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Obama gets his big bank reforms

Robert Peston | 07:42 UK time, Friday, 21 May 2010

Financial reform in the UK was always going to be conditioned by whatever reforms are enacted in the US.

ObamaAnd as of last night, we now have a clearer - if not yet definitive - view of how Congress is planning to shake up Wall Street.

The important point is that the Senate has - finally - voted for financial reform. Which means that President Obama will get his way, and there will be an overhaul of America's biggest financial institutions more radical than anything we've seen since the 1930s.
But we can't yet be certain of the minutiae of the overhaul, because the Senate's reform package has yet to be reconciled with the House of Representatives.
Here, in general terms, is what is likely to happen:

(1) Most of the $600 trillion derivatives market will be forced through third-party clearing houses, to increase oversight of the deals and ensure participants in the deals put up sufficient margin or security against the risk of losses. As I've mentioned before, this will significantly reduce the profitability of derivatives trading for banks, because it will lessen their ability to blind gullible investors with the wizardry of their science.

(2) Banks may be banned from proprietary trading or speculating for their own account.

(3) An important part of banks' derivatives business, their swaps desks - which include the business of insuring loans through credit default swaps - may be walled off, or forcibly separated.

(4) There'll be a powerful new consumer protection agency.

(5) There'll be new powers for the authorities to seize control of large systemically important institutions that appear to be running into difficulties.

(6) There'll be new powers for the authorities to break up troubled systemically important institutions in a supposedly orderly way.

(7) There'll be new multi-authority oversight of the risks in the financial system.

(8) In general, the Federal Reserve will emerge as the regulatory super-power, though the precise scope of its remit remains to be defined.
What does it all mean?

In theory, banks will be taking fewer risks - and they will certainly be less profitable.
There will be a particular challenge to the business model of Goldman Sachs, which generates more profit - in a proportionate sense - from proprietary trading and derivatives than most of its competitors.

The reforms would have direct implications for Barclays, owner of defunct Lehmans' US operations.

And there will be indirect implications for all big British banks, because where America leads in financial reform has a significant influence on the room for regulatory manoeuvre of the British government.

Finally, there is a knock-on to conditions in global financial markets, especially stock markets, in the coming weeks.

Investors will fear that US banks forced by Congress to retrench and narrow their scope will be less generous with the provision of credit and liquidity, which could dampen the economic recovery.

There's always a bill, a price, for necessary financial reform. Calibrating that price, in respect of timing and size, is the tricky part.

Comments

Page 1 of 2

  • Comment number 1.

    This all sounds like immensely good sense to me.
    "less generous with the provision of credit and liquidity, which could dampen the economic recovery"....
    But if economic recovery is dependent on a return to "dodgy lending", we're probably better off without it.....you don't put the fire out by throwing petrol on it.

  • Comment number 2.


    Reform and regulation is necessary but over reaction is dangerous. Not all derivatives are a problem, many are very useful and almost essential to prudent risk management. Excessive risk taking can easily be restrained by changing capital requirements for those firms engaging in such activity. In simple terms even a fixed rate mortgage is a product made possible by interest rate derivatives, and that clearly reduces risk for borrowers.This is as much politically motivated as anything, to appease public anger, but may not ne the best response.

  • Comment number 3.

    Oh what a sweet, sunny day!

    I wonder how Boy George will react?

  • Comment number 4.

    This regulatory package is a worthy first step to correcting this cycle of greed. Unfortunately it is my bet that the banks and their cynical number crunchers are already looking for loopholes in any new restrictions that will allow them to continue getting rich at the expense of those who are not members of their priveleged 'club'. Then again, we, in the 'first world' have only got our own greed to blame for all this.

  • Comment number 5.

    At last some indication of common sense and ethics coming back to the financial markets and the way they affect the lives of ordinary hard working taxpayers. Well done to Obama for choosing to stand up to and fight against the powerful lobbies of the ultra rich.

  • Comment number 6.

    "lessen their ability to blind gullible investors with the wizardry of their science." and the rest of the manifold ways ordinary people and small businesses are fleeced of their money.

    I am sure this would have been too radical for the last government and we will have to wait and see if all the huffing and puffing of the present coalition will match Obama's pitch.

    My limited understanding of these proposals or imminent legislation tells me that they are not radical enough and it does not appear that there is scope for intervention when a good slapping from regulators is not enough. What would be helpful is a critical analysis from Robert in relation to the UK scene.

    Legally enforceable standards and governance with jail for those who over step the line is essential for any real change.

  • Comment number 7.

    A little too late! No matter what measures they take now, the monetary system is simply beyond repair.

    On a long enough time-line the survival rate of everyone drops to zero!

  • Comment number 8.

    "derivatives forced through third-party clearing houses .. lessen their ability to blind gullible investors ... banned from proprietary trading or speculating for their own account ... credit default swaps ... walled off ... break up troubled systemically important institutions ... they will certainly be less profitable"

    It certainly presses all the right buttons, eh?

    (BTW "the wizardry of their science" - pressing buttons and shuffling cheques around has never been, in any sense, a "science").


  • Comment number 9.

    "Finally, there is a knock-on to conditions in global financial markets, especially stock markets, in the coming weeks."

    Oh well, my pension is already trashed. If a further battering of the value of markets is the price of deconstructing the house of cards then so be it. The only bit that seems to be missing is the commitment to a prison cell for the architects. Perhaps that's to follow later?

  • Comment number 10.

    #3 Boy George.....excellent. I think his answer will be along the lines of " do you really want to hurt me?"

  • Comment number 11.

    The most important aspect of any new regulation must be to ensure the stability of the financial markets and economies. It's better to have a gradual long term increase in prosperity where people can invest their savings with less risk than the current and erratic boom and bust situation we've had for some years. There should be no room for speculators in the markets who just want to gamble on getting rich quickly. People should be rewarded for hard work and their contribution. The markets need calming measures to encourage long term investment like implementing higher capital gains tax if securities are only held short term (e.g. less than two years). The markets should work in favour of the governments not the other way round. It's now time for goverments to take more control.

  • Comment number 12.

    The new reforms are too big for Government agencies to manage, in any country. Best thing to do is to leave it to the market forces to make corrections. In the long run people will be more careful and more conservative as they learn from their own mistakes. Learning collectively is better than the government trying to carry the burden.

  • Comment number 13.

    (1) Most of the $600 trillion derivatives market will be forced through third-party clearing houses, ANYTHING which improves transparency is good

    (2) Banks may be banned from proprietary trading or speculating for their own account. ONE PROBLEM: there is no evidence that proprietary trading is even a small cause of the credit crunch. Seems like the politicians want to shoot something solely because the man in the street doesnt like the way we look

    (3) An important part of banks' derivatives business, their swaps desks - which include the business of insuring loans through credit default swaps - may be walled off, or forcibly separated. SAME PROBLEM: as for proprietary trading. Also why should banks been stopped from carrying out wholly legitimate activities such as taking out an interest rate hedge for a customer's borrowings?

