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And whilst the BoE rearrange the deckchairs, and play cat and mouse with Brown and Darling, we note that various fixed rate mortgage deals are getting more expensive due to the swap rates going up.

So, for those who have survived the downturn to date courtesy of cheap mortgage payments - be warned.

I also note that Lord Butler accuses the Government of "putting its political interests ahead of the national interest". Nothing new there then.

Doesn't that line sum up just about everything the Government has actually done (rathet than just made the right noises about) in respect of the downturn?

Leaving the expertise in one spot creates a critical mass - the whole is greater than the sum of the parts. Experts interact. The fewer barriers that exist to that interaction the better. Institutions often conflict with each other.

The problem of the absence of joined up regulation goes back to the delayed extinction of the woolly mamouth recently discovered roaming the corridors of No 10 after it found the connecting passage at No. 11.

Banks directors should get a panic attack when there is a visit from the regulator(s) in much the same way as headteachers with the arrival of Ofsted! Little chance of this with the present incumbents at both downing street second homes. Banks that are or become too big to fail should have direct public supervision if not ownership. Dare we look forward to Vince Cable as chancellor in a coallition government next year?

We need a modern UK version of the old US Glass-Steagall Act.

We must separate the retail banks from the casino investment banks...period.

So the Governor thinks it is "pretty tricky for the Bank to deliver financial stability if it has no power to tell an HBOS or RBS that it doesn't like the risks they're running".

Taking the Lloyds/HBOS situation as an example. Blank and Daniels got eyeball to eyeball with the Board of HBOS and later have said that they carried out due diligence and that everything in the garden was rosy. That must have been the case otherwise why would they have proceeded with the bid. Lurking in the HBOS books was enough toxic debt to have sunk the Titanic. If a buyer can be duped as the Board of Lloyds was how does the Governor think he could deploy enough resources to spot what the Lloyds board didn't? Why didn't he have something to say at the time - was it just a lack of power, of resources, or of a simple understanding of what was really happening? Where was Brown and Darling? Or Cameron and Osborne? Or the legendary Vince Cable?.

Did the Board of HBOS know that they were selling Lloyds a pup and if so why have'nt they been prosecuted?

The Lloyds/HBOS bid will make an interesting case study, but for now it serves to demonstrate how much power the Governor would need to be able to spot a repeat performancee from another organisation, bank or not.

What we really need is a NEW GOVERNMENT followed by the annihilation of the FSA and the re-instatement of the INDEPENDENT Bank of England with all necessary powers to prevent Chancellors screwing things up by gross (£trillions) overspending and then blaming everone but themselves. V. Cable has the right idea on ³ÉÈË¿ìÊÖ news this morning.

The good thing about rats is when the food runs short they all start attacking each other.

The Tri-partite system needs to be renamed the three wise monkey system as the BoE saw no evil, the FSA heard no evil and the chancellor spoke no evil.

The really telling part of this is that the current Prime minister was the one who came up with this bananas system - so in line with the national ethos of promoting failures - after screwing up the financial system he was given the job of screwing up the country as a reward!

Not that anyone else comes out of this any better, George Osbourne may be sniggering to himself, but I haven't forgotten that the Tories wanted to prevent the independence of the BoE so they could continue to manipulate the base rate for political gain - as they did in the 80's- at great cost to the country.

All parties are missing the vital point that the inherent problem with the free market system is the behaviour of the participants (humans), whether it be herd mentality, greed, illogical fear, gusto etc.

Now if they work out how to control and modify human behaviour (without repression) then they will have fixed the free market system. However when they do that they will also have solved all the problems with crime, health, education - and just about every other problem in the world.

Good luck with that.

It is open warfare now between the Govenor and the Chancellor. Despite the way Robert puts it, this was a very aggressive speech. In it mervyn King effectively In effect he said vote Tory at the next election.

I am surprised Robert that you have not commented on the Governor speech: that the large banks should be broken up. With such large institution carrying out riskier investment banking, the Taxpayer is at risk through moral hazard. Do you think the large banks should be split up?

People survive in these areas by not being attributable, and the tripartite arrangement allows this to happen.

It must always be crystal clear who is responsible for what area of regulation, otherwise everyone disappears like rats down any available hole.

