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Bank of England backs "spirit of Obama's reforms"

Robert Peston | 13:08 UK time, Tuesday, 26 January 2010

The Bank of England today applauded President Obama's attempt to reduce the risks taken by banks that look after individuals' deposits.

In evidence to the Treasury Select Committee, Paul Tucker - a deputy governor of the Bank - said "I agree with the spirit of the president's proposals...It is the spirit that matters".

He then threw his weight behind what he believed President Obama was trying to achieve:

"Banks should be less risky businesses if they are going to be funded by insured deposits and if they are going to be highly leveraged".

What he meant was that there should be new constraints on the risk-taking activities of commercial banks, like Royal Bank of Scotland and Barclays, that look after the savings of millions of people.

Mr Tucker said that banks should concentrate on serving the interests of their customers and should not be "betting on the tos and fros of the market".

He and the Governor of the Bank of England, Mervyn King, said that the prospects for international agreement on the appropriate reforms for the bank system had been improved by President Obama's intervention.

Simply increasing the capital which banks have to hold, as a protection against future losses - which has been the thrust to date of protective measures forced on banks - was not enough, they said.

There needs to be structural changes to the banking industry, they added.

Strikingly - and in contrast to the positions taken by both the government and the Tory party - they said that if international agreement on the appropriate structural reforms could not be reached, the UK should take unilateral action.

However neither Mr King or Mr Tucker yet had a detailed blueprint for the necessary changes.

Mr Tucker said that limiting the size of banks, which is one of President Obama's proposals, would be helpful.

But he and Mr King said it would be premature to support the detail of President Obama's plans because there was not enough clarity on what he meant when he said that banks should be forced to withdraw from involvement in proprietary trading, hedge funds and private equity.

"No one has the faintest idea how to define proprietary trading" said Mr Tucker.

The ultimate aim of bank reforms, said Mr King and Mr Tucker, was to abolish both the explicit and implicit taxpayer guarantee against losses for institutions, companies and professional investors that lend to big banks.

It was crucial that providers of this so-called wholesale finance should be exposed to losses if banks ran into difficulties - because these lenders to banks could then deter banks from taking excessive risks.

However this taxpayer support could not be withdrawn rapidly, because to do so would almost certainly lead to a rapid and massive withdrawal of funding for banks - which would precipitate a second credit crunch and tip the world back into recession.

Mr King said that the banking industry had become too dominated by enormous institutions that strove to be in every activity and in every country.

The rise and rise of these vast banking conglomerates had increased the probability of the kind of catastrophic banking crisis that occurred in 2008.

Over the longer term, he wanted to see a much more diverse banking industry composed of smaller banks and more specialist banks.

UPDATE 17:07

Here's my 60 second summary for Radio 4 news of the significance of the evidence given to MPs today by the Bank of England

There is a small reason and a big one why it matters that the Bank of England has thrown its weight behind the spirit - if not the detail - of President Obama's plans to break up banks and limit their size.

First it aligns the Bank of England a bit closer to the Tories than to the Government on the future of banking.

And, more importantly, it confirms that Britain's central bank - which will take the lead on regulating and supervising banks if the Tories win the election - doesn't believe that the banking system has yet been made safe.

The Governor and his deputy want to see further restrictions on the risks that can be taken by banks that look after retail depositors' money.

They also believe companies and professional investors that lend to banks should no longer benefit from any kind of guarantee against losses provided by taxpayers - in the hope that these lenders would then keep banks on the straight and narrow.

Easier said than done, as they admit. Eliminating these guarantees right now could well trigger a banking crisis as bad as 2008's devastating debacle.

Comments

  • Comment number 1.

    ...and how long will this legislation last? - I mean look what's happened to previous legislation of this nature.

    It makes no difference how much capital you hold, it's the fundamental failures of Capitalism to keep track of 'value' with it's exponentially increasing monetary system.

    All it will do is make the dam bigger.....

    http://seekingalpha.com/article/184193-the-second-phase-of-the-global-economic-crisis-is-at-our-doorstep

  • Comment number 2.

    So MK is agreeing that something more radically needs to be done - good!

    Lets reverse the Big Bang of the 80s - it will mean lower growth but less volatility in the markets.

    This is a great chart that shows what happened to the finance sector since the mid 80s.

    http://ftalphaville.ft.com/blog/2010/01/25/133331/the-bank-problem-in-a-single-chart/

    It became too volatile and way too big!!!!

  • Comment number 3.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 4.

    It might be a good first step if they prevented the Casinos from calling themselves banks.

  • Comment number 5.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 6.

    Shock horror! The limeys line up behind The Prez!

  • Comment number 7.

    Please, please Robert.
    It is "either - or" or "Neither - nor". I keep asking you not to mix them up. English is a good language as it is without trying to artificially change it: or is just lazyness?

  • Comment number 8.

    7. At 2:24pm on 26 Jan 2010, Tony Mulhearn
    ----------------------------------

    Were you Robert's English teacher at Highgate Wood School?

  • Comment number 9.

    This is excellent news, and makes total sense.

    It seems that while all the politicians (.... except for the Lib Dems) are still at the beck and call of the bankers, there is some proper independent thinking going on at our independent Central Bank.

    Bravo....

    It will be fascinating to see how Brown and Myners and Co squirm out of the corner into which they've backed themselves.... because they will.

    And 4. skynine..... Absolutely right, we should reserve the word "bank" for proper banks. Legislation that would lump Goldmans, Morgan Stanley, ICAP etc into the same pot as Paddy Power and William Hill, i.e. "Bookmakers", will help the public understand much better what they do, and what sort of risks they are dealing with.

    Please start calling spades spades.....

  • Comment number 10.

    'The background to the Volcker rule'
    Posted on ftalphaville Jan 25

    ...here’s the transcript of the press rundown for the Volcker rule unveiled last week.

    http://ftalphaville.ft.com/blog/2010/01/25/133431/the-background-to-the-volcker-rule/

    Transcript of part of the official briefing...

    Q. "Thank you. Can I just be clear that this is targeted at investment — sorry, commercial banks who run investment bank-type operations? Will investment banks like Goldman, for example, still be able to advise and hold stakes in hedge funds?"

    SENIOR ADMINISTRATION OFFICIAL: "So just to be clear, this prohibition says you can choose to engage in proprietary trading or you can choose to own a bank, but you can’t do both. You have to make the basic choice: Are you going to be a firm that does proprietary trading for your own benefit, unrelated to client interest, or are you going to be a bank that engages in those activities that are authorized? So it’s not the broader question that you raised. It’s really focused on the question of proprietary trading."

  • Comment number 11.

    well if I can work it out surely Obama and the BOE can. It will take an effort by all the worlds banking sector for any maeasures to succeed otherwise one cartel will take advantage.
    So do away with excessive leverage, split normal banking from investment banking
    do away with any tools that don't create something other than profits from the likes of CD'os and the likes so that everything is transparent, simples

    All that is happening is the financial sector are wakening up to the fact that we now know that what they were doing was clever, didnt take skill and created FA apart from debt, and if we were to have safe boring slow growth community banks then a lot of the money they play with and speculate with would be gone.

  • Comment number 12.