    (4) There'll be a powerful new consumer protection agency. UK HAS THIS: and it really works well... if you are a bank rather than a customer

    (5) There'll be new powers for the authorities to seize control of large systemically important institutions that appear to be running into difficulties.POLITICIANS: will be running banks. Of course to a politician "large systemically important.." means one in a constituency I need to win

    (6) There'll be new powers for the authorities to break up troubled systemically important institutions in a supposedly orderly way. SEE ABOVE: I must admit I like the "supposedly orderly way".

    (7) There'll be new multi-authority oversight of the risks in the financial system.UK TRIED that: the tri-partite system of oversight worked really well here...not.

    (8) In general, the Federal Reserve will emerge as the regulatory super-power, though the precise scope of its remit remains to be defined. IE Fed becomes super powerful but no one knows what those powers are supposed to be used for.

    This is a dogs dinner of regulatory reform. The last thing that should ever happen is putting politician in charge of banking, that not like putting lunatics in charge of the asylum more equivalent to putting the serial axe murdering scizophrenic

  • Comment number 14.

    The banks only have themselves to blame.

    They thought their responsibility (for their incompetence) need extend no further than their financial losses, (and probably still believe this to this day.) Wrong!

    The price everyone has to pay for this, in terms of dampened recovery or even a smaller world of business is very awkward! Governments and politicians in general would do well to learn from this. That unfettered business greed is not clever and that sometimes it IS WRONG to make a profit!

  • Comment number 15.

    @ 9. At 09:28am on 21 May 2010, Everydayperson wrote:

    > Oh well, my pension is already trashed. If a further battering of
    > the value of markets is the price of deconstructing the house of cards
    > then so be it.

    That echoes my thoughts on the matter.

    > the commitment to a prison cell for the architects.
    > Perhaps that's to follow later?

    It costs money to keep them in prison. If we have to retire in dumpsters, then the Sir Greedie's and Applebums must all share a cardboard box on Oxford Road. That's the absolute minimum retribution I could allow.

  • Comment number 16.

    This blog is written with, whats seems to me to be, sympathy for the banking sector. WHY? They caused the problem, went to goverments "cap in hand" and asked for huge sums of money and then think that they should be allowed to go on , "business as usual"? Im sorry! When institutions are "to big to fail" goverenments should have the right to put in place a measure of control. Lets face it Banks never loose money. Think about it. They stop lending or lend at massively high rates of interest, they up there charges or reduce the rate of return on investment funds or saving plans. It may take them time to get back to where the where, but they are in control of one crucial commodity . . . THE MONEY!!!!

  • Comment number 17.

    all well and good, but it'll be diluted by an order of magnitude when the other house get their claws out. I'll wait for the final draft

  • Comment number 18.

    Robert

    Your participation on Have I got News for You was appreciated despite the host being a tad wooden.

    I note you suggest that some are concern that further banking regulation will suppress what is called `economic recovery'.

    I want to assure you that there is no risk to economic recovery from further banking regulation as there will be no economic recovery unless the banks return to behaving like banks rather than casinos speculating on other peoples' debts.

    I refuse to be blackmailed on this point of `economic recovery'. This will only happen when we have all the balls in a row: real money, real value, real investment and real demand. This requires real banking reform.

    I appreciate that this is all boring stuff to the Masters of the Universe but it is called reality; grim reality.

  • Comment number 19.

    the fact the fed is running it means the banks will still be running the show
    Denniger says everything I have to say on the matter here

    https://market-ticker.denninger.net/archives/2336-The-Roof-Is-On-Fire.html

  • Comment number 20.

    I'm not sure the Volcker Rule is enough to keep the likes of Goldman Sachs under control. Define "proprietary trading" and "their own account". I would guess prop trading could be defined as "actively trade stocks, bonds, currencies, commodities" and their derivatives - undoubtedly the "masters of the universe" are trying to invent new financial instruments to get around any definition the Fed comes up with. With regard to "their own account" this just screams "off balance sheet" vehicles to me. Son of SIVs i.e. Structured investment vehicle (SIV) of the Noughties here we come.

    I would have go for Glass-Steagall, the sequence. It would determine precisely the business(es) that retail banks could do - hence limit the deposit guarantee banks. Investment banks could fly as close to the sun as they wished. Who would care when the Icarus effect cuts in.

  • Comment number 21.

    According to the Bank of England Banks will face
    higher capital requirements on trading assets and
    securitisations from 2011 — of around £33 billion for financial
    institutions in the United Kingdom, based on FSA estimates —
    as well as from changes to the definition of core capital.Over the next five years, UK banks also need to refinance
    over £1 trillion of wholesale funding, including
    funding that has been supported by the public sector.Banks have increased their stock of government bonds to widen their liquidity pools which exposes them to market ( and maybe credit) risks on sovereign debt.SMEs are being starved of credit for capital and investment.Banks now face regulatory restructuring and bank levies.

    Someone, somewhere needs to be doing an immediate impact assessment on what could be another perfect storm in the offing in financial markets. Who is doing that in the UK?

    I hope Nick, Dave, George and Vince can take time away from inward reflections on voting reform and the Big Society and deal with this first!

  • Comment number 22.

    There is always a focus on banks' profitability and how that may be reduced by regulation such as these. While profit is a good thing, the problem is that profitability based upon taking huge risks is just not worth it. It is no good banks making huge profits for 9 out of 10 years if in the 10th year they have to bring the world economy to its knees bailing them out. They must accept that profits may be more modest than in the years leading up to the crisis but they (and the nations of the world) will have a greater degree of security in the financial system.

  • Comment number 23.

    (1) Won't harm the banks too much. They lost money on CDS remember when the counter-party couldn't pay up. AIG (an insurance company not a bank) would have caused most of the mess that a clearing house will solve.

    (3) Will INCREASE risk in the system, and damage any corporation looking to hedge out its exposure (say to interest rates). It will also decrease investor appetite for sovereign debt, just like banning naked CDS positions has. This point is economic insanity, and only in because of sheer politics. It isn't supported by Volcker/Bernake for example, because it is mental.

    Also interesting that the Fed was meant to return to only dealing with monetary policy rather than bank regulation, yet it is being made more powerful. Hmmm.

    All in all, the reforms don't address any of the problems that caused the credit crisis. As a reuters argument points out, this regulation will affect consumers as much as the wall street banks.

  • Comment number 24.

    Poor regulation is worse than no regulation.

    The crisis was caused by banks investing in risky assets using money that in the end belonged to you or I. Thats why we couldn't allow them to fail.

    What is being described is a series of slightly woolly restrictions on what banks can do with our money.

    I would rather the risky desks of the banks didn't get anywhere near our money. Real walls rather than Chinese walls.

  • Comment number 25.

    Robert - why not ask the heads of each of the big UK based banks what they think of these measures and whether they think they should be mirrored here.

  • Comment number 26.

    Also - $600 trillion? Come on, that is all notional values, nowhere near what the derivatives are actually worth.

  • Comment number 27.

    You can guarantee that this will bring out the conservatives in the US, all shouting that Obama is continuing to introduce 'socialism' to Amerikee.