Bank of England must be solely responsible for the regulation of all financial institutions, with the power to enforce compliance.

You do not have to be a genius to work out that HMG were involved in convincing the FSA to ignore the obvious truths, to have done otherwise would have derailed their borrowing / spending plans much earlier.

Years ago left wing politicians would talk about the need to be able to 'give orders to bankers, not take orders from them'. They'd be routinely excoriated for this sort of thing by the Tories and their friends in the media.

Haven't times changed eh?!

"If Mervyn King's waspish remarks damage the economic reputation of the government, surely that must be good for the Tories."

Oh come on. The government has done the damage all by itself.

"If the Bank of England can't instruct a bank to mend its ways when that bank is doing something perceived to be too risky, then what chance is there that the bank would cease and desist?"

Absolutely none.

Bankers and politicians are in the same bed. Until there is a divorce nothing will change.

it seems most of these bloggers are tories, when in fact the only government to give any independance to the BoE was this one, business isnt all about being served by one party, we have some green shoots starting and i fully hope they do sprout though i am very caucious but if it does start to turn round Brown and Darling must be given some credit for the way they acted when others didnt want too

I worked for a small stock exchange a while back and it gave me the impression that the FSA was really concerned with the micro-management of individual trades - It was a commercial police force.

What it seemed to lack was a real understanding of macro-economic policy and strategy. It simply did not seem to be capable of handling things at this level. It couldn't see the woods for the trees. So maybe this is where it should be re-focussed - down to the level of the individual trade, transaction or consumer.

The Bank should be the 'Big Picture' overseer. After all, it already sets the interest rates via the MPC.

The Treasury should be there to give political backing to the activities and roles of the other two and handle Public Spending as part of the Bigger Picture.

From the speech last night, I reckon Lloyds TSB is now considered too big and will be broken up in the next few years.

Also, I have come to the conclusion that the way new instruments are introduced to market. For a while, I have blamed the credit rating agencies for their failure to properly rate the toxic instruments. Yet given how fast these new instruments can be devised by the Masters of the Universe, it is impossible for the agencies to really understand a product with no track record.

Therefore, I reckon ALL new instruments should start at the bottom of the ratings pile and only gradually be allowed to rise to AAA status over at least a generation ie 20-30 years. By then, they will have a track record.

It's clear that the system of "regulation" (or lack of it) that Brown set up was an astounding failure.
I was impressed with Mervyn King last night, and thought that he had a better grip on reality than the industry or the government.
Perhaps a "regulation committee", with Mervyn King, Vince Cable and other proven "good sense people" on board might not be a bad idea.
The public now needs protection from our errant banks.
Mervyn King realises that, Alistair Darling didn't seem to, and Brown doesn't seem to get it at all.
And the head of the UK "regulation committee" could be.....Barrack Obama.

As a taxpayer I find it completely unacceptable that I should underwrite the risks high street banks take playing the markets.
As a boss, i've always stuck to the premise that a ship needs one captain. Let the BOE handle the financial business' and the FSA deal with the the issues that arise for consumers of financial products.

With regards to my first point, the banks' desperate trading to make up their losses leaves them one unexpected crisis away from collapse with us left holding the can for their losses.

To call our government's underwriting of the banks unwise is a rather extreme case of british understatement.

The FSA has not done a good job of regulating these institutions. If it had, the recent fiasco would never have occurred. I do not understand how the FSA can be relied upon to police the banks, when it receives funding from the very institutions it is supposed to police. Add to that Brown's instructions to deliver 'light touch regulation' and you have a recipe for disaster.

I think there should be a European institution dedicated to policing the banks and this institution should be funded by and answerable to member states (i.e. taxpayers). After all, it is taxpayers, particularly savers, who have had to bear the consequences of the collapse. The BOE should have power to act on the advice of the European regulator. Banking is a global problem, as GB tirelessly reminds us and as such it should have wider solutions. I have no confidence in the FSA and I agree the problem is too large for the BOE to do without help.