    First of all, these are proposals and must go though the very legislative bodies that when warned of the coming economic collapse did nothing at the request of the banks. As this is the history I am doubtful that anything meaningful can come from the legislatures that are bascially owned by the banks. I don't think people fully understand the level of corruption in business and government and how the two are partners. The governments represent business, no one represents the people. Seems odd that the banks were allowed to gamble away everyones money to begin with and that tells you more about the process then these attempts supposedly to correct the problem. There are no central governments, these are business associations.

  • Comment number 13.

    I find this talk of a more diverse banking industry bizarre. Didn't the building societies move to mimic banks - some even changed to banks and there has been and continues to be consolidation.

    Mervyn King's assertion that banking is dominated by enormous institutions that strove to be in all activies in all countries is the inevitable result of globalisation. If he was running a globalised business he too would look to his principal bankers for product and geographic coverage. This drives standardised practices and lower costs which ultimately benefit the consumer.

    All in all, I don't think that Mervyn King or Paul Tucker's comments have taken us very far in the debate. This matter is one for the politicians.

  • Comment number 14.

    Good...about time things started happening......... and despite the pre-election stasis they are starting to happen not before time.

    There's always people ready to say 'That can't be done'.... and point out the problems..but alongside most achievements of the Humanity; just getting down to organising ways to stop greedy people putting in peril the lives of hundreds of millions of people isn't going to be that dificult....

  • Comment number 15.

    I post this again:

    The following as I understand it are facts.

    The financial industry has been regulated in the past by the following:
    The Bank of England,
    The Financial Services Authority,
    The Financial Ombudsman,
    The Treasury,
    The Basel ll Agreement,
    The European Union.

    And that’s an awful lot of people doing an awful lot of regulating.

    And let’s face it, it’s not worked has it.

    Regulation has failed to prevent the current financial crisis,

    Regulation has failed to prevent the mis-selling of various financial products, such as endowment policies, personal equity plans, payment protection policies, equity release schemes, self certification and 100% + mortgages etc.

    Regulation has failed to address to the issue of unfair bank charges.

    It’s not more rules we need, what we (the country) need is the state to control the creation of money as debt.

    Because if we (the country), don’t have control over the creation of money, we (the country) will be forever at the mercy of those private corporations that do.

  • Comment number 16.

    And about time too!

    Don't know what they've been faffing about at.

    Straightforward stuff securing depositor's money with full cover insurance for full repayment, without the customary loss adjustment, otherwise known as entropy!

    Now they need to stop faffing about talking about Proprietory Trading and address the only other essential that requires political interference - a hard and fast rule that the total mortgage book should be covered by assets + capital held at the bank.

    Do these two and the banks can do what they want with hedging, CDSs, and all sorts of trading for none of that is any of our business but is the business of the Directors of the Bank in question as well as the shareholders - aka our pension schemes et al.

    A major conference getting into the distillation of definitions of specific negotiable instruments will be a waste of time and money. The banking sector will sort itself out in time if the two essentials are addressed...

    By don't they like making things complicated!!

  • Comment number 17.

    Are we any further forward? I think not. Until we have a strict definition of "booring community banks" and "proprietory trading casino banks" that cannot be fudged to allow asset swaps between the two then we will not get any further forwards.

  • Comment number 18.

    And, if they go the complicated route what will they do about major companies who have hedging departments that hedge with the best of them? Will they be regulated too or will we find that all US or UK banks who have a foothold in Shanghai, Hong Kong or Singapore relocate their head offices, like good ol' HSBC and the City becomes a bit of a ghost town for without the banks Lloyds and the rest of the insurance market won't be wanting to be there either..

  • Comment number 19.

    Three cheers for a very disobedient civil servant but a missing ingredient -public ownership as a strategic choice for the sector majority.

  • Comment number 20.

    How can Bankers lose when losses are privatised(pass them onto the Taxpayer)and gains are capitalised to the select few.We are not at the casino tables but we pick up the enormous deficits from players who think they have a higher mathematic formula to minimise the risk by globally distributing it.However you cann't put market fear/panic into a mathematical system that lays golden eggs ad infinitum.
    Will their be another market crash? Yes.How far do financiers care to go back -The South Sea Bubble of the 18th century.Well done Obama for this finacial restrictive initiative.Gandi :'Their is enough for everones need but not for his greed.

  • Comment number 21.

    #9. Noideaatall I agree with your comments..

    "It seems that while all the politicians (.... except for the Lib Dems) are still at the beck and call of the bankers, there is some proper independent thinking going on at our independent Central Bank."

    Whilst not always agreeing with the Lib Dems, good old Vince again appears to be more in line with the BoE thinking than any other Politician.

  • Comment number 22.

    # 17. At 3:36pm on 26 Jan 2010, seenitbefore wrote:

    > Are we any further forward? I think not. Until we have a strict
    > definition of "booring community banks" and "proprietory trading
    > casino banks" that cannot be fudged to allow asset swaps between
    > the two then we will not get any further forwards.

    Worry not. The onus will be on the banks to periodically show evidence
    that they are "booring community banks". If they can't provide the
    evidence, or if evidence arises that they are using "asset swaps between
    the two", they'll be broken up and sold off. As long as they know the
    risks, they'll toe the line.

  • Comment number 23.

    21. At 3:45pm on 26 Jan 2010, EveryStreet wrote:

    #9. Noideaatall

    "Whilst not always agreeing with the Lib Dems, good old Vince again appears to be more in line with the BoE thinking than any other Politician."

    ....now is that because he 'has no chance of winning'?

    I'm not having a dig, but if this is the case then we have a fundamental flaw in our political system.
    It seems that to get elected you cannot speak ill of the banks, if you don't care then you can talk sense and speak the truth.

    ....and now to the election question - will there be enough non-partizan supporters of red and blue to defect to the yellows?

    It certainly appears that is the only option for the electorate.....unless of course we end up with the supposed 'nightmare scenario' where the Lib Dems preside over a hung parliment holding all the key votes.

    ...and coincidently the media is screaming that a 'hung parliment' is a bad thing for the Economy of this country - I am beginning to differ from this view and I can see no reason why there should be more arguments in a hung parliment than we will get 'internaly' with any party trying to manage this total mess.

  • Comment number 24.

    "Simply increasing the capital which banks have to hold, as a protection against future losses - which has been the thrust to date of protective measures forced on banks - was not enough, they said.

    There needs to be structural changes to the banking industry, they added."

    Thing is Robert, will they ever actually get round to doing anything serious about it?????

    All they have done over the last 2 years is all talk and no clear indication that they are going to grasp the nettle and act!

    At every turn there are excuses given for doing nothing, now! The latest being along the lines of, "we don't want to kill off the recovery," etc.

    At this rate, in 10 years time, we'll still be waiting for them to do something! By then the excuse will be, "the (credit bubble) inflated prices of assets across the globe will be put in severe jeopardy, if central banks move to limit the extent of credit availability, from the wholesale markets...."

    No "deal" has been produced, no action taken, not yet. Might sound good so far, but then that's what politicians, (are supposed to be able to,) do.

    All along European Central bankers and politicians have quibbled about making progress, citing the impression given that the U.S was not keen to regulate its banking industry in a stricter way. Well it's President is now saying otherwise. The Europeans need to stop fiddling and go and help him?