  • Comment number 28.

    Part of the problem is the ability of regulators do their job properly, remember they found Bernie Madoff whiter than white when the fingers were first being pointed.
    More regulation can stifle new business, this can give the problem institutions with greater power not less if competition is stifled.
    The Fed was part of the problem in the first place, why put them in charge?
    Governments can keep printing money increasing the problem.
    Central banks inflate the money supply increasing bank reserves helping the boom-bust cycle. During the bust phase if you invested badly and are big enough, you can demand the governments money monopoly can bail you out.
    No more "lender of last resort"
    How about the Banks and Government have to return to some form of the Commodity Standard.
    What if we did not have to accept the pound or any currency as legal tender but the people decided they would accept as a form of exchange that was thought to hold its value better than politically manipulated money, currency competition.

  • Comment number 29.

    All these measures seem a bit of an over-reaction - weren't we told that the entire crisis was caused by Bert and Tracy having a 125% mortgage from Northern Rock ? Caledonian Comment

  • Comment number 30.

    "And there will be indirect implications for all big British banks, because where America leads in financial reform has a significant influence on the room for regulatory manoeuvre of the British government." - Yeah, that and Vince is coming to get ya!

    #12. Chandra wrote:
    "The new reforms are too big for Government agencies to manage, in any country. Best thing to do is to leave it to the market forces to make corrections. In the long run people will be more careful and more conservative as they learn from their own mistakes. Learning collectively is better than the government trying to carry the burden."

    Like we learnt from the last time this happened? This crash was only possible because they removed Glass-Steagall. You remember, the mechanism they brought in to prevent a recurrence of the Wall St. Crash of 1929 and the consequent banking collapse of 1933? The crash that created the conditions for Hitler's rise & WW2? Ahh, you don't remember! You weren't there and (boring old irrelevant) history holds no lessons for you.

    Therein lies the flaw in your argument.

  • Comment number 31.

    At 10:12am on 21 May 2010, Caledonian Comment wrote
    All these measures seem a bit of an over-reaction - weren't we told that the entire crisis was caused by Bert and Tracy having a 125% mortgage from Northern Rock ?

    I believe Gordon Brown thought Sue was to blame!

  • Comment number 32.

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

  • Comment number 33.

    12 Chandra

    "In the long run people will be more careful and more conservative as they learn from their own mistakes. Learning collectively is better than the government trying to carry the burden."

    I am touched by your belief that people learn from their mistakes. In reality, precisely the opposite tends to happen. The staff turnover in the big corporates is pretty high. People tend to stay in their jobs for about three years before either leaving or being moved into a different role. As a consequence, most people are doing jobs at which they are pretty inexperienced, whilst at the same time looking around for their next move. In any company for which I have worked I have estimated the "corporate memory" at about two years...maybe less. Any work or learning carried out beyond that threshold was deemed useless or "out of touch with modern thinking"...also known as "I can't be bothered to go through this old stuff!"

    You see the same thing in the media where correspondents opine breathlessly that "we are in new territory now"..."the world will never be the same again" etc etc. But in reality what they are saying is that "this hasn't happened before in my brief tenure in this role!" In politics, ministers are selected from a pool of MPs who increasingly have little non-political experience and who are expected to wield executive judgement over huge ministries responsible for functions of which they virtually no knowledge.

    The financial service sector is brutally demanding. The majority of people crash and burn out and leave the sector. As a result the industry needs a constant flow of bright new cannon-fodder, assured of its own ability and dismissive of all that has gone before. This is why these bubbles and busts and scandals keep going around. Nobody ever learns a damn thing or simply believe that it won't happen to them.

    Trimming these guys feathers so that they have to operate within more tightly regulated bounds is long overdue. If it "slows growth" or "inhibits the recovery" then fine. The growth that these people talk about simply isn't real growth at all. It's an illusion. If people could learn and remember that one we might just stand a chance in the future.

  • Comment number 34.

    The UK is the bad boy of regulation.

    Much of the destruction to the whole world's economy has originated and legally constructed from London. We lead the World - in economic destruction!

    My bet is that we haven't the guts to do what is necessary, until we get another crash that is.... (The crash is inevitable because of the way that the UK is creating new bubble economies in houses and shares.)

  • Comment number 35.

    Another paper tiger or meaningful reform? That remains to be seen.

    But where are the reforms to stop the creative accountancy that underpinned asset inflation? Are we going to see the guilty parties that drove the collapse vehicle lead out and shot (metaphorically speaking)? It is over simplistic to blame it all on poor house valuations.

    Since we have experienced reforms like these before, after the Great Depression for eaxmple, what poor infrastructure contrived the return to disaster accountancy? Was it poor regulation, or, more likely, was it greed?

    How do you stop someone being greedy?

  • Comment number 36.

    Was it worth the wait?

  • Comment number 37.

    14. At 09:42am on 21 May 2010, spareusthelies wrote:

    "The banks only have themselves to blame."


    ...and yet they seem keen on blaming the....

    Government for poor financial management
    The people for 'borrowing too much'
    The American mortgage market
    President Obama for....well being in charge now
    A 'few rogue CEOs' who brought the system down


    In fact anyone but themselves - which is quite apt really because the fault lies broadly across anyone who dabbles in finance matters but who are too stupid to understand the inherent contradictions of the system This includes bankers, traders, fund managers, day traders, bank CEO's, politicans (especially those in the treasury), pension managers, bond holders and to some extent all of us who continue to have faith in this system - not based on reason, but based on the hope that 'somebody understands it'.

    I mean surely nobody would participate with something they knew was doomed to fail - would they?

    I give you the European Union - monetary union without fiscal union simply won't work - and hey presto, it's not working, and yet our leaders were all trying to convince us that this was a good idea.

  • Comment number 38.

    "In general, the Federal Reserve will emerge as the regulatory super-power, though the precise scope of its remit remains to be defined.
    What does it all mean?"

    Yes what does it all mean?

  • Comment number 39.

    #12. Chandra wrote:
    "The new reforms are too big for Government agencies to manage, in any country. Best thing to do is to leave it to the market forces to make corrections. In the long run people will be more careful and more conservative as they learn from their own mistakes. Learning collectively is better than the government trying to carry the burden."

    yeah, but the problem is they are not learning from their mistakes. The 'solution' to banks collapsing was to hand the debt to Governments. Now Governments are collapsing, what happens next?

    Any idiot could see this would be the consequence - and as for "market forces" - well they have proven their idiocy by allowing a stock market bubble to be created based on the premise "there's nowehere else to put your money" - which doesn't seem like a rationale for investing to me.

    ...and now they're leaving in droves - after realising their stupidity and herd behaviour they are doing what they do best - panicking.

  • Comment number 40.

    @ 24. At 10:05am on 21 May 2010, StopFiddling wrote:

    > I would rather the risky desks of the banks didn't
    > get anywhere near our money. Real walls rather than Chinese
    > walls.

    And prison walls for the perps are best of all! We seem to have
    plenty of prison space for dope smokers and people who forgot to pay thier
    TV license, yet the prisons seem devoid of bankers, who cause
    1,000,000,000 times more trouble to us!

