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Monday, 11 April 2011

Running the world is too difficult for politicians

Three things have come to light over the weekend that have shown that letting politicians meddle in things they don't understand can be disastrous, and they all relate to banking, and I could have told you that they would all end in tears.

#1. First of all we have Gordon Brown's admission that putting the FSA in charge of bank supervision was a mistake, covered by the BBC here.  In effect the most useless chancellor and prime minister we ever had said that the people behind setting up the FSA (i.e. him and Ed Balls) didn't understand that banking supervision was a matter of more than regulating banks individually, but somebody had to oversee systemic risk.  As the initial investigations into the banking crisis discovered, the FSA didn't think that liquidity risk was in their remit because nobody had told them it was.  They just assumed that responsibility for monitoring liquidity and market activity remained with the Bank of England.  Trouble was, nobody told the BoE.

#2. Then we have the Vickers report out today, recommending the segregation of licensed deposit taking from speculative or principal trading, and as a tax payer I have to say that is a good thing.  Expect a wailing and gnashing of teeth from bank traders who will say that this will raise their cost of funding, but quite right too. Why should a commodity trader get a cheaper source of funds than any other trader, just because he is trading for a bank that can fund his trading book from government supported low cost retail deposits. To allow the extent of trading within retail banks has been political f***-up #2 of the last decade.

#3. And last of all, also from the Vickers report we have the suggestion that the LLoyds/HBOS retail network will have to be broken up.  You remember, the one that the prime minister of the day said Lloyds would be allowed to keep if they would do us all a favour by absorbing HBOS, and getting the government off the hook, an idea warmly embraced by the banks chairman, Sir Victor Blank (proposed for a knighthood by the Blair government in 1999), but less so by the chief executive. So if you are a long suffering Lloyds shareholder who has seen your investment in the conservative but stable bank wrecked by government pressure, you will now see the assets that you acquired being sold off at fire-sale prices because what Mr Brown told your company's management was palpably false.

1 comment:

Demetrius said...

Yes, indeed, and when it comes to politicians making military decisions you get idiots promoting interventions that they claim will succeed without a shot being fired. The last time that happened was in the Raj around 1830 when those involved had swords and used elephants.