As well as the institutions its probably worth thinking what capabilities we want our financial system to have and which ones we would like to restrict.
For example do we want mortgages securitised so the link between borrower and lender is lost.Connected with that, do we want to channel foriegn funds into our housing market. Clearly owning a house does not give you access to future foriegn currency earnings to pay capital and interest on such loans. Where as foriegn money invested in industry does have potential to generate foriegn currency earnings.
Also manufactured goods are traded in a world market and so it makes sense funding in that way. But funding more local markets on a global scale seems to be destablising both to the local market and the global financial system.
The other obvious candidate to go is the unmatched derivative. Obviously there is some need for derivatives such as currency swaps. If you are a UK widget maker with a large order in euros it makes sense to cover the currency risk, ideally by finding a euroland supplier who wants his sterling risk covered. But once banks started writing there own swaps this and the many other derivatives became destabilising speculation. How exactly you reform this. I am not sure but it must be reformed.
If Warren Buffett is concerned about derivatives I think we should listen. as he does seem to know a thing or two about investment

I think it would be worth listening to Professor Geoffrey Wood who told the House of Lords Economic Committee on Banking Regulation ( you know, the Committee you and the Beeb dont mention for some reason who took some expert advice)

"in the present tripartite structure it is clear that nobody was actually in charge ... So we do need to have a modification to the tripartite system where someone is clearly in charge from the beginning"

A talking-shop caught unawares !

The Bank of England is Lender of Last Resort. It is said that the BoE have the macro-economic credentials to supervise the macro-prudential elements. It is said the FSA have experience of the micro-institutional supervision. You need to have a lead executive decision-maker with the big picture, dont you? I dont think politicians at the Treasury could be trusted, do you? So, why not the Bank of England.

In this merger-hungry world, why not merge the Bank of England with the FSA? Problem solved.

What would we call this new entity?

5. At 10:15am on 18 Jun 2009, majorroadaheadagain wrote:
'Taking the Lloyds/HBOS situation as an example. Blank and Daniels got eyeball to eyeball with the Board of HBOS and later have said that they carried out due diligence and that everything in the garden was rosy. That must have been the case otherwise why would they have proceeded with the bid. Lurking in the HBOS books was enough toxic debt to have sunk the Titanic.'

I don't know whether you were being deliberately ingenuous or just naive here..LLoyds took over HBOS because they were forced to by the Govt,obviously no sane businessman would be prepared to take on the horrifying stuff that still 'lurks in the books' of HBOS. Thats why 260 Billion Pounds is being set aside for this Treasury Insurance Scheme (Thats 260 billion PURELY to cover HBOS' liabilities..think about that for a moment when you look at the Stock market going up and talk of these Green Shoots)

In the same way that Ken Lewis of Bank of America was forced to take on the remnants of Merril Lynch against his and his board of directors will (Disregard his mealymouthed backtracking at the senate hearing last week, there is enough documentary evidence to prove that BOA wanted no part of Merril until the caring sharing Obama administration threatened to sack Lewis and the entire board of management unless they did what they were told.)You can blame Blank and Daniels for having no backbone, but not for ignorance, they knew EXACTLY what kind of a basket case they were taking on..

All that is required is some hard-nosed political leadership and a pair of steel capped legislative boots.

The Governor can play these games because he knows the Prime Minister is just an Aunt Sally. The City also knows the Prime Minister is an Aunt Sally and aren't they extracting the urine like there is no tomorrow!

The City needs to be served notice that it is now behaving contrary to the economic, political and social interests of the country. Same with the unions in the late Seventies, now the City has set itself up for some rough handling.

All we need is a government with a mandate, a determined Prime Minister and a Treasury team uninfected with the social diseases of the Square Mile. If the UK government can't do it then we might as well subcontract the job to Europe.

Too large to fail banks ,given to the limited overal number of them possible, creates oportunities for price rings or false markets within structures .

This in effect produces a false market in derivatives that are only partialy insured
The now defacto first 20% good part is insured,with the bulk AAA part that was thought to good to insure now defacto the bad part.

Lord Turner has expressed a reluctance to reintroduce a GlasS Stegall type arrangement that would limmit bank size and function.

Could the reason be that breaking up the banks now would effectively crash the resultant unmanageable consequence,rather like a vampire disintegrating in the light of "pay"day.