    Don't hold back - chuck them all inside to rot! They caused the trouble,
    and they must now suffer...

  • Comment number 41.

    @ 13. At 09:39am on 21 May 2010, Justin150 wrote:

    > The last thing that should ever happen is putting politician in charge of banking

    Think before you type random thoughts into your keyboard! We, the public, are currently making a FAR better fist of it than the imbecilic "Sir Greedies" of this world ever did, thank you very much.

  • Comment number 42.

    Can't believe some are buying into this as a good solution. It not only fails to deal with the heart of the ongoing amoral behaviour, but effectively hands the keys of the jewellery shop to the criminals.

    The problem is, has been, and always will be, the FED.
    Owned by the same villians who own the banks, the insurance companies, and the rating agencies. The FED is the biggest conflict of interest in economic history, and will remain so, long after these reforms have been absorbed, and the banks and wall street have found even newer financial tools to beat the system with. Nothing will change until the FED has its power removed, and an independent non partisan regulatory body is created that is, by it's nature, comprised of non-aligned parties, including the exclusion of politicians, and proxy lobbyists for the banking and stocks industry.
    The people of the US understand the importance of keeping the separate arms of their society, separate. Until this is the same for economic regulation, with a commitee comprised of "financial justices", who are banned from accepting lobbied gifts, or voting in any case where they are shown to have an interest, the rot will continue. Angela Merkel took the first step towards cutting the amoral financial sector off at the knees. This alleged reform in the US is a publicity stunt, and goes nowhere near far enough to restructuring the financial sector, and the wider economy as a result. Until the bankers are faced with a clear choice of moral vs. serious jailtime, the status quo will continue.

    I would pose one further question.

    Why is it assumed that the financial sector in its current form is essential? It isn't. This is a scam. None of us need derivatives, commodities manipulation, short/long selling, or any other financial risk investment, that uses virtual currency as security (and sometimes not even then). It's complete rubbish to say we'll suffer if these products (and that's all they are, products) disappear from the face of the economic planet. People will do as they are doing, in ever greater numbers.

    Bartering with each other in ever growing communities, the ultimate in "hard" currency, and avoiding the system altogether.

  • Comment number 43.

    @ 27. At 10:10am on 21 May 2010, Joseph wrote:

    > You can guarantee that this will bring out the conservatives
    > in the US, all shouting that Obama is continuing to introduce
    > 'socialism' to Amerikee.

    No. All Americans hate Wall Street as much as we detest our disgusting "City".
    It needs a good flushing out, to get rid of all the dirt and scum.



  • Comment number 44.

    Caledonia Comment wrote

    "All these measures seem a bit of an over-reaction - weren't we told that the entire crisis was caused by Bert and Tracy having a 125% mortgage from Northern Rock"

    -----------
    I thought it was American based and it was Mary-Loo and Billy-Bob having a mortgage on a run down trailer that alledgedly was worth $100,000, the fact that Mayry-Loo and Billy-Bob had no income, no job and no assets (apart from the banjo) being but minor issues

  • Comment number 45.

    Who would have thought this would emerge - even just a few months ago - it is clear that the US authorities wish to curtail the 'hedge funds' without mentioning them directly?

  • Comment number 46.

    John from Hendon

    I fear that you are right...or at least partly right. Contrary to popular belief, much of US business is regulated like there is no tommorow. SEC regulations or GAAP regulations in particular run to thousands of pages. Yet we have the recent experiences of Enron and WorldCom, both of whom filed accounts that were scrupulously in line with regulations. Herein lies the problem...the requirement in the US is that the accounts must comply with the regulations. In the UK by contrast, the rules are less onerous but CEOs and auditors had to warrant that the accounts were materially correct. Philosophically and legally there is a big difference between the two models.

    The US system tacitly admits that everyone is a scoundrel who will have no scruples when it comes to maximising profit, hence the acres of regulation. The UK model essentially required people to tell the truth "on their honour", something that until fairly recently still had some sway over the behaviour of individuals. The City always had its bad boys but there was a kind of self-policing set of standards.

    The issue as I see it is that, in line with the catastrophic decline in standards in public life, business ethics (for all the feelgood hoohah around corporate and social responsibility) have followed a similar downward trend. As a result, the City is a haven for rogues like never before. Who cares what you do...the only crime lies in being caught.

    The reining in of this new amorality is now overdue. It's just that I fear that, as ever, a few brilliant but unscrupulous minds will work out ways around the regulations faster than they can be written. I doubt that this genie can be put back in its bottle...but it's still worth a try!

  • Comment number 47.

    #33 Anglophone:

    "The growth that these people talk about simply isn't real growth at all. It's an illusion. If people could learn and remember that one we might just stand a chance in the future."

    Exactly - as others have pinted out before the reason we have this huge deficit is not, primarily, because we bailed out the banks - its because government taxation forecasts and hence expenditure was predicated on this illusory growth.

    All the regulation in the world won't prevent this happening again - banks will find ways of expanding the money supply that we can't even imagine (who could have ever predicted using CDSs as collatoral for new debt?)

    So shouldn't we be having a debate about how we measure (and distinguish between) growth and inflation? So that in the future we can spot when government expenditure is becoming unsustainable?

    (I know people on this blog have touched on this - but I haven't seen it taken up by the mainstream media, and I haven't seen any real concrete proposals - if anyone has please let usknow!)

  • Comment number 48.

    @ 34. At 10:38am on 21 May 2010, John_from_Hendon wrote:

    > My bet is that we haven't the guts to do what is necessary,
    > until we get another crash that is....

    When you want to reform, you can't. And when you can, you don't
    want to ... it's a bit like our lame voting system!

  • Comment number 49.

    All this user's posts have been removed.Why?

  • Comment number 50.

    Jacques, do you want some ketchup for those chips?

    Your populist drivel would be laughable if it weren't that...populist. Next time you say "bankers" think how many people work in financial services and then think about how many of these were involved in the CDS' and CDO's of the American mortgage market...a pretty small proportion.

    At least I can't accuse you of not having a balanced view...a chip on each shoulder.

  • Comment number 51.

    @ 42. At 11:11am on 21 May 2010, Alexandereski wrote:


    > Bartering with each other in ever growing communities, the ultimate
    > in "hard" currency, and avoiding the system altogether.

    I'm into it - if we don't involve money, we don't involve tax!

    Anybody want a small dog basket? It's going on free-cycle, unless
    one of my "Peston-friends" needs one. I've got a decent fridge going
    spare, too, but you'll have to pick it up (I live in the Welsh Mountains).
    What'll you give me for it? I need used veggie oil (for the diesel)
    or a set of crowbars (I'm pulling down a shed this weekend, for a
    relation who has mentioned that there might be a meal in it for me).

    Yes, bartering is good. And easy, with the internet!!! You know, we
    don't need those banks at all!

    PS: I can also mend anything - industrial controllers, motorcycle engines,
    supercomputers, you name it. But you'll have to pay me in food.

  • Comment number 52.