  • Comment number 25.

    # 21. At 3:45pm on 26 Jan 2010, EveryStreet wrote:

    > good old Vince again appears to be more in line with the BoE thinking
    > than any other Politician.

    Yes. He rose from a Yorkshire grammar school to be the Chief Economist for
    Shell. Most of those bankers and model-kiddies (Damiano Brigo etc.) aren't fit to lick his shoes.

  • Comment number 26.

    We should all take note of what Mervyn King has to say.....he runs the most important bank of all, and has saved the necks of most of the others in the UK.
    I wish him well in his endeavours to reform the structure and the system.
    If you want to know the ugly truth about wayward capitalism and how close we came to meltdown, ask Mervyn King.

  • Comment number 27.

    All this proves is that there is no situation, no matter how bad, that politicians cannot make worse.

    They want to separate "community retail banks" from investment activity or should that be proprietary trading.

    But what do you mean by retail banks? If a bank which only takes deposits from individuals and only provides small business loans and house mortgages (which I assume is a retail bank) sells some of its loan book to another bank and then buys some of the loan book from another - is it a retail bank, an investment bank or is it engaged in proprietary trading?

    The devil is in the detail - current accounting rules, and in particular mark to market rules, penalise banks for making loans and holding them until maturity so the sensible solution is to trade your loan book.

    You are another bank, your customer is about to list you provide corporate finance advise and underwrite the listing presumeably this is investment bank services but of course you got the job because you have been their lending bank for 30+years.

    Then there are the problems of what is the difference between lending to a hedge fund and taking a "first money" back equity stake.

    My gut feel is that the entire drive to divide retail from investment banking is doomed to failure.

    On the "banks too big to fail" problem, there are similar problems. If you define "too big" by reference to their home country then because bank economies of scale are vital, US banks will completely dominate because their economy means they can support bigger banks than any one else. If you define too big by reference to worldwide systemic risk (which is more logical) then any rescue of banks should be done internationally rather than on a country by country basis as we have just done - chance of international co-operation is probably nil.

    If you have a levy on all banks (another decent solution) you then have the problem of (a) is this kept by the countries who host the transactions (if it is a tobin tax) or where the banks are based (b) what do govts do with the cash collected - most will simply spend it and then complain when the next banking crash happens.

  • Comment number 28.

    Why the call for less diversity from some?

    Let's look at the some of the institutions in trouble shall we:

    Northern Rock - Retail Bank Only
    Lloyds - were ok until coerced into taking on toxic HBOS who were a retail bank only
    RBS - Well, that was one persons ego trip
    Bradford & Bingley - Retail Only
    Dunfermline - Building Society

    On balance, those that had not diversed got in more trouble than those that had e.g. Barclays & HSBC

    So is splitting banks as some seem to suggest really going to be the best course of action?

  • Comment number 29.

    'Spirit' huh.. absolutely typical - it is their lack of bottle as exemplified by the governor's attitude to raising interest rates early on in the noughties that got us in this mess - now they haven't even got the guts to even back the little that Obama wants to try to do!

    Mervyn MUST go! He know that the banks MUST be cut down to size but he is scared of saying so - just as he was when he said 'too big to fail' and then ran a mile in the opposite direction and continued supporting the huge banks to make them even bigger with QU and zero interest rates. He has destroyed the reputation of the Bank of England and the Nation. Has he no understanding that he is a laughing stock and reducing the Bank of England and the country to the same condition.

    This 'spirit' nonsense is an absolutely terrible thing to have said - worse than not saying anything! It directly implies that he will do nothing at all the bankers just take no notice of him anyway - he is a busted flush. We need a governor that does things, not empathises about doing them!

    Look we need 50 banks not 4 banks. We needs to prevent the 50 banks from re-merging. We needs investment and hedging kept well away from banks and severely curtailed with punitive taxes. We also need higher interest rates now to stop the new housing and equity bubbles growing any more and causing an inevitable crash. We also need a Maximum National Wage.... It is (no longer) acceptable for million pound salaries to be paid to anyone living in this country while there are millions of children living in poverty - it is simply obscene.

  • Comment number 30.

    6. At 4:44pm on 26 Jan 2010, stevewo wrote:

    "We should all take note of what Mervyn King has to say.....he runs the most important bank of all, and has saved the necks of most of the others in the UK.
    I wish him well in his endeavours to reform the structure and the system.
    If you want to know the ugly truth about wayward capitalism and how close we came to meltdown, ask Mervyn King."

    Either this is a bad joke, or you are Mervyn King's Mum. He saved nothing. He was partly responsible for the mess, because of his abhorrence of regulation, and had to be dragged forcibly into line with the Government's rescue plan, because of his abhorrence of public debt, which he now wants paid back as soon as possible at whatever cost to the economy. If he had any sense of shame he would resign.

  • Comment number 31.

    There appears to be a lot of talking and "no this can't happen again" but I don't actually see anybody doing anything or even any kind of action plan.

    I watched Mervyn King being questioned today and he didn't seen to have any answers about what action should be taken now, only kept saying that things can't continue as they are.

    So who is really in control here and who is going to stand upand say "this has to be done and it needs to be done now"

  • Comment number 32.

    26. At 4:44pm on 26 Jan 2010, stevewo wrote:

    "We should all take note of what Mervyn King has to say.....he runs the most important bank of all, and has saved the necks of most of the others in the UK."

    .....or maybe Marx as he did predict this would happen and he didn't even know about CDO's back then!

    Fundamentals my dear boy......fundamentals.

  • Comment number 33.

    27. I couldn't agree more. It's going to be interesting to see how any split could possibly be done, it will take years. If a banks customer, a car maker say, wants to hedge his dollar/pound liability for perfectly valid business reasons should this be the job of bankcasino or bankboring? If it's bankcasinos job then who do I go to in order to change up a thousand pound for a holiday in the US?

    Presumably no one has a problem if the trading team at bankcasino makes 80 million for the bank and the bank then pays the team 25 million in bonus. So what about the team at bankboring?

    So much to consider, indeed the devil is in the detail.

  • Comment number 34.

    28. At 4:57pm on 26 Jan 2010, yam yzf

    ...but wasn't it the thirst for diversity which led those 'retail' banks to invest in structured products?

    I think Obama is trying to ensure that banks only deal with the things they actually understand - which narrows it right down....

  • Comment number 35.

    # 27. At 4:46pm on 26 Jan 2010, Justin150 wrote:

    > On the "banks too big to fail" problem, there are similar problems.

    You are looking through the wrong end of your telescope. A bank can be identified as "too big" if it pays its staff too much. The really big banks have really high wages for the top staff. If they are paying too much out, they are too big, and must be crunched down.

    When the market in banking is competing well, there will be many tiny firms savagely fighting for the same work, and wages will be very low indeed - an ideal outcome for all concerned! In particular for the staff, because they can work in the knowledge that they will never again be a drain on the taxpayers of thier country.

  • Comment number 36.

    Amazing - Some people still do not get it. Not even Mr Peston. I know you need to keep in with these people but do not lecture us on their behalf.

    Who is Mervyn King? Governor of the Bank of England

    And what is his job? Head of the BOE which serves the Government and helps regulate the economy of the UK.