Presumably Brown would like the bank Vampire to leave the nest under a Tory watch/bust,in which case he can boast about "his record"

If there are no real assets to back the city paper wealth, then two things are possible

1 The pension funds crash etc etc.

2 The state guarantees those bad/nonexistant / pretend "assets" and sells them to the next generation, ie a super ponzi scheme backed by the taxpayers that crashes when the babyboomers retire due to insuficient replacement retirement savings ponzi income to meet outgoings.

Gordon effectively gave away the golden eggs, ate the goose and is now tugging on the wishbone with Cameron for the right to operate the super ponzi, leaving the banks to "carry on claiming" the multi billion pound madoff/creamoff from milk that now only exists in cyberspace and the minds of the certifiably insane running the regulatory authorities whos bonuses were no doubt indexed to the increasing ponzi turnover made possible under their watchful ayes.

13

I am not a tory blogger but that doesn't stop me from asking why Brown and Darling should take any credit if there are any green shoots as you suggest there are. All they are doing is trying to clear up their own mess, and if they succeed (which everyone must hope they do) it would never make up for the carnage they wrought on our economy and (much more importantly) with our peoples' perception of financial probity. They have helped engender a society where a lot of people believe that the most important thing in the wallet or handbag is a credit card. They have destroyed savings and massacred pensions. They created a casino environment in which spivs prospered and they have been, at best, economical with the truth about almost everything they have touched. When they go, as they surely will, it will be like a great cloud lifting.

The tripartite system is shown up as the act of blatant vandalism it was, wreaked for the simple sole purpose of creating a false boom (just when Crash was trumpeting no more booms). Pretty criminal when you remember he inheritted the strongest economy this country had had in decades. So yes, Gordon Brown, Tony Blair (let's not forget him) and Alastair Darling are squarely to blame, full stop. The bankers were just fulfilling Labours cynical hopes and expectations.

As an observation, the FSA was packed with second rate bankers anyway. Why second rate? Because the real, ahem, "talent", was still at the banks picking up obscene bonusses.

As for banks being to big for one regulator to kick - how utterly ludicrous to suggest. They are subject to the rule of law, and if the BoE says no then that must it, no argument. Size of balance sheet irrelevant. Being savaged by two moths is not going to make anyone flinch. Still, it is quite true the banks need downsizing anyway, and retail split from merchant banking.

And yes, Sutara at #1, quite right - first ripples of some nasty inflation to come methinks.

''It's all about me, it's all about me baby''.

''PM,the Chancellor and a whole political party vie with the Governor of the Bank of England in claiming due praise for ''saving the economy''.Shock,Horror!!.

Who gets the praise, gets the power....Another institution in a large building trying to justify it's enormous salaries and expenses.

''The Tale Of One City''.

Anthony_analyst @ #18 - quite rgiht about derivatives. The warning were there right from the Drexel "Daisy Chain" of the early 90s. In this tripartite era of unregulation, though, it was never going to be picked up until too late.

And Sizzler944 ' ~16 - dead right aboutthe desperate trading, but that is what Brown and Darling were banking on (no pun intended). That and the inflation to come, to devalue the debt they've run up. In short, to Hell with us, the so-called remedies are all about them them them just as was the artificial boom before.

Blame incompetent bankers, not the rules

21 City Gambler

You did misunderstand my point. I believe that LLoyds TSB shareholders were either duped (in the case of the million or so small shareholders who have no power) or backed the wrong horse (in the case of the institutional shareholders who had big stakes in both companies and who thought it was a good way of saving their HBOS bacon (they finished up losing almost evrything on both companies).

Clearly there were meetings between the Lloyds and HBOS Boards, and in any action that might arise from LLoyds TSB shareholders it would be important to know what HBOS were saying about their company and what they allowed Lloyds to do in the way of due diligence. Did they lie, or misrepresent in any way?Everyone knows the Government wanted the merger to go ahead to save another Northern Rock at HBOS, which was falling like a stone, hence the totally unheard of waving of MMC considerations in flagrant disregard of competition. I bet no similar bid would ever get through giving over 30% of mortgage and savings business to one bank.

My point here is that there are guilty parties, and we need to know who they are and what they did. If Lloyds board went ahead with a bid in full knowledge of the woeful state of HBOS books then that would be criminal. Similarly, if the Government had any similar idea then they are also guilty - in my view they must have known something bad was in the books to have waived all controls over the merger.

