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NeedaFilip

Listed below are comments made by NeedaFilip between Thursday, 8th October 2009 and Wednesday, 21st October 2009.

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A sombre warning 2:53pm on 21 Oct 2009 The evidence has already been proved that having a separation of investment banking from retail banking would have made no difference in this crisis. Lehman brothers were a pure investment bank, arguably their collapse was the catalyst for the subsequent global recession. As a pure investment bank the authorities deemed it acceptable to be allowed to fail given that they didn't hold retail deposits and it would therefore only be professional investors that loose out(NB behind every institutional investment are a majority of small private investors). In fact it may be a counter arguement for having hybrid banking institutions, if Lehmans had retail depositors perhaps the US gov would have been forced to support it and we wouldn't have had the catasrophe that's followed with all the unemployment, de-leveraging leading to contraction of the money supply, loss of wealth, burden of public debt, increase in third world poverty that has happened.
If governments and central banks knew that they were going to act as lender of last resort for all banking institutions they may more carefully supervise and regulate these institutions to prevent the domesday scenarios.
Just like after the great depression, if there is a mass panic and you have an effective bank run on the entire financial system it wouldn't matter what kind of bank you were, money is money and the same economic laws apply regardless whatever you call the institution.
A sombre warning 2:31pm on 21 Oct 2009 If you are to beleive the hype, the failures leading to the crisis were due to the retail banking side not accounting for risk sufficiently particularily with mortgage loans.
Lets go back to the beginning, Northern Rock failed not because it made huge losses on it's mortgage porfolio, this had already been hived off into a securitisation vehicle so any losses would have been taken by the bondholders of this vehicle(pension funds other banks etc.). Northern Rock failed because it could not roll over it's short term commercial paper which all banks need to do and because someone created a panic and a bank run ensued. No bank no matter how well capitalised or robust can withstand a bank run. It would need to recover loans at the same rate as depositors removing their money, impossible.
How would separating investment banks have prevented this scenario? Once the panic started it mattered not whether you were a retail bank an investment bank or a bit of both, the separation of investment banking would not have changed Northern Rock's business model one bit and nor would it have changed the way mortgages were securitised and sold off to unfortunate investors.
This was a systemic problem of liquidity, which has more to do with how regulators and central banks managed the financial system than with the structure of the individual banking operations. It appears that king is trying to deflect the blame and responsibility for his part in this entirely into the hands of the bankers. He probably needs to relieve the guilt to help him sleep better at night.
A sombre warning 12:33pm on 21 Oct 2009 I do not work in the financial services sector and have a completely unbiased view.

Points:

Why are we listening to a man who has got so much wrong during the course of this crisis, (left it too long reducing interest rates and has undermined sterling all too often to name but two), in fact why does this man even have a job?

The two UK banks that actually failed were Northern Rock and HBOS, both of which did not have investment banking divisions.

The widely believed cause of the crisis was retail lending, specifically in the mortgage market, loans made to households, not the normal activities of investment banks in mergers and acquisitions or supporting fund raising for large corporations.

The majority of people believe the cause of the problem lay in loans being made to people who couldn’t afford them on unacceptable terms. These losses on sub prime loans were containable, what brought the global financial system to it's knees and lead to a global recession was the mass panic and total loss of trust that ensued from the realisation of the interdependency of the global financial system.

The causes of this crisis are manifold and complicated and will not be resolved in anyway by a separation of investment banking activities, they lie with: Flawed macro-economic policy ignoring the effects of growth in the money supply in monetary policy, poorly conceived regulatory systems(the tri-partite system in the UK), manipulation of the exchange rate by the Chinese authorities, the ignoring of structural economic imbalances by certain countries, speculation in the oil markets, the fact that governments dictate the price of money which means you can never have a truly liberal free market economic model nor a fully privatised banking sector.

I hear a lot of talk about King being an eminent economist very much in the same way as Brown was touted around as a towering intellect, both suggestions are folly and probably the result of their own PR spin, we seem obsessed with viewing the people in positions of power as exceptional even when none are really worthy candidates of this accolade.

N.B. Stephanie are you happy with your reporting of statistics in you previous blog entry?
Moving in the right direction 2:39pm on 19 Oct 2009 Are you sure you have your figures right, Exhibit 2.7 in your article indicates that self certification mortgages accounted for 49% of high risk mortgages not 49% of all mortgages in 2007?

I beleive these measures are too prescriptive, too much unecessary interference that doesn't address any real problems.
The right approach to take is to allow the banks to decide for themselves on the risk associated with any type of loan, what the regulator needs to do is ensure that if any institution gets it's risk calculation wrong then it firstly has the capital buffer to absorb the losses and secondly if it were to effectively become insolvent it could be allowed to fail without leading to significant impact to the overall financal system.
In short it needs to do what it should have been doing since it's inception. This extra regulation is crude and clumsy, the work of an institution not really fit for purpose.