    "(2) Banks may be banned from proprietary trading or speculating for their own account."

    Hmmm.... "may"? That sounds like it will be heading to "committee" and is bad news. They need to do this since lending to business and consumers is all that's left to them and helps solve the problem of...

    "Investors will fear that US banks forced by Congress to retrench and narrow their scope will be less generous with the provision of credit and liquidity, which could dampen the economic recovery."

    Well in addition to preventing trading on their own account they can take a leaf out of the British book and switch to requiring a certain amount of NET lending.

  • Comment number 53.

    "the Federal Reserve will emerge as the regulatory super-power"

    So the fox is in charge of the chickens?

  • Comment number 54.

    42. At 11:11am on 21 May 2010, Alexandereski wrote:
    The problem is, has been, and always will be, the FED.
    ------------------

    Alexandereski you make too much sense! I am afraid here, your posting will simply be disregarded as conspiracy theory. I'm surprised you made it through the BBC censorship.

    But lose no hope! The chicken will soon come home to roost. ;)

  • Comment number 55.

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

  • Comment number 56.

    What everyone needs to consider is "where are the green shoots" - I mean surely they must be visible to all our 'unqualified eyes' by now...

    The BBC like to moderate this out - because their job is to protect the liars who pollute our system.
    All I ask is people judge for themselves - I'm not picking on the baroness for political gain - I am merely poointing out that the people carefully selected to take up positions at the top of our society - don't have a clue what they're talking about

    https://news.bbc.co.uk/1/hi/uk_politics/7828549.stm

    This was 1 year and 4 months ago - and I have watched the giant office space near to my work remain empty all this time. I have also seen nearly every small business and shop go bust in the vicinity of my work - right smack in the middle of the city of London.

    Never mind Obama's efforts to prevent the mistakes of the past - we're still living through those mistakes

    What a load of lies - and what are our media doing to uncover this? - absolutely nothing.

    Take a walk down Battersea high street / york road and count the number of empty shops. Even the mighty Kings road has vacant retail space - never seen before in my lifetime, and not looking like there is any interest in filling them.

  • Comment number 57.

    44. At 11:13am on 21 May 2010, Justin150 wrote:

    "I thought it was American based and it was Mary-Loo and Billy-Bob having a mortgage on a run down trailer that alledgedly was worth $100,000, the fact that Mayry-Loo and Billy-Bob had no income, no job and no assets (apart from the banjo) being but minor issues"

    ..surely nobody would lend to them? - or maybe only bankers driven by greed and not aware of the unintended consequences of their actions.

  • Comment number 58.

    13 Justin 150 wrote:

    "(2) Banks may be banned from proprietary trading or speculating for their own account. ONE PROBLEM: there is no evidence that proprietary trading is even a small cause of the credit crunch. Seems like the politicians want to shoot something solely because the man in the street doesnt like the way we look"

    Says who? The following is an interesting analysis from: https://www.twnside.org.sg/title2/finance/2010/finance100301.htm

    ------------------------------------------------------------------------
    First, Morgan Stanley's data shows that in 2008, when the system crashed, its trading and investment revenues were about 2% of total revenue. Though it may not be precisely "proprietary trading" as defined narrowly, the fact that this figure was so widely cited by bank analysts does suggest that "our data is in line with quoted estimates". But in 2006, at the height of the bubble, trading income as a share of total revenue was more than 19%.

    Similarly, for Goldman Sachs, in 2008, trading income as a share of gross revenue was reported in the media to be around 10% and according to the calculations of the academics, about 15%. But if one goes back to the boom years of 2006, it was more than a third of the gross revenue, almost 35%. As a percentage of net revenue, trading income was much higher, 36% in 2008; in 2006 and 2007, it was a whopping 64% or more of net revenue.

    For Citigroup, the numbers are even rougher than for Morgan Stanley and Goldman, but they tell an interesting tale. Trading and investment revenue as a share of gross revenue in 2006, at the height of the bubble, was only about 5% of gross revenue, the number cited by many in the press. If one uses the more appropriate net revenue figure, then this share jumps to over 9%.

    Interestingly, if one looks at the contributions to Citigroup's revenue losses during the crash, according to these admittedly crude estimates, trading and principal investments played a significant role. In 2008, for example, trading and principal investment losses amounted to 20% of gross revenue and over 40% of net revenue. If one counts these trading losses as a percentage of the declines of total and net revenue, these numbers become much higher.

    For example, between 2007 and 2008, Citigroup's total revenues fell by almost $50 billion and net revenues fell by almost $26 billion. In 2008, Citigroup lost $22 billion, which amounts to 44% of total revenue losses and more than 80% of net revenue losses.

    Contrary to the bankers and pundits that claim that "proprietary trading" did not cause the crisis, these losses led to a taxpayer bailout and constitute, in fact, one of the main components of what most of us mean by "the financial crisis."

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

    There appears to a running theme on this board, from some contributors, that because a financial instrument or practise exists then therefore it is essential to the efficient working of the World economy. Rather than take this as gospel, from the mouths of those who often have a vested interest, it is sometimes valuable to step back and take a more balanced view.

    In yesterdays discussion on Credit Default Swaps, for example, did nobody notice that these have only existed since the early 1990s. If they were as essential as has been claimed then it is hard to believe that the planet managed to function without these alleged benefits, before this date!

    A similar point could be made regarding certain other practises, such as securitisation. This may have had genuine benefits when first devised but because it became overextended, ended up being a major contributor to the current financial crisis. It is self-evident that if you continuously repackage bundles of loans then you lose transparency regarding the actual risks involved. Unfortunately there was a financial incentive to do so because every new issue resulted in a fee.

    Just because a financial instrument is invented does not necessarily mean that it is universally beneficial in the long-term.

  • Comment number 59.

    Mr Peston wrote:
    '(1) Most of the $600 trillion derivatives market will be forced through third-party clearing houses, to increase oversight of the deals and ensure participants in the deals put up sufficient margin or security against the risk of losses'

    That's around 10 times the GDP of the world. Ten years of all the work every done, traded in one market each year.

    How on earth can anyone put up adequate security for that?
    Let's face it, they can't can they.

    So is it another financial con then?




  • Comment number 60.

    I thought Portillo last night on This Week made the simple point that investors and entrepreneurs are not sufficiently rewarded in the business process when compared to financiers who charge huge fees and can pull the plug at any stage.

    Any reform, to me, must look to redress this balance. Given their dominance over seemingly everything and everyone, I would favour global concerted and strong intervention towards banks. I am not qualified enough to comment on how effective Obama's plans would be.

  • Comment number 61.

    at #3.

    I think the response from [Boy] George will be:

    "I'm going to setup a commision to try and find out what a bank does. And when I've found out, I'll setup another commision to do something about it... So long as it doesn't hurt our core supporters, that is."

  • Comment number 62.