If the Lloyds board was not guilty in a criminal sense then the only criticism that can be levelled against them is that they were stupid, unprofessional, neligent, and destroyers of shareholder value including in millions of pension funds. This is way outside the credit crunch and while I am loath to use the conspiracy word something that will have to be investigated

20. At 12:12pm on 18 Jun 2009, lukeo1980 wrote:
In this merger-hungry world, why not merge the Bank of England with the FSA? Problem solved.

What would we call this new entity?
---------------------------------------------------------------
Why not call it Waddinkgtons ,in fact why not merge it with the famous noddy board game manufacturer and then they can all promice to pay the bearer a thousand laughs on demand .

They could do a promotional campaign based on "WHEN YOU SMILE THE TRIPEAAARTITE HOLE WORLD SMILES WITH YOU"


In reality the banking fraternity forgot about reality and were still playing monopoly till the only assets left were the shoe,iron and racing car and a pile of get out of jail free cards.

Sorry, maybe Im being thick here, but the way forward seems glaringly obvious to me.

The last thing we need is for everyone to be taking positions on this. The responsible people (Masters of the Universe) are, so we keep being told, highly intelligent. They should therefore have the wit to be able to sit down together and thrash out not only a workable, but a highly practical and effective solution. A committee might be formed including Alastair Darling for the Treasury, George Osborne and Vince Cable for each of the other main parties; John McFall for parliament, Mervyn King for the Bank of England, Howard Davies for the FSA and possibly a few representative Chairmen of the major UK Banks, Building Societies and other financial institutions. Each member could obviously be advised by members of the organisations they represent, but the size of the committee should remain no more than about 15.

Surely each of them should have sufficient experience to have a good working grasp of the system, such that at least an interim solution, subject to review and revision could be put together quite quickly in the interests of the country and the economy as a whole?

donkei (#31) "The last thing we need is for everyone to be taking positions on this. The responsible people (Masters of the Universe) are, so we keep being told, highly intelligent."

Masters of The Universe #5 look after their own, and use a masterful subterfuge in the process.

If taxpayers are always going to bail out the financial system whatever the cost, and if the banks know this and yet continue to press for a light touch form of regulation by the same system that failed to notice the roof falling in until it was too late, then the only way we can be sure the lessons will be learned is if it becomes against the law to engage in the sorts of things that got us into this mess. It is no longer a free fair market where failure is punished with the bank failing, so in return for all our taxpayer pounds and the security they bring to the banking world, we deserve proper legal protection in return.

It's high time Mandleson became the govenor of the Bank of England.

#34 telecasterdave
I Realise your joking but
Need I remind you of the old expression "Speak of the devil and he will appear"

I agree with Mervin King. The Bank of England should have the power to intervene in all financial banking, where especially concerns have been voiced. They should have the power to act in cases where there is incompetence and reckless activity. I think all banking should be sound and certain.
If bankers want to gamble and take chances with money, which lets face it is motivated by greed; they should go to another kind of organisation. Nothing should interfere with the stability of our financial institutions, which are essential to the smooth running of any society.

We might have guessed that Gordo would ban any change as it would be the same as admitting that he was wrong and he might have to apologise! There is no way that the Tri-partite system is fit for purpose!

the old adage 'divide and conquer' worked to ensure too many cooks did spoil the broth! Split the regulators and nothing was regulated. PLEASE don't tell me this was an unforseen effect of the tripartite invention!

The same could now be actioned with the mammoth banks.

I see no other way to spank the banks and make them behave themselves!

The BofE should be totally respected by all banks AND government. The arrogance shown by all concerned shows how little respect is accorded our Nation's bank. Imagine Mervyn King ringing Alistair Darling and telling him his line of credit has been withdrawn with immediate effect! Can't see that happening somehow!

Obviously nothing frightens these 'too big to fail' monstrosities! They even get away with ignoring a winding up petition when I'm sure most lesser companies would be in a total flap about it.

Not to mention regulators turning a blind eye to the rule breaking with the merger of lloyds and HBOS.

