Saturday, February 14, 2009

Gordon In Denial About Regulation Failures

Patrick Wintour writes in the Guardian that the media missed a big financial story this week, when former Treasury Permanent Secretary Lord Burns gave evidence to a Lord Committee, in which he talked about the failure of regulation.
Burns, the former Treasury permanent secretary, criticised the banking regulation that he had - reluctantly - helped to introduce when Labour came to power in 1997.

Burns said the tripartite structure covering the Bank of England, the Treasury and the Financial Services Authority, had not properly overlapped - with the result that failed business models in British banking were not spotted. He also said the system was insufficiently transparent and in the initial stages of the crisis led to uncertainty of responsibility.

He said the tighter system of bank regulation in Spain had been far more effective in controlling dangerous expansion and regulating off balance sheet securities, the source of the much of the British banking crisis. His remarks to a Lords economic affairs committee will add to the pressure on the prime minister as he dodges to avoid being made culpable for the banking crisis.

The failures will not go away - and they were highlighted again this week by what happened at HBOS. There lack of communication between the FSA and the Treasury over repeated warnings concerning the bank.

At one point, he sounded wistful of the arrangements that had been in place before. " I look back to the world when it was just the Treasury and the Bank of England. It had been working for a very long time.

"At every level of the two organisations, people met on a very regular basis and if there were differences of opinion, a sense of accommodation was reached usually relatively quickly. Having a third member into this seems, if anything, to have slowed down the process in the early stages of cooperation."

He also criticised the lack of transparency in the new system, saying the process was obscure and adding that it would help if the minutes of the senior tripartite committee were published. He also doubted if the committee often met.

The decision to take the issue of City regulation away from the Bank, he said, meant it was hard to staff up two institutions to have the skills and the background waiting for when a crisis started to build.

Burns is neither an oracle, or a totally neutral observer. But it will be No 10's concern that as the recession unwinds, and two select committee inquiries complete their reports into British banking supervision, the issues he raised will gain ever wider currency.

If Brown could only admit some role in the emergence of the crisis, he would be in a stronger political position. But so long as he suggests a perfect regulatory system was struck down purely by a US contagion, the criticisms of authoritative figures such as Burns will ring ever louder come election time.

And who was Chancellor during that period? Yup, do-nothing Gordon. Is he in denial about his own culpability, or does he really believe he did nothing wrong?


Gordon Brown said...

Totaly unconnected to this but can Gio do this?

Marian said...

This letter from A Davies to The Independent newspaper, puts the blame for Britain’s economic crisis firmly, in a nutshell, where it belongs:

‘Gordon Brown’s insistence that the banking crisis was started by the Americans and has nothing to do with him must be one of the biggest political lies or acts of self-delusion by a British prime minister.

‘So the complete deregulation of financial markets, the setting up of the tripartite arrangements with no one in overall control, and the light-touch regulation of the FSA, which he boasted was a major reason for so many banks moving to the UK, is nothing to do with him and all the fault of the Americans. And the uncontrolled boom and the massive increase in house prices fuelled by reckless lending and six-times-salary mortgages is all the fault of the Americans?

‘That he is now claiming credit for the solutions to the problems he is so heavily implicated in, with eye-watering amounts of government borrowing, is quite disgraceful.’

Anonymous said...

From the period of Northern Rock onwards people have been commentating on the fact that the tripartite system foisted on us by Brown has been a failure a total failure.

I am not sure Brown can admit this to himself - his sense of self important superiority will not let him.

I have put it this way before and I will say it again - the whole Brown paradigm is bust, kaput.

All Brown does though is twist reality to sustain his delusion and create a new paradigm based on yet another flawed reality.

But I sense that now the people are not fooled. Faith in Brown has evaporated.

Pogo said...

Whenever Brown adds complexity (tax credits anyone?) a shambles follows.

Has he not heard the basic statement of Occam's Razor?

Chris Paul said...

There's a whole lot of post-rationalisation from bankers and the like going on don't you think? Meanwhile there's a job to be done.

Where were the Tories on regulation in each and every year since 1979? Can you recount the ways in which Maggie, Major and opposition leaders spoke out against changes in regulatory frameworks?

Or would you rather look forward and offer some positive suggestions for the hole the whole world appears to be in.