    At last someone courageous enough to listen to the electorate, and not the self-appointed masters of the world. A good start. Now these measures must be coordinated with the European proposals that Chancellor Merkel has been calling for during the last weeks. Hopefully this would be the top agenda in the next month's G8 (G20) meeting in Canada. Putting power back into the hands of the elected representatives- that's the objective, not invisible markets, casinos shrouded as banks or their buddies like rating agencies, wielding omnipotent power to write of any economy on the planet. The agenda for the market must be determined by the people and not the other way round. Democratic welfare states- cann't come any sooner. Welcome USA with new healthcare and concern for the people, not wall street.

  • Comment number 63.

    I sometimes sit here and wonder why some of the people commenting on this blog bother to even read it in the first place!! Anyone else sick of Jacques Cartier, writingsonthewall et al spreading their prophecies of doom and collapse??

    YES the banks took too many risks, YES our regulatory system let us down and YES its going to be a slow and winding road to recovery. Your decision to regurgitate the same tiresome posts day in day out is getting extremely boring!!! Please stop feeling sorry for yourselves!

    The recovery of the WORLD economy is at least somewhat reliant on confidence returning to the high streets and i just pray that only a small percentage of "the high street" read your continual doom-mongering!!

    If your life has been ruined by our "disgusting City" please take time to think of the people in Greece. At least you HAVE a pension to devalue!!!

  • Comment number 64.

    The implications of what happens to the financial system are much wider than whether a couple of the Boys from the City (any City) go to jail for being unscrupulous or idiots; whether banking bonuses are super-taxed, reduced or eliminated altogether; or whether somewhat obscure instruments are used for their original purposes or as separate investments in their own right. Take the housing market for example: most people who took out mortgages used them to buy/build properties either to live in or rent out for someone else to live in. If mortgages are not available at all, are too expensive, or require too large a deposit (relative to earnings of course) then someone who may have previously got a mortgage will now have to rent; but someone has to own the property which is rented and make it available, usually based on market rents, but now more people are looking to rent so the market price will go up unless the housing stock increases commensurate with the demand - but who has the money in cash to build new homes (remember banks have stopped lending for this)? Assuming no significant increase in housing stock the price will rise and people will be forced to look for cheaper places to rent, which may include lower value (i.e. poor quality) homes or different, cheaper, geographical locations (but people try to live where the jobs are), both of which then pushes those property prices up. Alternatively live with relatives for much longer paying an affordable rent (assuming those relatives aren't in the same position); or cram more people into individual properties - or all of the above.
    This leads to a situation akin to the pre-war years and earlier where maybe 2 or 3 families live in a house and people live where it is cheap but with no work...on top of that is falling relative wages so no-one can save enough anyway...pension funds dry up both as no-one invests; as investment values start to fall; and even those who have start to draw down on them (which pushes investment values lower but few are buying...). Few dare take a risk as the consequences are not worth the returns. Fewer can afford to go to higher education. Black markets abound and this combinde with lower incomes reduces taxation.. so governments increasingly tax the (relatively) rich more, eventually reducing incentives and directly impoverishing the few risk takers remaining. General levels of wealth fall in a negative spiral of falling incomes, fewer jobs, less investment...pretty soon we are back where we started a few hundred years ago before banks started facilitating investment by "over-lending" money they didn't actually have... We should be careful what we wish for when we hammer banks for their failures as they have being a primary cause of growth and increasing prosperity over the last 200 years...and not every 120% loan from Northern Rock or even the dodgy loans in the US have gone bad - the majority are still being serviced, even if with more difficulty.
    It is government borrowing and taxation and wasteful spending, when they should have been saving for the next (non-existent, Mr Brown?) bust after the boom, that has got us, the US and Europe into the pickle the they are now in. NOW should be the time that they are increasing borrowing from a LOW base and cutting taxes and deficit financing, based on reserves salted away during the good times. true for all of us, but to get back to the housing market - everyone has to live somewhere, usually paying rent or a mortgage so it's ridiculous to simply blame the housing "bubble" (how is it a bubble if there is a real demand for the products known as "living somewhere"?).

  • Comment number 65.

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

  • Comment number 66.

    So we'll be following on the coat-tails of America yet again! This time though, it might be wise since our regulators have few ideas of what to do.
    I have a suggestion - just an outline. Any traded financial instrument must be clearly understandable and the underlying assets be able to be valued by contributors to this column, and the trader must disclose opposing trades to the purchaser.
    There's lots of nitty gritty to sort out but you get the idea.

  • Comment number 67.

    56 writingsonthewall

    Maybe Baroness Vadera was referring to these 'green shoots'...

    Caroline Lucas becomes Green Party's first MP
    https://www.timesonline.co.uk/tol/news/politics/article7119179.ece

  • Comment number 68.

    The outrageous behaviors of the bankers and their "let them eat cake" attitudes has made it diffiuclt for even conservatives to defend them. Bankers were kind enough to steal from everyone...steal from the middle class and give to the rich. Conservative idea of Robin Hood.
    This is really about a power struggle and the governments must exercise power over the banks or the banks will extort any nation at any time. Bankers have no national interest and the governments need to remember that and protect the depositors and the national economy as banking has become a process of developing short term gain for bankers.

  • Comment number 69.

    Ian Andrew, according to the Wrexham Leader, photocopied some Scottish tenners, spent one at Iceland, got one nabbed at WH Smith and got arrested trying to buy a burger with another at Maccas.

    For offloading £10 worthless notes on society, he got a 2 year prison sentence.

    Our top bankers must be terrified at this example of how seriously our legal system deals with financial mispropriety. No doubt we'll soon see the landmark billion year prison sentence handed out.

    Meantime, really pleased with the news on the blog.

  • Comment number 70.

    #55 WOTW

    # 32. At 10:32am on 21 May 2010, you wrote:

    "This comment has been referred to the moderators. Explain."

    Oh I see - mentioning Robert's appearance on a comedy show is deemed unacceptable by the Beeb.

    We have to accept this at face value as your fellow bloggers are censored from seeing your comment, but i believed the rules were that comments would only be removed for breaking a house rule, Surely not mentioning Robert's appearance on a comedy show is a house rule.

    The reason for the frustration is the removal of my last comment which i can only put down to drawing attention to the semantics within the article ( i have to guess as the moderator has not replied to my e-mail requesting clarity of the rule which was broken).

    It seems rather precious that critisims relating to the bloggs author are removed

    I don't really believe my comment was of any importance, but it would be nice if i took the trouble to make one that it is not removed.

    I do have faith in my fellow bloggers to make up their own minds.



  • Comment number 71.

    # 56 WOTW

    I'm not picking on the baroness for political gain.

    As you know i think you are being unfair (green shoots of recovery was the phrase used by the interviewer), but at least the moderator seems to allows us to discuss our points of view regarding the baroness,as opposed to discussing a point regarding phrases used by a bbc business editor.

  • Comment number 72.

    61. At 1:04pm on 21 May 2010, Abid Mian wrote:

    "I think the response from [Boy] George will be:"
    "I'm going to setup a commision to try and find out what a bank does. And when I've found out, I'll setup another commision to do something about it... So long as it doesn't hurt our core supporters, that is."

    I very much doubt he will be that bold. For all the hollering on the sidelines, now Mr Osbourne is centre stage it appears his gusto has diminsihed.
    First week for the chancellor - first test for the chancellor.