    In other words he is one of the people at fault for this country's economic malaise and vast mountain of debt.

    King should have been sacked long ago, at the same time the FSA lost their boss. He is not in a position to blame the banks for his mistakes when he was vastly more culpable. Neither he nor Obama are right.

    The Bank of England is the lender of last resort and needs to fully define its position. Banks should be left alone and allowed to have a broad business which spreads risk. However they do need regulation and it is exactly how they should be regulated that needs to be discussed, not by politicians without the necessary in depth knowledge and qualifications, but by a new bank of England with a new Governor and with the FSA included within its business model.

    One thing we should have learned, which the PM, the Chancellor and the Labour Government have not, is that we need a regulatory body that covers both the economy and the financial institutions. Splitting it was a mistake and was a major flaw in the cohesion of the regulatory bodies.

    Brown, Darling, Balls and King should all go now and let somebody with some nouse put things back together again.

  • Comment number 37.

    29. At 5:00pm on 26 Jan 2010, John_from_Hendon

    "We also need a Maximum National Wage.... It is (no longer) acceptable for million pound salaries to be paid to anyone living in this country while there are millions of children living in poverty - it is simply obscene."

    As an Egalitaian - I think this is a start. Did you know the inequality of wealth in Britain is now at the same level as when Charles Dickens was alive.

    Good eh? - 1 step forward - 150 years back!

    I'm off to round up some street urchins so I can start my new enterprise of 'Cockney pickpocketing' - which the banks seem to be really keen on lending money for - the Shylocks...

  • Comment number 38.

    All fine and dandy to set up a new regulatory banking system but to make it work needs:

    1. Unified regulatory control i.e. The Bank of England

    2. A more sophhisticated oversight and control system that can weigh up the risks in the banking system AND are allowed to act accordingly.

    Clearly a bubble developed in the early to mid noughties but apart from commentators, who had no insight as to what was going on, no one wanted to stop the high risk gravy train, particularly politicians who were benefiting from the tax revenues - no names, no pack drill!

  • Comment number 39.

    36. At 5:25pm on 26 Jan 2010, Ispestonright

    ....it could be all those people's fault - or it could be the system that's got inherent contradictions causing it to fail periodically.

    I mean the characters here weren't around when this happened before, and some weren't even born when previous collapses occurred.

    However questioning the system is far too scary - best to blame someone close by and current.

    I blame it all on Simon Cowell - I have no evidence of course, but he's a popular person to hate.

  • Comment number 40.

    35. At 5:22pm on 26 Jan 2010, Jacques Cartier wrote:
    #You are looking through the wrong end of your telescope. A bank can be identified as "too big" if it pays its staff too much. The really big banks have really high wages for the top staff. If they are paying too much out, they are too big, and must be crunched down.

    Totally agree with this. Needs to be combined with BOE regulation and splitting up the retail/business banking from paddy power operations.
    Are you hearing this Darling and George ?

  • Comment number 41.

    36. At 5:25pm on 26 Jan 2010, Ispestonright wrote:

    "BOE which serves the Government and helps regulate the economy of the UK."

    Youpestonwrong! His role since 1997 was to control inflation. The health of the economy was a distant second. That is one of the problems of our economic control!

  • Comment number 42.

    Over the longer term, he wanted to see a much more diverse banking industry composed of smaller banks and more specialist banks.
    Now how many other industries does he think the same can or should be said?
    Wouldn't happen to be anything a business professional would consider to be 'too big to fall' would it?
    And how many of those industries have become too big because of repeated take-overs for more than a few 'Buttons'...?

  • Comment number 43.

    39. At 5:41pm on 26 Jan 2010, writingsonthewall wrote:
    I blame it all on Simon Cowell

    You may have something there. That man's got alot to answer for. That Burke woman for one.

  • Comment number 44.

    23. At 4:21pm on 26 Jan 2010, writingsonthewall wrote:
    I am beginning to differ from this view and I can see no reason why there should be more arguments in a hung parliment than we will get 'internaly' with any party trying to manage this total mess.


    I don't get why they don't like the idea - unless they are worried. How many parties are they. If it means Vince Cable will be taken seriously, I'm all for it. And maybe it is just about time, the two pig parties didn't have it all their own way.

  • Comment number 45.

    44 copperDolomite

    `the two pig parties' I'll go for that! Well said.

  • Comment number 46.

    Inch by inch step by step the authorities are being dragged slowly towards a rational solution to the problem of risk-taking banks which are too big to fail.

    This is going to run for some years yet, though. No ruling caste ever gave up their privileges without a struggle.

  • Comment number 47.

    Cutting up the babks, great idea. Hopefully they will make them small enough that I can buy one or two myself. Make great chritmas presents.

  • Comment number 48.

    30 and 32.
    Well, I'm no expert.
    If you want comment from a real expert on these things, talk to Vince Cable.
    It may be fair criticism of M. King to say that he was partly responsible for the mess, but so were most Western governments, chancellors, and ministers.
    But I like Mr Kings' speeches since the collapse....it's never too late to learn. And mistakes are the greatest teacher of all.
    No-one listened to the likes of Mr Cable or Jeff Randall until it was too late.
    My wife thinks Mervyn King is an Australian fast bowler, and I am fairly certain that I'm not Mervyn Kings' mum.

  • Comment number 49.

    45. At 6:16pm on 26 Jan 2010, stanilic wrote:
    44 copperDolomite

    `the two pig parties' I'll go for that! Well said.



    I wasn't aware I'd typed that - oh, I must be more upset than I thought!

  • Comment number 50.

    The Treasury Select Committee is inept, and Mr Peston may well have heard this said behind its back.

    The Treasury has been inept, especially under the guardianship of Brown, Balls, and O'Donnell : The Architects of the Tripartite Sytem. Why, in God's name, are they still in Office/employment ?

    Mervyn King is not inept, but avuncular and placid. He has not been sufficiently politically strident to swing the long term interests of the Nation vis-a-vis politicians and civil servants. ( And yes..he should just make his own licence so to do...many would respect him as a proper counterweight. Look to USA for a role model !)

    The Press, with one or two exceptions, is also savagely inadequate for the purpose of checking over the controllers of the money supply.

    Banks have not all been careful. Some 'Banking Personalities' have not acted with acumen or intelligence. But the Banking Control System has to take the majority of the blame...NOT the individual banks.

    Banks create 'money'. The Bankers' Bank (ie Bank of England) needs to control and assess the systemic health of the Banking System and constantly overview and understand the endogeneity of the (various definitions of) money supply : to do so is a clear obligation. Check every bank constantly. Not to do so is reckless.

    Controls failed on both sides of the Atlantic.

    History is unfolding. Do you think, Mr Peston, it will be kind to any of the Key Players in this sorry saga ?

  • Comment number 51.

    I do not understand how banks can reduce risk and at the same time be "highly leveraged". High leverage automatically implies serious risk, because the inevitable instability of the market system means that even loans which appeared to be safe under normal market conditions can suddenly become unsafe because of rapid changes of market conditions.

    It was the implicit assumption that rapid changes in the market could not occur that caused such serious problems for financial institutions when literally overnight credit dried up in 2008.