What about those self employed people who legitimately obtained a self cert mortgage and have been able to make the repayments but will now be in a position unable to obtain mortgage finance on reasonable terms due both to the reduction in their loan to value(house price fall) and this new regulation on self certification. Can they claim compensation for this failure of government policy?

This over regulation is very dangerous, this could well lead to further house price falls, some may argue a good thing, but we could get to a situation where the majority of homeowners no longer have enough equity in their property to obtain mortgage finance. The UK economy cannot afford further monetary de-leveraging and shrinking of the overall money supply. The people at the FSA need to assess the macro economic impact of their proposals more carefully. This exemplifies why the tri-partite system is fundamentally flawed, you cannot neatly compartmentalise macro economic policy, monetary and fiscal policy and financial regulation in this way, they are too interdependent. (Brown's buggers muddle).
Count it, don't follow it (redux) 2:46pm on 13 Oct 2009 I think people are still missing the logic. Let's take Cameron as an exapmle he used all his expense allowance to subsidise his mortgage and therefore on the face of it it looks like a legitimate claim. But the reduction in the amount he had to pay on a mortgage allowed him to spend money on things people would generally consider an unacceptable claim(say for example a duck house). Does it matter what went onto the claim form? What is more important surely is how much he claims relative to others. You could go further and ask the question how does the lifestyle he achieves from working as an MP compare to other MPs, should the expenses system somehow be means tested? Are we more affronted by subsidising an MP to maintain a valuable country house in Oxford and an expensive house in Notting Hill or by a less affluent MP who claims for a big TV?
Count it, don't follow it (redux) 2:31pm on 13 Oct 2009 Why is it that non of your colleagues see it in the same way. It makes no difference what MPs spent their expenses on what matters is how much they played the system i.e. how much in total did they claim. Why are so very few people grasping this point, are we so financially illiterate in this country!?
For the record for those who don't know Brown, Blair and Cameron pretty much maxed out on their allowable entitlement, mostly towards mortgage costs.
Lloyds: compensating taxpayers 6:42pm on 08 Oct 2009 The APS scheme will not help Lloyds achieve the new regulatory standards on core capital and leverage multiples in the long term. What it actually needs is a huge injection of fresh capital and if the private sector is willing to provide this then Darling should bite both it's hands off.
If the gov's real agenda is to build a more robust private sector financial system then it will go for the private sector solution of extra capital injection, if it's not then what is it really trying to achieve??
Lloyds: compensating taxpayers 6:32pm on 08 Oct 2009 Interesting addendum.

Looks like Lloyds are going to make the announcement tomorrow then.
Should Darling back Lloyds' rights issue? 5:58pm on 08 Oct 2009 What a dilema for Darling, does he shaft Lloyds further by insisting on adoption of the APS scheme, which increases the gov stake for no extra investment and if the losses from bad loans in the scheme are not significant enough to require gov payouts he gets £15.6Bn of Lloyds equity for nothing! Nice work if you can get it.
What the correct private solution should be, and what all other companies in need of liquidity are doing, would be to raise additional capital through a rights issue and disposals.
Why put the taxpayer on the hook for £260 Bn of potential losses if your desire is to extracate yourself from involvement in the private banking system asap? The only reason would be to take advantage of the opportunities being created by the credit crunch and make some much needed profit to plug the fiscal black hole.
What I would like to see is an analysis of why there is such a huge black hole in the government finances, to some degree the credit crunch is masking the real problems with the UK's macro-economic policy. Do the maths, the downturn does not account for such a huge budget deficit, this was going to be a huge problem even if the financial meltdown hadn't occured. Perhaps in some perverse way we should be gratefull to the credit crunch for exposing the weaknesses in the UK's macro economic policy and structural imbalances in time for us to do something about it before we actually did become a failed state, with Cristian fundamentalist terrorist organisations and central African countries holding charity concerts for us!
Should Darling back Lloyds' rights issue? 5:28pm on 08 Oct 2009 The government does not need to take up it's rights it has the choice just like any other shareholder to sell it's rights, which means it will actually get some money back! This idea of dilution is also a nonsense, if it didn't end up taking up it's rights it may hold a smaller percentage stake but the share price and money generated from the sale of rights will determine the monetary value of it's own stake and whether or not it is currently in profit or loss for it's original investment. A robust significantly well capatilised bank will be very attractive to investors and it is very likely to put upward pressure on the share price to the benefit of both private investor and taxpayer interest. All the APS scheme is is a scam for the treasury to try and fill the massive fiscal black hole with a form of stealth tax. Really, the sensible comercial option is to actually raise the cash through a rights issue and disposals to provide the robust capital buffer all financial institutions need. The APS does not solve the problem of bad loans, these will still go bad regardless of this insurance. Going down the commercially sensible route by raising fresh capital will give a clear indication that the government does not want to be involved in the private banking sector longer than it has to. Given this Mr Darling will no doubt veto the capital raising which will tell us all what the real agenda of this government has been from the start.

How much has the APS actually paid out to date on bad loans?

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