  • Comment number 73.

    58. At 12:35pm on 21 May 2010, Mr_Sensible wrote:

    "In yesterdays discussion on Credit Default Swaps, for example, did nobody notice that these have only existed since the early 1990s. If they were as essential as has been claimed then it is hard to believe that the planet managed to function without these alleged benefits, before this date!"

    I would argue that every financial instrument is created in order to offest the contradictions of Capitalism. You can avoid the overproduction and unemployment cycles if you simply allow more creative ways of bringing demand forward from the future.

    I used the phrase 'avoid' but really I should use the word 'postpone' - for all these instruments have their limits and financial innovation cannot keep pace with contradictory Capitalism.

    The financial engineers may have extended the lifetime of Capitalism by about 20 years or so - but they cannot resolve what is unresolveable. Now the state is involved in this pointless excercise and it is trying to supplement the overproduction by buying up banks which fail. Once again this process is not sustainable and we're about to see the consequences of that.

  • Comment number 74.

    @ 59 Dempster " Mr Peston wrote:
    '(1) Most of the $600 trillion derivatives market will be forced through third-party clearing houses, to increase oversight of the deals and ensure participants in the deals put up sufficient margin or security against the risk of losses'

    That's around 10 times the GDP of the world. Ten years of all the work every done, traded in one market each year.

    How on earth can anyone put up adequate security for that?
    Let's face it, they can't can they.

    So is it another financial con then? "

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

    As I pointed out in an earlier comment. Mr Peston is quoting notional figures which isn't representative of the derivatives actual value.

  • Comment number 75.

    37. At 10:54am on 21 May 2010, writingsonthewall wrote:

    "I mean surely nobody would participate with something they knew was doomed to fail - would they?"

    And even though they can see the proverbial "fly in the ointment," right at the end of their noses, still they ignore it. Many must have heard the expression, "Quantitative Easing." It exposed the lie of a fiat currency system about as blatantly as ever will be the case. Yet....the corrupt thing to do, is still assumed to be the genuine thing to do?

    Neither would they appreciate the implications of the expression, Britain has gone Bust. That is the idea of all Britain's assets being owned by anyone except the British people, unable to service the debt and the debt being of greater value than the assets. It would be completely lost on them. I appreciate we are quite a long way from this, but that's the direction we were headed in and no one wanted to stop.

    Many Republicans in the US must have been hoping that by now, after nearly two years, the problems caused by the credit crunch would have gone away. That they have not shows how serious the situation is.

    Banking should have been there to serve the economy, not the other way round. These new laws are supposed to change things. Though we can't take it for granted that they will.

  • Comment number 76.

    64. At 1:32pm on 21 May 2010, JohnfromLondon wrote:
    it's ridiculous to simply blame the housing "bubble" (how is it a bubble if there is a real demand for the products known as "living somewhere"?).

    I agree with a lot of what you write: the bubble comes when interests rates are too low governments print money creating the environment for something to take off. With lower lending standards more people were allowed to become speculators to help borrow this increased low cost money supply to help feed some inflationary market. People are also encouraged to supply the product/service to an increasing market that is being artificially inflated. So how do we want to define "real demand?"

  • Comment number 77.

    So we have a $600 trillion derivatives market and the world’s GDP is $60 Trillion.

    And they’re going to up sufficient security in case it all goes wrong.

    Why do they have to put up any security?
    Surely they take the loss if they get it wrong?

    Please don’t tell me it’s the average Joe and Jane that gets nailed again if it all goes belly up, and that’s why they need to put up security.

    Let’s be honest now, even if you asked them for 1% of the trade volume up front as insurance, they’d have to find $6 Trillion.

    If they can find that I’ll plait sawdust.

  • Comment number 78.

    #63. JonofStoke wrote:
    "The recovery of the WORLD economy is at least somewhat reliant on confidence returning to the high streets and i just pray that only a small percentage of "the high street" read your continual doom-mongering!!"

    It seems too difficult to ask yourself why the world economy should rely on consumer confidence after all.

    Why should I be happy only when Joe and Jane fancy buying some bling-bling?

    And stop shooting the messenger. It's not the press that created this mess. Actually we are deep in this because too many journalist and academics were afraid to tell it how it is because they were accused of pulling the plug on the wonderful growth we were having. So much about returning to growth. What they actually mean is returning to debt.

  • Comment number 79.

    77. At 3:47pm on 21 May 2010, Dempster wrote:

    So we have a $600 trillion derivatives market and the world’s GDP is $60 Trillion.

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

    Meaning: we have 60Tr. buck's worth of 'real money' underwriting 600Tr. buck's worth of junk debt, eh?

    So it'll take the entire world 10 years just to get back to square one - with the negative growth the necessary austerity will incur, not to mention riots, war et al.

    Does anyone still really think it is even remotely plausible that we can save the system as we know it? Or that we ought to? Of course not! It's mad, totally bonkers and reducing human civilisation to junk status, too.

    So why are we even having this discussion, chaps?

  • Comment number 80.

    74. At 2:51pm on 21 May 2010, greenyblue wrote:
    As I pointed out in an earlier comment. Mr Peston is quoting notional figures which isn't representative of the derivatives actual value.

    He doesn't say they're notional.
    In any event what is the true value if not $600 Trillion?

  • Comment number 81.

    Robert, please refrain from likening this bunch of snake oil salesmen to scientists!

    What consumer protection will the Americans introduce? No one would be allowed to sell rat poison as nutritious to mammals.... and if they did their be a hefty price to pay, so when will the financial industry be similarly brought under tougher legislation.

  • Comment number 82.

    #66. At 1:44pm on 21 May 2010, pietr8 wrote:

    "So we'll be following on the coat-tails of America yet again! This time though, it might be wise since our regulators have few ideas of what to do.
    I have a suggestion - just an outline. Any traded financial instrument must be clearly understandable and the underlying assets be able to be valued by contributors to this column, and the trader must disclose opposing trades to the purchaser."


    Can I also suggest that the purchaser/trader also has the funds to acquire and trade, not the promise of money from a prospective transaction to buy it. That would slow them down a bit, they wouldn't have the mechanics to panic.

    Yeah - I know, I'll get me coat.

  • Comment number 83.

    #63 JonofStoke

    Ho ho. Nice one.
    But consider that those of us participating in the real economy are having to do two things.
    One. Create the wealth for our families and pay taxes.
    Two. Create wealth so that the bankers can rip it off.

    All the bankers have to do is take as much as possible. The system does the rest. Takes it off us.
    And the best of it?
    YES they love it. It is easy for them.
    They have us all fooled. You particularly.

  • Comment number 84.

    #64. At 1:32pm on 21 May 2010, JohnfromLondon wrote:

    "It is government borrowing and taxation and wasteful spending, when they should have been saving for the next (non-existent, Mr Brown?) bust after the boom, that has got us, the US and Europe into the pickle the they are now in."