    Some banks will need to be backed by the government, if customers are to be able to use them with confidence, and the credit market is to be kept stable. The quid pro quo is that they must submit to regulation on a day to day basis.



  • Comment number 52.

    38. At 5:35pm on 26 Jan 2010, dontmakeawave wrote:
    All fine and dandy to set up a new regulatory banking system but to make it work needs:


    No one has thought about regulation by the police, cps and courts yet. All those young graduates looking for work should join the police force and put their education to great use in the hunt for crime and ponzi schemes.

  • Comment number 53.

    WOTW 5:22:
    "but wasn't it the thirst for diversity which led those 'retail' banks to invest in structured products?"

    No.

    Those banks did not invest in structured products - they sold structured products to raise money from investors so they could further expand their mortgage book. Because this was their main form of funding, when the subprime crisis hit the investor base dried up. Unfortunately they had no other means of mass fundraising as they had put all their eggs in one basket. Their position was made even worse by what could be classed as misreporting which, in NR's case, caused queues to form to withdraw deposits - the only other form of funding available.

    HBOS was 'sold' to Lloyds to maintain confidence in the market and to prevent further pictures of a run on a bank.

    The diversified banks were able to tap other resources of funding, including their shareholders, to ensure that they had adequate funds. This was shown with the stress testing that the FSA carried out and it was the results of this testing which pushed Lloyds and RBS further into the government's hands.

    Whoever eventually buys NR's loan book will be on to a good long term investment as the majority of loans will pay off as they are meant to - the same with HBOS and that is why Lloyds would have looked at it with a big grin on their face.

    Short term, however, because the money markets had dried up and the book at HBOS seemed more toxic that originally thought, they were getting towards a technical point of insolvency and so the government stepped in.





  • Comment number 54.

    I dont know where the idea of a hung parliament is coming from , unless tyburn gallows is going to be re instated ( would be a good idea )

    My local MP's with 8000+ labour majority dont seem to think they are safe,and seem to be spending a lot more time in the community than they once did, of course that maybe unfair its just that they now have a photographer with them all the time.

    Labour are going to be blasted out at this election thats why so many are standing down rather than being removed.....

  • Comment number 55.

    # 29. At 5:00pm on 26 Jan 2010, John_from_Hendon

    > "We also need a Maximum National Wage....

    A better way is to tax the banks on the basis of thier highest
    wages. If they splurge out on bankers, then they splurge out
    to the taxman as well. This would be the case whether they are
    based in London or elsewhere. It makes no odds. If they splurge,
    we have to bite a chunk a chunk out them. Everybody wins,
    including the banks, because a) we get a windfall and b) they
    pay to clean up thier own mess.

    It's a no-brainer - maye Darling and Myners have no brains?


  • Comment number 56.

    The problem is that the bankers cannot be trusted to do the right thing because the quality of their management is so appalling.

    You can't possibly have any faith in managers that either can't see the opportunities that exist in technologies (manufacturing etc) or deliberately and callously ignore them purely so they can do their own thing.

    A conversation I had with a senior banker back in the 80s continues to ring in my ears. When I asked him why - given banks were huge users of computing systems - the banks didn't help set up a UK computing industry.

    His answer was "why should we?" at which point I was highly tempted to beat him to a pulp with a cricket bat.

    You can't deal with people like that and the financial services sector is full of them.

  • Comment number 57.

    Its not going to go down well with I Saved the World Spendaholic Brown.

    I hope you have a hard hat on or the low flying mobile phones might hurt

  • Comment number 58.

    # 56. At 7:22pm on 26 Jan 2010, Wee-Scamp wrote:

    > A conversation I had with a senior banker back in the 80s continues to
    > ring in my ears. When I asked him why - given banks were huge users of
    > computing systems - the banks didn't help set up a UK computing industry.

    > His answer was "why should we?" at which point I was highly tempted
    > to beat him to a pulp with a cricket bat.

    Well, now The Prez is going about them with a baseball bat, but the
    effect is exactly same as cricket bat, I can assure you.

  • Comment number 59.

    # 54. At 7:07pm on 26 Jan 2010, AqualungCumbria wrote:

    > I dont know where the idea of a hung parliament is coming from ,
    > unless tyburn gallows is going to be re instated ( would be a good idea )

    All normal people hate the Tories, because of Mrs Thatcher
    (I shudder as type her name!) But now we hate Labour too,
    so that only leaves the Lib Dems, doesn't it?

  • Comment number 60.

    IMHO Basel II is at the root of this complex tree. The Basel II rules were agreed by representatives of central banks from the G10

    There were changes in the rules regarding how much capital needed to be held.

    The banks were enabled to assess risk themselves (light touch regulation)

    There was an assumption that property/mortgaged backed securities were a ‘solid’ asset. The amount of capital that was required to support liabilities associated with this type of asset was reduced from somewhere around 50% to about 20%.

    This meant that more capital was available for ‘re-investment’ best put into more property back assets that required less capital.

    When it became apparent that maybe these assets weren’t as solid as expected, more capital was required.

    This genie is out of the bottle. Capital requirements can only be cranked up again gradually otherwise there will be another credit crunch with interbank lending rates soaring again and a reduction in asset values blah blah blah.

    Furthermore base rates would have to increase and this would mean increased costs for governments and individuals reducing the ‘cash’ available for consumption further.

    This leaves little room for manouevre other than a structural moving about of the deck chairs and increasing the contributions to schemes like the FDIC which currently require less than 2% of deposits as fees so its no surprise that the US proposals have some support and increasing these fees would also remove 'money' from the system

    Also, IMHO, as far as the UK was concerned, the change in 1997 which stopped gross payments of dividends to pension funds had an impact. At a stroke this reduced the return on earnings from shareholdings. The pension funds had to look for growth elsewhere to help minimise potential deficits. Is it any wonder they might have been prepared to provide wholesale funding? Is it any wonder they might have invested in banking stocks whose share prices rose on the back of increased 'assets' based on property backed growth?

    Interestingly, the rate on corporate bonds has been around 9%, perhaps reflecting the view of risk associated with business.

    Also I understand that countries like India did not reduce capital requirements

    I do not defend the banks but it seems to me that they were given a green light by regulators to step on the gas pedal. It also seems that the brakes are faulty.

  • Comment number 61.

    #33. Uphios wrote:

    "should this be the job of bankcasino or bankboring?

    .......

    So much to consider, indeed the devil is in the detail."

    Exactly - if it is the job bankcasino who underwrites them so that the customer buying from them doesn't lose out? But if it is the job of bankboring what is to prevent them taking too extreme as position? And don't say regulation as that has been proven not to work.

  • Comment number 62.

    Bank of England backs "spirit of Obama's reforms"

    The thief screaming "catch the thief"!

  • Comment number 63.

    > "... that banks should be forced to withdraw from involvement in >proprietary trading, hedge funds and private equity.
    >
    > 'No one has the faintest idea how to define proprietary trading' said Mr >Tucker."

    I think you could quite easily define proprietary trading as; trading in anything not directly associated with banking - storing and lending of money.

    # 29. At 5:00pm on 26 Jan 2010, John_from_Hendon

    > "We also need a Maximum National Wage....

    I think that is unnecessary. The problem is not so much the amount, but the means in which it is obtained.