The whole banking system still stinks like a sewer and we're expected to believe it smells of roses!

It's about time Mervyn King was given his bottle of super strength drain cleaner and a licence to clean house-starting with the dissolution of the FSA.

The key point about Regulation is, surely, that it should influence behaviour and prevent acts considered to be bad/harmful/excessive that you want to outlaw. In the present case:

- the 'bad' behaviour we want to regulate is gamblers (in the City) taking excessive risks. The normal corrective mechanism, namely that they lose their shirts, is not operative since they are gambling with our money (and we seem destined to give them the shirts off our backs).

- the problem any regulator then has is how to estimate an 'excessive' risk in advance of it failing. Does a punter backing an outsider at 100/1 take an excessive risk? And is that still so if the horse comes in? The reality is that if there are specific practices that you want to outlaw then make them illegal and prosecute infractions. Otherwise you're in an area of 'double guessing'.

It's pretty clear that there could be more, and better, supervision of these activities - but it's less clear that it would actually have prevented the current crisis.

The essential problem is not so much that people were taking poor bets. It is that everyone was taking the same, poor, one-way bet: such that when the horse fell it bankrupted the system rather than the players.

Perhaps the regulators would be better off starting with a simpler rules of thumb such as "there is no such thing as a sure thing" and "exponential growth is by definition unsustainable": and then moving to correct things whenever an irrational 'bubble' starts to develop - rather than waiting for it to burst.

This would, of course, require the regulators to refrain from getting caught up in the bubble mentality - which was the real failing this time around.

I don't think a cosy arrangement between Politics & Banking will achieve anything wonderful for anybody beyond the Establishment & Chattering Classes. Banks continue to get away with daylight robbery.

If you live in the UK and you're fed up with the Recession - hit back by signing my e-petition on the Downing Street web-site. Link & details below:



The petition reads:

We the undersigned petition the Prime Minister to Intervene to limit the vicious assault by credit card providers & banks upon recession hit Britain by; (1) outlawing the anticompetitive way in which banks set the LIBOR rate, in effect operating as a cartel (2) promoting legislation to limit the interest rates charged on all forms of credit cards to no more than 3% above the Bank of England Interest Rate.

Supporting information:

Banks operate a cartel when setting the LIBOR rate. There is no prior consultation with those borrowers directly & materially affected by their decision. Both aspects may be illegal. Credit card suppliers are increasing interest rates to make good their previous negligence & lack of due diligence when doling out credit in the past. There is a precedent for setting a limit to be taken from the introduction, by the Government, of the 1% World in the Life & Pensions sector.

The interesting part of King's speech wasn't about Banks ( a slight obsession?) but borrowing when he stated that steps needed to be taken to reduce borrowing earlier and more vigorously than originally proposed. This makes Brown's (if not necessarily the Chancellor's) position that he will keep increasing spending in real terms even more ridiculous than it did already. Cuts are coming and coming as soon as this unfortunately delayed election takes place whoever wins it.

The stack of cards that the city slicksters built are now being superglued together by the Powers that be,in order to further fabricate the appearance of wealth that allows banksters & co to continue to take their prime cut out of the next generations pension savings, thus ensuring that those so called "pension investments" are reduced to nothing but paper[and supperglue] becoming ultimately no more than political promices to be delivered on by the purveyors of the caxtonian constant .

The bankers have largely escaped responsibility for their sociopathic pursuit of profitability. The cry has been that they are too big to allow default. So make them smaller and separate out the investment banking from the deposit taking side of business. Last autumn Goldman Sachs and others were allowed to turn themselves from investment banks to gain Fed funds - just what wasn't required on a longer term view. Taxpayers, savers, pensioners and those who have lost their jobs have paid and will continue to pay for the financial fiasco of the past few years. Bankers look set to repeat the tragedy if left to their own devices. Don't let's have a re-run of those events.

What is Gordon thinking about accepting the idea that future banking will still involve buying up sub-prime mortgages. How can he even think it might happen never mind accept that it will probably happen? If he has any authority or common sense he should put his big clumping foot down immediately and say enough is enough! No further de-regulation, tighten the reins introducing new regulations. I think it is a case that he cannot see the wood for the trees. Financial risks are taken by gamblers not bankers.