Flashback : Brown 2005 Speech on “Light Touch Regulation”

Today’s speech will no doubt include a section about how he for many years had, with great insight, been calling for global financial regulation. His speech in 2005 to the CBI however was pure New Labour neo-liberalism, praising enterprise, free markets and globalisation. He promised the corporate class deregulation, a “new risk based model of regulation” for financial services
“no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.”

So there was no risk-based reason to clamp down on Northern Rock?

Osborne in the Indy catches Balls at it as well

“But the real prize for memory loss must go to Ed Balls. On Monday he said that those who had advocated “light touch regulation” had been, in his words, “routed”. This is the same Ed Balls who as Chief Economic Adviser to the Treasury for eight years boasted about the “light touch” regime of City regulation he had designed. This is also the same Ed Balls who then as City Minister called for “a light touch approach at the global and EU level”. The star player of Labour’s football team has scored a spectacular own-goal.”

Do they really think that Labour supporters are too stupid to notice the about turn?

UPDATE : Maybe not, LabourHome is mocking Balls’ conversion.

Peston “Fisks” Marrs Brown Interview

The BBC’s business editor Robert Peston, currently the object of the frustrations of a substantial number of City fund managers who think he should be done for creating a false market in HBOS, has fisked yesterday’s Marr interview with Gordon.
Implicitly critical of Marr for letting Gordon off the hook, Peston makes some good points:-
  • Gordon said it is the right time for the government to borrow – as if he had a choice – the PSBR could reach £100 billion. Double the budget estimate.
  • Gordon took the credit for the FSA’s banning of short selling. Does he take the credit for the FSA’s failure to monitor Northern Rock’s liquidity problems as well?
  • Brown blamed global problems and everyone else, as if he was blameless.
  • He misrepresented the real reason for Bank of England’s flood of liquidity.
Brown rightly resisted EU regulation of London’s financial services, he now says he wants international regulation. Gordon says Britain’s regulation was better than America’s regulation. The FSA allowed Northern Rock to lend 125% against the asset to borrowers. Was that best practice? Peston, Gordon’s biographer, says he is exhausted by the twisting of Brown.

Since You Asked….

Yes, Guido’s FTSE short got whacked. Had a stop-loss at 5200, so the pain ended some 250 points after the Mother of All Bail-Outs was announced by Comrade Paulson. Don’t shed too many tears for Guido, the short was put on at higher levels the Monday after the weekend Alistair Darling told us we were doomed and was traded in and out of (unproductively). The gold long is good, the EUR against GBP trade is flat.

Who really expected the wholesale bailing out of Wall Street? The Sovietisation of the Street by Paulson, the former Goldman Sachs CEO, means that never again will the U.S. be able to preach the advance of free markets to developing countries with authority. These extraordinary times have seen Treasuries bonds with zero-yield, effectively you might as well put the money under the bed.

Anyone familiar with Ayn Rand’s novel Atlas Shrugged will be able to see the coming consequences, the end of free capital markets. The voters forget at their peril how and who finances the billion-dollar chip manufacturing plants, the satellites, the billion dollar pills from high risk bio-technology that will cure disease, the multi-billion dollar networks that make us such an inter-connected globe. There will be new regulations galore, the taxpayers will be raped as they have never been raped before, it seems this is the price the U.S. authorities think has to be paid to stave off financial meltdown and a recession that could turn into a depression. The latter prospect seems a product of panic rather than reason.

The investment banking model since the 1990s was flawed not by lack of regulation, it was flawed because of poor governance. Traders and management were incentivised to take risk for reward with minimal personal downside. Bank shareholders have lost money hand over fist whilst their hired employees have been paid hundreds of millions. The complex derivative structures that underpinned sub-prime lending were opaque to the point of incomprehensibility.

The banning of short sellers is a side show, it is merely populist politicking. It will make conservative hedging very difficult, it raises the cost of capital to corporates and it will not change the underlying fundamentals. It will also create liquidity problems and a whole host of technical difficulties.

Are banks safer because it is illegal to short them? Has liquidity returned to the money markets? Are mortgage assets recovering? No, no, no. Unless Paulson announces a plan to put U.S. taxpayers on the hook for billions of dollars in risky sub-prime mortgages this weekend, this stock rally will come completely unstuck… and Guido will be short stocks again.

Gordon Brown’s Sky interview, where he blamed investment bank’s off-balance-sheet liabilities for the credit crunch, was an unconsciously revealing moment. What is the trillion pounds of debt in PFI contracts and unfunded state pensions if not Gordon’s very own off-balance-sheet liability? Gordon and Ed Balls designed the world’s biggest off-balance-sheet structure to massage the PSBR, it will have to be paid down by generations to come. Brown’s legacy will be that British children, and their children also, will be paying off Gordon’s debt bubble.

See If Gordon’s Sums Add Up

Give it a go here.

“Hello is That the FSA?”

If Lloyds Bank’s Victor Blank was talking to Gordon Brown about take-over plans for HBOS at a cocktail party wasn’t he breaking the takeover code’s strict rules on secrecy? Shouldn’t somebody report them?
Yesterday the headlines said “Gordon Brown orders Lloyds takeover of HBOS”. Does Brown think he can order Lloyds shareholders to vote for the deal? This is a Class 1 transaction, shareholders will decide, not Gordon.