    If the banks were split, so that one part was actually a just a bank and the other part was a standard company (like William Hill, for example) then it wouldn't matter how much they made...

    Actual bankers wages would be reasonable, and perhaps the focus would be on the service provided to the customer and not the amount of money they can make. I also think the investment side would see wages decrease to something more reasonable. They are then playing with either their own money, investors money or the companies money and most importantly NOT borrowed / imaginary money. If they lose they go into administration - just like any other company. It will force these so called hot-shots to rethink their strategy.

  • Comment number 64.

    #63 2009Martin

    Good shout...and I think this is what Volcker is aiming at!

  • Comment number 65.

    58

    Actually we had a UK computer industry called ICL.

    We sold it to the japanese (fujitsu)

  • Comment number 66.

    Robert

    How many times do you have to be told the banks that failed were not the casino banks i.e. Northern Rock, HBOS, Bradford & Bingley.

    HSBC & Barclays are still out there making profits why are you attacking them, they have not failed. They have not caused a run on banks. The taxpayer owns 0% of either institution.

    Please spend you time looking at those that had to be rescued not those that are still making money , paying people, generating tax revenue
    for Mr Darling

  • Comment number 67.

    The most important matter is that Mervyn King has now got the most powerful politician in the world today as well as the federal reserve thinking on the same level.

    He made it clear months ago how he wanted to see regulation and the banking system reform but he needed global support to make it work.

    You can almost say that with the US on side then he has it and although it will take time the right spirit is on the move and as it gains momentum things will begin to clear and the big clean up can begin.

  • Comment number 68.

    It's good to know they've got their eye on the ball!

    'Goldman star Jim O'Neill attacks Man United fund raising'
    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7073774/Goldman-star-Jim-ONeill-attacks-Man-United-fund-raising.html

  • Comment number 69.

    #67 virtualsilverlady. Are you sure? Do you really think that policy is driven by the desire to "do the right thing." Or could there possibly be some deep seated corruption extending to the highest levels of the Fed and the US Treasury.

    http://www.zerohedge.com/article/aig-collusion-epic-proportions-between-goldmans-us-treasury-branch-and-goldman-sachs-proper

  • Comment number 70.

    Re #68

    I reckon the the most stressful part of the day for these executive bankers must be when they travel to work. For it is at this time that they have to share a train carriage/seat with the the plebs of society!!!

    Just how do they put up with such a demeaning experience???

    Answers on a postage stamp to....(me, somewhere in Richmond...has that pleb washed my Lamborghini yet?)

  • Comment number 71.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 72.

    56 WeeScamp....you're right...it isn't the case that these people ARE so fantastically gifted that they really earn it--- there just spinning a line, and the thing is we all used to buy it.

    I have been involved peripherally in dealing directly with 'Bankers' (include Lawyers, advisaors etc) where the fees being paid were just staggering...but at that time it was just accepted.... daft really!

    The fact is they can be incredibly dim...exec reports on companies are not just 'light' or 'sketchy' they can be so blazingly wrong headed as to beggar belief----

    I really don't believe there will be 'fast action' but at the same time I do feel there will be radical action, and it isn't just the bankers arrogance keeping them carrying on doing the wrong thing so determinedly---don't underestimate some good old fashioned thickness...

    Yes they're arrogant, and yes they still feel they're 'bomb proof' in their privileges..but from my own, admittedly slender experience, I think good old fashioned dimness will have as much to do with this, as any fine calculation of the situation---they really do just not get it...they don't get it in the way that Ceaucescu didn't get it That look on his face when it FINALLY dawned is the most 'just didn't realise it' look ever---- they're too just too dim, as a group, to understand the depth AND breadth of the anger , and that it will be expressed in real change...and the longer they stand in the way, the worse the process of resolution will be for them.

  • Comment number 73.

    #69 arma... my #71 was in response was tour post #69...can't imagine what upset the blogdogs???

    But this subject has been identified as a very sensitive subject on Paul Mason's blog as well!!!

  • Comment number 74.

    My moderated post #71 contained a link to 'The promised land: British Arrist Warrent For Zipee Lievni Threetens Tyes' in the huffpost was moderated out...bizzare!

  • Comment number 75.

    Who, on here, is actually proud to live in this country???

    I regualary travel to Germany, Turkey, Japan and S. Korea....trust me...all the people that live in those countries are proud to live there!!!

    I just wish I could say the same for this god-forsaken desert!

  • Comment number 76.

    59. At 7:44pm on 26 Jan 2010, Jacques Cartier wrote

    All normal people hate the Tories, because of Mrs Thatcher
    (I shudder as type her name!) But now we hate Labour too,
    so that only leaves the Lib Dems, doesn't it?

    not in my area no, what is worrying is that there is more and more bnp activity, and the reason is just down to Labour discontent, and it is made up of what would have been seen as labour core vote.

    as for Thatcher she was distinctly middle of the road compared to the deal we have had over the last decade........

  • Comment number 77.

    This is all a non-story. The more you read about Obama's proposals, the more obvious it becomes they are purely political. He publicised them immediately after calling bank bonuses "obscene" twice within one week, and straight after the Democrats lost a Senate seat they had held for 50 years. As the FT alphaville piece makes clear, the "senior administration officials" contorted themselves so as not to have to say "Goldman Sachs".

    Obama is angry, rightfully so. Goldman Sachs was offered the lifeboat of Fed protection under the Bank Holding Companies Act in late-2008. This is how they have access to limitless cheap Fed funds, which is how they have financed their lucrative trading activities in 2009. They have repaid him by laughing in the face of taxpayers who, using UK stats, have suffered a 6% GDP fall, reduced income from pay cuts/tax rises/unemployment, and the largest government debt in peace time. Meanwhile Goldman "we do God's work" Sachs pay themselves record amounts of money. It all smacks of steerage class passengers on the Titanic being left to drown to provide a comfortable experience in the lifeboats for those in first class.

    Whilst Obama has every right to be angry, and it is understandable why he is resorting to a bit of populism, that still does not make his proposals in any way sensible. Cherry picking various bank activities and banning them is never likely to make the world safe from systemic financial risk, especially when he picks the wrong activities anyway. What his chosen three have in common is high levels of profitability at Goldmans and, consequently, high bonus payouts. Neither he nor his senior administration officials are stupid, quite the reverse in fact. Which only adds weight to the notion that this is a political policy aimed more at influencing bank (ie Goldman) pay policies, and should not be taken as being a serious policy contribution in the debate on reforming systemic financial risk. Even if it was, I think you will find tomorrow's WSJ is carrying a story that Senate Republicans do not support the measures, and without them it is unlikely to pass.

    Turning to the BoE's contribution to the debate, their support for Obama is nothing more than politeness. The centrepiece of Obama's proposal is to ban Fed-supported institutions from engaging in proprietory trading. However, as BoE so honestly admitted: "No one has the faintest idea how to define proprietary trading".

    The Obama plan is all about lining up as the People's Champion against the ungrateful banks. After the Democrats' loss in Massachusetts, he needs a win to gain momentum going into November's mid terms. Remember after those, we are right into the start of his own re-election campaign for 2012. And Obama sees no further into the future than November 2012. That is the last time he will ever face the electorate. For the rest of us, we need reforms that will pass the test of time a whole lot longer. Obama's simply will not pass that test. I have no doubt we will see significant revision, as well as equivalent changes to some banks' pay policies in return.

