government taking responsibility for controlling the financial system. Having nominally-independent regualtors and central banks does not help if they are imbued with the same philosophy of short-term appearances over long-term substance. The lessen from this crisis is not that greed can bring down the system, but that we are limited in our knowledge of the global system. Therefore, we should not reign in the energies of the selfish and ambitious through arbitary power. Instead we should look to providing underlying stable structures, letting the market adjust for the minor excesses. It is only if that adjustment gets out of control should the government step in to correct.
I don’t understand the bonus thing is how do I determine whether a bonus should be paid.
Let’s say I work in Credit Derivatives at a big global bank.
So what does this mean – I’m basically providing lots of insurance policies against bankruptcy. I may have 10 traders in the UK and 10 in the US and 10 elsewhere. I may have 100K+ trades on my books going back 10 years and going forward 20 years.
I have booked back to back trades on a lot of the trades – so if Ford goes under I’m hedged out and my only profit comes from the margin on the two trades. So I have to net out my trades to figure my net risk. But when doing back to back trades two different traders may have done bought and sold different sides of the trade, so calculating net exposure may have to be at the desk level. But what happens if one trader takes more risks – do his risks effect all the other trades on the desk?
So what happens when I leave the bank. Is my involvement in all the trades I have made kept on the record. All the trading systems have a login name but it is different to the windows login and it is not linked to the personnel records. Bonuses are only calculated at the end of year for the traders who are active on the system. User names are left on the trading system for audit purposes and can be looked up on a trade by trade basis – but there would need to be a new application that links usernames and trades that needs to be written to keep track of these trades over the next 5 years.
What happens for example if the notional on the credit derivative is increased? Does the new notional get assigned to the new trader or to the trader who originally made the trade? Does only the marginal increase get assigned to the new trader even though the client was about to decrease the trade but the trader then persuaded them to increase it. Does the new trader then have to book the what the client was possibly thinking of decreasing it by and then off set it against the increase they needed to protect their business?
So if risk is measured across the whole desk then is this just the UK desk? Does it include the US desk if the book is passed from the UK over night? What happens if a trader in the UK asks a trader in the US to cover a position because he has to go home because of his sick child? Who is responsible for the risk? Are all these intentions recorded?
What happens if my bond and equity desk are hedging out the underlying on the credit desk as a form of back to back hedging? Does this mean that the fix income desk, equity desk and the credit desk have their risk capped in synchrony? Sounds to me like all trading desks are interlinked?
What happens if my bonus is capped / pared down – does this mean I’ll take smaller or bigger risks to make my bonus bigger.
The whole thing is total rubbish. It will never work.
How about a plan to get this country manufacturing please.
We have all the usual ping-pong about debt and tax etc.
How about optimising all policies to create a manufacturing economy.
I think your analysis is correct. All these attempts to lay political traps for the Tories are just far too smart for thier own good. Even if Brown manages to score a point or two it won’t even register outside the Political Class and the Westminster media.
People just don’t care any more. We don’t care what Brown or New Labour say about anything. Brown might think his latest too-clever-by-half wheezes on parental leave will win him votes but I suspect most people are more concerned about the state of the public finances and thier own job prospects to care.
The country is falling apart and Brown continues to arrange his window boxes and challenge the Tories to swap his crocuses for tulips. His failure to appreciate or acknowledge just how unpopular he is will be his memorial.
That said, considering the mess that New Labour has made of things Cameron hasn’t got anything to to sing about. The Tories should be utterly ashamed that they’re only 14 points ahead considering the state of the nation.
Good Evening John
Sorry to bother you on a different subject but many of us “Workers” (you know people whom generate wealth) have become alarmed by news coming from Holland. It seems that the Dutch government is to force by 2012 GPS tracking of Everyone’s car……24/7!
The main use is of course road tax, but it could very easily be used to for speed detection and there is also the question of civil liberties. I & other were wondering about your views on this subject?
Cheers
Mike
I wonder of Gordon Brown and Alistair Darling have it in mind to retain the government’s shareholdings in RBS and Lloyds/HBOS, the theory being to use their share of the profits to help finance a high level of public expenditure. There’s a problem with this theory; after a while even profitable companies in the public sector become unprofitable because the necessity to make profits to survive has been removed.
Paradoxically, it might be best to let the CEO of RBS have a bonus but only if he makes substantial profits. This would incentivise him to sell off parts of the RBS empire more rapidly than he otherwise might. Would something similar work with Lloyds?
Adam Collyer Reply:
November 17th, 2009 at 3:50 pm
Why “paradoxically”? The same logic applies to the private sector.
It is not really surprising that nulabour have dumbed-down the Queen’s Speech and all things to do with the Parliamentary process – our government is now the EUSSR in Brussels and there is nothing these MPs can do now. Why don’t the tories tell the truth for a change with the announcement that our debt will be halved in 4 years time – that is an EU Directive – we have been ORDERED to cut our debt by 2013, no doubt, so we are eligible to go into the euro. When will we be made to drive on the Right?? Just because Napoleon was left-handed!
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