If you are going to dwell on the past:

Spanish banks did operate an older school model. As of course do the mutuals in the UK.

This may be more about governance and business choices by each institution than about the regulatory framework.

And for all the unforeseen problems we are now facing it is just possible - and in fact a Tory/Third Way argument - that the gain from the slackening will massively exceed the pain from the over-reach.

Who knows? And what about Germany eh? That arsey Finance Minister now has egg on his face does he not?

The Creator said...

Chris Paul:

The fact that the Tories may not at the time have woken up to what in retrospect were and are the obvious inadequacies of the bank regulatory system in no sense absolves Brown, its architect, of blame.

As in invariably the case with the great Gordo, everything he touches turns to dust.

Anonymous said...

Trouble is that Brown imagines that setting up an inquiry is doing something.

He really is the 'do nothing' PM until it comes to panic reactions.

brian in the tamar valley said...

One of Brown's many psychological flaws is the fact that he can't accept he was wrong, he can't do apologies. It's all in his DNA. He might imagine that hosting the G20 meeting in April will restore his fortunes but I've news for him. With more and more people out of work the polls won't miraculously zoom back in his direction, voters won't take that much notice of the G20. Cameron is winning the war of words at PMQs - you only have to note the reaction of the Labour benches as Gordon stumbles along, their morale has taken a nosedive.

Brown is so wooden, he is uninspiring and always falls back on the same rehearsed lines and soundbites. There must be huge concern among his party at the way things are drifting. At least it will be good to see Jacqui lose her seat at the next GE!

Unknown said...

Chris Paul 11.40;

Now I understand why we are in this mess, 'It's all Thatcher's fault', yeah right.

W.V. muppet

Hacked Off said...

Beat you to that one, Iain.

The Penguin

Anonymous said...

Mr Paul - on just what basis was anyone able to be critical AT THE TIME when Brown set up the tripartite agreement and the FSA?

I think you will probably find some criticism of the system on the basis of 'if it aint broke don't fix it' . But having set up the FSA one is I think entitled to assume that it would work and be properly monitored by the Treasury, ie Brown.

That this has not happened is Browns fault - attempts to blame others who were not in authority is risible ---- and desperate.

Browns model was based on the US where they have a FSA of their own and which too failed.
Funny how lefties gloss over Browns obsession with all things American.
Browns problem is simple - he thinks he knows what's going on, he thinks he understands, but in reality he is clueless he really has no idea. All he has are his own preconceptions leading him nowhere.

Alex said...

The reason it wasn't picked up by the media is that Burns was merely saying what a lot of financial commentators had been saying and a lot of bankers have known for a long time: The Bank of England did a reasonably good job of regulating the banks and knew the issues and processes well.

The FSA was a different beast, also tasked with regulating every mortgage and insurance broker, wvery unit trust, etc and banking was just one more string to its bow.

The result was quite obvious that the FSA did not look at the overall big picture risks in the banks (asset quality, asset and liability management, market exposures, risk concentrations) that really matter to the overall system, because it was too busy worrying about money laundering regulations, pensions misselling, fit and proper persons etc etc etc.

The roles never should have been combined and the really important supervision of banks should have been left at the BoE.

Man in a Shed said...

@Chris Paul - your as delusional as the Dour Economic Destroyer himself.

Why can't you see that Brown is personally responsible for this ?

If you don't get this with the over whelming evidence pointing to that fact, can I suggest you seek help.

The only outstanding question is has Brown destroyed our country by accident or on purpose ?

Lola said...

Chris Paul - deluded.

I'll say it agin just so's you don't miss it. The FSMA 2000 is an entirely flawed piece of legislation. It is also probably fails under the Human Rights Act, and it is currently being challenged on that basis, among others.

FS regulation under the FSMA 2000 is constituted, implemented and managed as nationalisation by one remove. The 'regulations' are massively prescriptive. They are a bureaucrats wet dream. They are the result of a grand conceit by one man that he knew exactly how to run all aspects of the financial system, and could manipulate and expolit it to further socialist tax'n spend social engineering. Seeing as how public ownership had gone with cl4.4 it is all lefties have left. But although you can take nationalisation out of the manifesto you cannot take it out of New Labour. So if you cannot obviously nationalise just do it by ever more and more prescriptive 'regulation'. And predictably what happens is that the nationalsied industries fail, as they have always done before and as they have now done here.