    Finally, for another angle on this, see Matthew Lynn's piece on Bloomberg, entitled "Wall Strasse Beats Wall Street on Obama Bank Bill". That describes what could happen if Obama's proposals were enacted and Europe did not follow. The result? Industry leadership by Europe's large integrated financial firms which, to date, have not managed to establish any major presence on Wall Street. Meanwhile, the likes of Goldmans etc could also simply relocate here.

  • Comment number 78.

    Remember the film ‘It’s a wonderful life’. Who do you want running your bank, James Stewart or Lionel Barrymore?

    I put a comment on a previous blog asking for a response from some honest banker as to the nature of their profession. Most ‘professions’ have some self regulation on an individual basis. Doctors don’t want one doctor to overstep the mark and bring them all down in the dirt (They might even have higher ideals). The same goes for engineers, lawyers and others.

    One way or another, most professions, probably in private, will ‘pull the plug’ on the bad apples. With the exception of Harry Markopolos (thanks to VinChainSaw for telling me about him) in the Madoff affair, does it happen in banking? Re-reading the Madoff story and the problems of Markopolos, it doesn’t seem to.

    On the basis that those who prefer to look the other way share the guilt of the perpetrators of criminal or incompetent activity, I’d suggest the banking and finance community should re-consider their sense of collective responsibility and turn themselves into a real ‘profession.’

    PS: My request for response from an honest banker generated only the reply from VinChainSaw (what a wonderful name). No one reads what I write or no honest bankers?

  • Comment number 79.

    #25 Jacking Cartier wrote about Vince Cable:

    “Yes. He rose from a Yorkshire grammar school to be the Chief Economist for Shell. Most of those bankers and model-kiddies (Damiano Brigo etc.) aren't fit to lick his shoes.”

    I am delighted to see that someone who reached the top level at one of the most ruthless, global and capitalistic company in the world is still worth worshipping…Hallelujah!!!

  • Comment number 80.

    The Ship Of (the United) State(s). I just saw the words - Loose lips cost Ships - World War Two wasn't it? This so called "worlds biggest buyer of bonds" gentleman and his reported statement, Robert. I was just very rude about the man on another site - then suddenly realised reading his - Bond Purchuser's - reported words again - Bond buying!
    "Lying on a bed of nitro glycerin". Great Britain's finances. Bond. Aha - James Bond. Perhaps Mr Bill Gross has allegedly been unable buy that particularly Ian Fleming created Bond. "Lying on a bed of nitro glycerin" does sound like the sort of thing that Sean Connery, Roger Moore et al would do in a filmic typical adventure. And having had their "wicked way" with Bad Girl - with a single bound they (James Bond's actor) would be Bourne free of danger from the global financiers wishing to allegedly rule the world.
    But I do so wish certain people would remember that line about loose lips and the cost in floating conveyances. Especially given that areas - the Financial World - allegedly woeful performances elsewhere recently. Silence would be a bonus I say again I would not begrudge any of them. Not from me of course. Silence I mean. "I'm here to tell you......." lol

  • Comment number 81.

    # 79. At 08:27am on 27 Jan 2010, darksurfer wrote:

    >> 25 Jacking Cartier wrote about Vince Cable:
    >> “He rose from a Yorkshire grammar school to be the Chief Economist for Shell. ”

    > I am delighted to see that someone who reached the top level at one of
    > the most ruthless, global and capitalistic company in the world is
    > still worth worshipping…

    I just like him because he has called for bonuses to _all_ bank employees to be frozen. Let's hit the bankers where it hurts them the most – in the pocket!

  • Comment number 82.

    Proprietary trading and many of the 'naughty' activities of large and
    once-large banks were not the cause of the recent crash, and trading
    desks do not pose a significant danger to the taxpayer. At risk from
    these 'risky' bankers' behaviour are a mere handful of billions per
    year, not enough to bring down any one player, or the system itself.

    The crash was caused by bank boards getting greedy for easy cash, which
    they found for a while by securitizing junk loans and selling them on
    as AAA rated. Unfortunately, the directors of banks believed their own
    in-house hype and forgot that many of these securitized loans were
    really junk, keeping trillions worth
    of them and writing each other CDS etc. They did this because bank
    directors are not traders, they are generally clueless about risk,
    but good at all the kinds of backstabbing and politicking needed to
    reach positions of power and wealth.

    Obama's plan would not prevent taxpayer-guaranteed banks from making
    stupid loans. A loan carries with it a bet that the loanee will repay
    it. Plain vanilla banking is also a risky game, especially when played
    by the types of personality who tend to rise to the top of large
    institutions.

    More than Glass Steagull II is needed if we wish to control
    Capitalism's natural tendency to excess. Luckily for us in the UK,
    we're shortly to be governed by a set of politicians who are sure
    to knock those beastly bankers into shape.

  • Comment number 83.

    Is this getting nasty? - the backlash against the reforms?

    http://news.bbc.co.uk/1/hi/business/8481805.stm

    Consipracists prepare.

  • Comment number 84.

    83. At 10:34am on 27 Jan 2010, writingsonthewall wrote:
    Is this getting nasty? - the backlash against the reforms?
    http://news.bbc.co.uk/1/hi/business/8481805.stm
    Consipracists prepare.
    ----------------------------------

    I see you are slowly but surely joining the club, wotw? ;-)

  • Comment number 85.

    "Those banks did not invest in structured products - they sold structured products to raise money from investors so they could further expand their mortgage book."

    I see - so then they caused the crisis by working with the credit agencies to fool the investors who bought these structured products. They also used it as a mechanism to expand their mortgage book beyond what they would have been able to take on otherwise, because they downgraded the risk and moved it on.

    So in fact these 'retail banks' who are supposedly more diversified and safer - are only so because they sold on their risk to another mug - and eventually the ultimate mug - the taxpayer.

    Don't think Standard Charter, Barclays or HSBC are anything special or had any sort of insight - they are all saved by having large exposures to the Far East markets - which as yet have been less affected.

    However if there is a turn in the far East (or even Middle East for Barclays) - then these banks will require bailing out too.

    They have dodged a bullet - but not through skill - just luck. I could claim that because I was 95% cash when the crisis struck that I am skilled and astute in my investments - but in reality I simply got lucky at that time.

    "The diversified banks were able to tap other resources of funding, including their shareholders, to ensure that they had adequate funds."

    ...and they are still tapping investors for funds - but how long can investors continue to pump money in? Was it a good idea to seek Middle East investment for Barclays with hindsight?
    The eagerness of shareholders to take up the offerings by these banks was not an indication of the success of these banks - but more the failure of the others.

    "This was shown with the stress testing that the FSA carried out and it was the results of this testing which pushed Lloyds and RBS further into the government's hands."

    ....and what are those stress tests based on? - ah yes, past events, so we can accurately see how these banks would have fared in 1929 or 1974 - but as no one crisis follows the pattern of another - this test is useless.

    I have worked with stress tests for 6 years now - they are not new - only new to Government and the public. Reliance on them as a future indicator is very dangerous.