The FT agrees with Guido, is it now official government policy to have the regulators lie to the markets via the media? If the FSA itself is now lying and breaking the laws it is supposed to enforce, is there any point reporting law breakers?

+++ Despite Central Banks FTSE Closes at New Low +++

Despite a $180 billion coordinated global liquidity flood by central banks the FTSE still closed lower at 4,880. Huge blue chip U.S. investment bank Morgan Stanley is rumoured to be in trouble and is losing clients worried about the security of their deposits. A Chinese investment fund is a rumoured buyer…

Perils of Tripartite Regulation

A co-conspirator points out just how brilliantly the tripartite authorities (HM Treasury, Bank of England and the Financial Services Authority) are doing joint up regulation.
Commenting on the soundness of HBOS the FSA yesterday morning said it was:

“a well-capitalised bank that continues to fund its business in a satisfactory way”

Alistair Darling this morning:

Alistair Darling added that without the deal the outlook was “very bleak indeed…We were onto their (HBOS’s) problem for several weeks. It didn’t just suddenly happen…”

So who was lying?

The architecture of City regulation is a mess. The FSA is despised and nobody in the City respects it. The Bank of England has been undermined deliberately by Gordon because it was a threat to his authority. The FSA should change remit and look after exclusively retail customer’s interests and the Bank should keep an eye on the City and re-take control of the Debt Management Office. The Treasury and the Bank should swap staff regularly and be on friendly terms, with the Treasury executing political influence through the Bank. The Bank is closer to the markets than the Treasury and so it should be to inspire confidence in the City…

The Greatest Capitalist versus the Geeks of Capitalism

As the enemies of capitalism declare the death of the greatest and most productive form of organisation that humanity has ever achieved, it seems appropriate to quote what Warren Buffet, the greatest capitalist of our age, warned about mortgage derivatives in his annual Berkshire Hathaway letter of 2002:
… derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running.

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.

Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Six years after his warning those financial weapons of mass destruction have exploded. AIG, Bear Stearns and Lehmans were full of financial geeks, the highest paid mathematicians on the planet, completely lacking in sense. The pre-cursor Long Term Capital collapse showed that even nobel laureates can be idiots.

Derivatives have their place in the financial markets. They are great tools for hedging and re-distributing risk. However when the PhD wielding geeks started designing derivatives that even the Sage of Omaha could not understand, the boards of the investment banks should have asked what was happening down in the dealing rooms. That they didn’t is why they have now collapsed.

When the investment banks were owned by partners who had all their capital in the firm, the partners were keenly incentivised to control risk. When the investment banks became shareholder-owned global behomeths managed by annual bonus incentivised executives, that risk control was lost. Being fired is not as feared as being totally wiped out financially. That is a crucial difference.

Capitalism doesn’t need to be regulated for risk, it needs more capitalists like Warren Buffet who keenly feel the risk and reap the profits and losses that flow from that risk taking.

+++ HBOS Collapses 38% +++

UPDATE : Rumours circulating that Lloyds are looking to buy HBOS on the cheap. HBOS slumped 51% at one point, now bounced to off 19%. FSA has released a statement saying HBOS is well capitalised…
UPDATE II : Robert Peston’s reporting has been, errm, interesting.[…]


+++ FTSE Drops Despite AIG $85 Billion Bail-Out +++

FTSE looks set to fall below the psychologically important 5000 level….



Pensions Plundered, Stocks Slumping, Gordon’s Dead-Hand

Some commentators (who should know better) warn that in these times of economic turbulence we should keep Gordon at the helm. It is a desperate line seized on and spun by his few remaining supporters. Who, they ask, knows the economy better than Gordon Brown?[…]


To the Sceptics of the Jonah Brown Curse

Some dare to question the accursed power of the one eyed son of the manse. When Guido pointed out that Lehman’s HQ was doomed from the moment Gordon performed the opening ceremony some questioned if these events were really related. Take note of this morning’s Times City Diary:
…the writing was on the wall for Lehmans after they moved to Docklands and got Gordon Brown, whose presence at any sporting event seems to guarantee a home team defeat, to open the new building for them.


Some Numbers for Gordon

Gordon is off to read out tractor statistics to the Scottish CBI, here are some taken from that OECD report. This speech is rumoured to have an element of mea culpa…

Falling worse than most in Britain…

Lately we haven’t heard Gordon spin that Britain is “best placed economically” to weather the next 12 months or that he is making “the long term decisions” needed.


Crash Gordon Now Copying Failed Old Tory Ideas

Lamont told Sky News last night “Far be it from me to criticise myself, but I do not think that the Stamp duty holiday we introduced made any difference at all”. Quite, why would anyone hurry to save 1% on Stamp Duty when they can wait and save even more.[…]


Crisis, What Crisis?

Sterling is down 14% against a basket of currencies since Gordon Brown became PM and Alistair Darling took his old job as Chancellor. Oil is priced in dollars…


Flashback : Labour Government Sterling Crisis

If Britain, as a result of Gordon’s financial genius, is so well placed to weather the international financial storm, why is the pound at an all time low versus the euro? Why is it falling against a broad basket of currencies?[…]


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