Regulation as done by G Brown is the problem. It is never ever going to be the solution.

Lola said...
This comment has been removed by the author.
Mirtha Tidville said...

It was Alister Campbell who first accurately described Brown`s flaws. It is only now that we are seeing what he meant.

Brown has only a very limited knowledge of finance,but he made up for his deficiencies by bullying and political thuggery behind the scenes. His only intent was to inherit the prize of Downing Street and to hell with the cost.

We are all now paying for those costs on the bonfire of his vanities.

I just hope that those millions who voted Labour,and were ready to believed this monsters lies, can now see the damage he, not anyone else, has wrought upon them and others and use their vote better at the next election...

Lola said...

Have any of you actually watched these FS regulations in action? No? OK this is what happens.

Young exec in a bank thinks up a good product idea that'll make a lot of money for his bank. This could be a wholesale or retail product. Things like single premium PPI spring to mind at the retail end. He takes said idea to his MD. "Hey boss got a great profit idea here". " Excellent, have you passed it by compliance yet?" " Nope" "OK do that and come back if they okay it"

Bright young exec goes off. Takes idea to compliance. Now, compliance are essentially train spotters. Elf n' safety. Box tickers. They look at FSA rulebook. Work out how they can tick all the boxes and hey presto. they pass it - not of course having a clue as to what the bloody Hell it is, does or what the risks are to (a) the Bank or (b) the customer. They have assessed the compliance 'risk', so that's all right.

Exec takes idea back to MD. "It's passed compliance, boss". MD relaxes and disengages brain. "OK son, take it to marketing and get it out there. By the way, what are we going to make on this...?"

and there you go.

FSA regulation is nannying. It destroys responsibility. And at the same time is useless, because it also works the opposite way to inhibit useful innovation.

In my own case my business model was challenged by the PIA/FSA from the day I began to use in about 1990 until now, when guess what the FSA have sort of understood it and made it part of the RDR.

They, their boss and all of them are tossers.

The solution are simple. Scrap the FSMA 2000 and the FSA/FSCS/FOS. Scrap all the prescriptive rulebooks. Retun banking supervision to the Band of England. Get the Treasury to do its bit by ensuring that the government runs sound money and liaises between The B of E and government. Return the retail end of FS to the self regulatory systems that work. Break up the banks so that the high retail end operate on a narrow banking model and whose assets are ring fenced from their global owners and require the local banks to run sustianable models - not the illusory 'free' banking one. For consumer protect apply a levy to any product sold, and declare it as a percentage cost - this'll make the consumer protection price transparent and enable buyers to make a proper judgement of value. And....well you get the picture.

Gareth said...

Regulation as done by G Brown is the problem. It is never ever going to be the solution.


Not wishing to absolve Brown of his obvious failings I would like to say one thing: Much of what Brown introduced was the result of international agreements, looking at other countries and influence by the EU (particularly the fiddling inflation bit).

I am moving towards a different perspective on Brown. He was the architect of our financial doom. Perhaps not because he created the regulations but that he merrily cribbed them from others, took the credit when things were going well and now blames everyone else for it. He can't have it both ways. Either these were his ideas and they've gone horribly, horribly wrong (which he will never accept), or he was incompetent in not looking after the national interest in a rush to adopt what everyone else was doing (which he will never accept). Either way the Emperor has no clothes.

It is clear to me by the language he uses that there is something wrong at the heart of all this. He talks of investment when he means spending. He talks of credit when he means debt and he talks of wealth when he means credit. Debt nor credit are wealth. Not all spending is investment. Credit is useful for businesses, for buying a home, for covering a temporary cash flow problem - he allowed it to become a way of life.

Elby the Beserk said...

@trevorsden said...

//. But having set up the FSA one is I think entitled to assume that it would work and be properly monitored by the Treasury, ie Brown.

Quite so. Brown when grilled seemed to think that the fact that he had NOT been told anything excused him - which is extraordinary, as what it actually demonstrated was how poorly the FSA was constituted, that the Chancellor was out of the loop.

His almost snigger when he noted he HAD apologised for the 10p tax fiasco was revolting; nor did he note that that had had to be extricated by force from him, some weeks after it happened.

Man is revolting. Good that that awareness is at last spreading.