    There is a long way to go in this crisis and so much can change. Diversification works great until we have a worldwide slow down - then it make very little difference how diversified you are!

  • Comment number 86.

    #65. At 8:47pm on 26 Jan 2010, StephenBlencowe wrote:
    #58

    "Actually we had a UK computer industry called ICL.
    We sold it to the japanese (fujitsu)"

    Yes we did, and many of ICL's sales were vendor financed by a specialist subsidiary of a (then) merchant bank in the City.

    Incredible as it may seem, some of these sales would not have been possibly without bank-provided vendor finance.

    Sadly, government provided finance probably wouldn’t have worked in this case, since many of ICL’s customers were public sector bodies. The reason why some of them wanted bank provided finance was to spread the costs of the system over several budgeting periods.

    NB: this only works because many of our governments have chosen not to follow generally accepted accounting principles…

  • Comment number 87.

    I agree with the idea that prop trading doesn't make sense for a company that has an explicit or implicit guarentee from its government.

    However the focus on 'prop' trading as a cause of problems is over-stated I think. Most big trading losses came from those who didn't consider themselves to be prop trading. And the management didn't see them as prop traders either. The problem was a failure in capture of risk, and inadequate capital requirements. So, really the only solution is total separation of normal/investment banking. This is a pain for corporate clients who want one bank to handle all their needs... but not as painful as a recession.

  • Comment number 88.

    83. At 10:34am on 27 Jan 2010, writingsonthewall wrote:

    Is this getting nasty? - the backlash against the reforms?

    'Davos police commander found dead'
    http://news.bbc.co.uk/1/hi/business/8481805.stm

    Consipracists prepare.

    ---------------------------

    I doubt there's a conspiracy.... surely any decent person would contemplate committing suicide if the they were charged with protecting all the worlds biggest spivs, sharks and shylocks!!!

  • Comment number 89.

    Yesterday, Messrs King and Tucker were in Hot Seats in the Palace of Westminster. Perhaps their lower garments were smoldering ?

    And now the temperature is rising further still...

    UK gilts have been described thus by the world's leading Experts (Bill Gross, PIMCO) : in a 'ring of fire'... resting on a bed of nitroglycerine...

    Don't you just hate journalistic distortion of the truth Mr Peston ?

    And omission of all the facts ?

    What about the duvet of trinitrotoluene ?

  • Comment number 90.

    "I see - so then they caused the crisis by working with the credit agencies to fool the investors who bought these structured products"

    No, not quite. When investors - pension funds, insurance companies, hedger funds atc stopped investing in these products there was initially no problem. The problem occurred because when these retail only banks need to refund, there were no investors in the market.

    "They have dodged a bullet - but not through skill - just luck" To paraphrase a sportsman, "the more I practice, the luckier I seem to get"

    "Was it a good idea to seek Middle East investment for Barclays with hindsight? "
    Yes, it saved the taxpayers money

    "and what are those stress tests based on"

    The stress tests were, I believe, based on a contraction of 40-50% of the housing prices from their highs and a complete lack of funding available from normal funding markets.

    Yes, if the whole world was to slow down/stop at the same time there would be problems, but if that was always the way of thinkin, we would never do anything for what would be the point?

  • Comment number 91.

    # 82. At 10:19am on 27 Jan 2010, U14313657 wrote:

    > Luckily for us in the UK, we're shortly to be governed by
    > a set of politicians who are sure to knock those beastly bankers
    > into shape.

    No, I'm the Lib Dems have very little chance. The Tories, of course,
    are in bed with the bankers, so no hope there either.

    Nope - if we've got to beat the banks, The Prez is our best bet.

  • Comment number 92.

    Jacques, your faith in "The Prez" is really quite amusing, almost touching.

    Can you really not see a transparently political and populist ploy, even when it's delivered in such an obvious manner? 77 JayPee's post is a wonderfully accurate and realistic description of the forces at play here.

    He has absolutely no interest in changing or reforming financial firms, his interest is absolutely and unreservedly towards securing an election win. If that means that he has to pander to ill-conceived (and in the context of reducing systemic risk, useless) populist prejudices against banker's pay, then he will do so in order to secure himself his election victory.

    He has as a result immeasurably gone down in my personal estimation. It's probably better than Bush's re-election war, but I still expected more from what looked like a man of principle. I guess absolute power does indeed corrupt absolutely!

  • Comment number 93.

    54. At 7:07pm on 26 Jan 2010, AqualungCumbria

    Don’t think for a moment that MPs are doing us a favour by standing down at the next general election. What the whole government has implicitly agreed to do is allow the little swindlers from both sides to retire from their posts, which is a significant difference because it means they will get a retirement payout (again paid for with our tax money) – the only thing left for them to milk from their positions as MPs.


    As for the truth behind Obama’s reforms you need to look at who is holding the heavyweight economic positions and who is in Obama’s inner circle. They are none other than the ex-bankers who caused the crisis in the first place.

    The very people Mr Obama employed to help him put his economic team together were from Citigroup and Goldman Sachs. Poulson, Geithner, Rubin, Froman, etc. These guys have long and incestuous careers - they all move around together and employ each other, throwing in a bit of nepotism for good measure - jumping from government to investment banks and back to suit.

    It runs deep. These ex-bankers are the very people who were working behind the scenes during deregulation (Clinton administration) and then were instrumental in drawing up the bailouts and TARP (effectively to bail themselves out). And surprise surprise, they are right there now writing up the “reforms”. With carefully crafted juicy loopholes, no doubt.

    And that’s how it all happened right under our noses. The political power has now firmly shifted to Wall Street and the taxpayer has effectively become the welfare provider. They’ve closed the circle and the outrageous level of greed can continue to go unchecked as before. It scares me to think what their next move will be.

    I like Obama. But I’m afraid they’ve put him in the chair to keep it warm.

  • Comment number 94.

    Re 28 - RBS was one mans ego trip...
    I suspect that in too many cases the egos of the so-called 'Top Talent' is overinflated - salaries and bonuses dont reflect absolute worth, but the individual's own perceived worth relative to their peers, Premier League football salaries are similar. A lot of the problems I suspect are as much cultural in the City as systemic, as aggressive self-interest is promoted (in both senses) leading to the kind of short-term 'All for One (and that's me)' approach. Perhaps with a different culture there would have been more self-regulation.
    I dont have a solution on how to achieve this, but experience is that culture takes a long time to change and for now we are stuck with the same group who pushed the limits helping create this mess.

  • Comment number 95.

    #93 marettina wrote:

    "Don’t think for a moment that MPs are doing us a favour by standing down at the next general election. What the whole government has implicitly agreed to do is allow the little swindlers from both sides to retire from their posts, which is a significant difference because it means they will get a retirement payout (again paid for with our tax money) – the only thing left for them to milk from their positions as MPs."

    -----------------------------

    Yes marettina!...it brings a whole new meaning to the phrase 'a double dip recession'.

  • Comment number 96.

    #93 marettina....great post by the way!

  • Comment number 97.

    91. polticians to tame the bankers... you mean that the true rulers
    we're about to get as overlords can't be relied upon to curb
    the excesses of the free-market jungle? Are you a pinko oik?

 

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