    Can't agree. The austerity measures haven't kicked in yet in either the UK or US, the economic decline so far is solely down to casino banking and bailouts. Annual government deficits and mounting debts are a problem no question but to date all the pain is down to the banks. If these banks hadn't been so outrageously crooked such that they eventually required public refinancing we wouldn't be where we are today. We could have been having a sensible debate now on how to remedy a manageable problem with less severe repercussions on an innocent populace, I say populace not public sector, be under no illusions this is going to hurt - all of us.

    Successive UK governments could have avoided this if they'd put the brakes on banks much sooner but they encouraged them to be profligate as it gave rise to false growth, false profit and what I consider to be illegal practices by hiding debt liability from balance sheets. Once this was clear it was too late and the poison spread rapidly, it's still coursing through the veins of the banks today and will eventually cause an epidemic. Only a few will survive. If this had been accepted and acted upon by government sooner growth forecasts would have been more realistic and public spending moderated. Therein lies the fault of government not overzealous spending.

  • Comment number 85.

    Thank you everybody on the RP blog. As a person who was a committed (should be in an asylum) europhile (with a small e) I finally understand why the Euro can not possibly work without full political and financial integration and harmonisation. The idea that impoverished eastern bloc countries should have to borrow (for them) HUGE sums to prop up a relatively affluent Greece is a travesty.

    For Spain and Portugal to have to borrow billions to give to Greece to service those debts owed by Greece to Spain and Portugal has seriously screwed my head. (As I know it has yours too).

    I had not heard of naked shorts before 3 days ago, but now I actually start to understand a little of what WOTW (I always think of the Lindisfarne song when i see that abbrev (apologies, no insult intended)) has been banging on about.

    Malcolm McLaren (not my Fav person) coined the phrase 'Money from Chaos'

    And there we have it. It is extremely difficult for companies and economies to improve or progress without massive investment and the returns are relatively low in a hi-tech region without unique innovation.

    Therefore the odds are in favour of the short sellers - gambling AGAINST success has a higher chance of winning. the spiral can only be downwards.

    The credos of capitalism therefore contains within it the seeds of its own demise. Failure of legislation and regulation on a global scale for all the greedy politically lazy reasons we all know - ensures that the system will inevitably fail. We will lurch onwards for some tens of years, but it isnt going to get better.

    A horrible realisation. Thank you all again.

  • Comment number 86.

    How about a worldwide ban on all negative trading instruments. Back to older principles, invest in companies for success and profit. Full stop.

  • Comment number 87.

    Dodgy practices are happening in all financial markets around the world.
    Take a look at this link , this is Canada insider trading.

    https://ca.news.yahoo.com/s/capress/100521/business/insider_trading_cda

    Loads of ways for these guys to make money from insider trading , to selling short, to off loading bonds before anybody else knows information etc.
    Time they sent some of them to jail and may be the rest will thing twice?
    Trouble is their is that much money involved and the risk of getting caught is so low its easy for them to pull the wool over Joe public.

  • Comment number 88.

    Central governments are the biggest bankers of the lot. As a private business that was almost rolled over in the last recession - but that was because the Conservatives messed up in the exchange rate mechanism and tried to fight the market forces when the pound was overvalued - we still have central governments thinking they know best in cahoots with a bunch of over-important semi-productive cohorts running inside the Panjandrum

  • Comment number 89.

    There seems to be a bit of hysteria on the 600trillion in derivative 'value'. One of the things I have tried to find is what proportion of this is related directly to proprietorial trading by hedgies etc (effectively gambling) and what is actually used for a variety of fairly sensible uses - unfortunately I can't so a clearing house seems a very good idea.

    However, note that many derivatives are used as a form of insurance - protection against movement in interest rates and currencies - very important in underpinning finances for buying large amounts in a different currency (airplanes anyone?).


    Interestingly, approx 400trillion are interest rate derivatives, approx 60 trillionish related to CDS (the nasty thing that caused all the problems after silly lending practices) and only a 'small' amount less than 10trillion related to equity derivatives. The balance I am assuming is currency related derivatives.

    If anyone has any actual statistics on how derivatives are split between 'insurance' and simple gambling then that would be very valuable in this discussion.

  • Comment number 90.

    89. At 11:30pm on 21 May 2010, EmKay wrote:

    If anyone has any actual statistics on how derivatives are split between 'insurance' and simple gambling then that would be very valuable in this discussion.

    >>>>>>>>>>>>>>>

    That is why the issue of derivatives etc, fairly inert - v extremely high risk trading is an issue ... as the split on trading is not recorded or is not recorded at all, in their published accounts of these FI's.

    Many would say the trading is deliberately concealed as the trading is out of control and that many high risk trades exist in the system and are as yet unresolved.

    The global banking and finance crisis is unresolved and is ongoing and is simply now in a different phase - the lack of liquidity phase has been passed over temporarily and now the issues are more bad debts and 'hedge fund risks and trades incluing massive sovereign currency debasement and trading'.

    Transparency and proper accounting control would be one way of re-assuring the markets that a global financial crash is not on the way.

    Greece is a concern all around the world because of the wave of bad debt default that can be triggered if it fails as a sovereign state and we don't know how many - perhaps know one knows for sure - how many bad derivative trades are caught up with Greece, the sequence and volume of the debt and the risk of contagion, drunken domino effects of a bad debt ripple affecting other FI's and countries.

    All of these problems are inter-woven and the hedge funds and other FI's are not seperately accountable for their trades and debts and cannot identify the risk trail for their trades and debts.

    On top of this some of these FI's are getting ready for massive currency speculation and will attack currencies and weaken them significantly before arranging trades on the back of the volatility.

    Its all out of control ... and the questions are 'when' and 'where' and 'how much' ... and not 'if'

  • Comment number 91.

    You've only just begun, Mr. Obama.
    Now sort out the credit rating agencies and then stop "Auditors" hiding behind their disclaimers.

  • Comment number 92.

    I don't think that we should take any lessons from the USA on regulation. They have a rich history of permitting an economy where transgression occurs far too often and then they shut the door after the horse has bolted with knee jerk rules e.g. Sarbanes Oxley.

    They need to sort out their get rich at any costs culture and then we'll take them more seriously.

  • Comment number 93.

    All of these measures are common sense and act to protect the investor and the general public from rampant abuse. May I suggest this is replicated in every country to bring all of these trades into a legal framework that protects the general public from over zealous greedy traders.
    No mention of rules governing insider trading and stiff penalties like prison sentences for people caught doing that. Fines are no good the money involved makes that pointless.

  • Comment number 94.

    # 50. At 12:00pm on 21 May 2010, U14350905 wrote:

    > I can't accuse you of not having a balanced view

    Cheers, but if you are satisfied, then why pipe up?

    > Next time you say "bankers" think how many
    > people work in financial services

    Yes; there are quite a few button-pushing clerks in
    the world, aren't there? And they expected real workers
    to pay for them. Well, I'm sorry, but I'm done carrying
    bankers along. We need more bakers, not bankers!

    If you have anything more than a scrap of jargon
    to add to the discussion, we'd be glad to hear it.
    If not, please waffle on in private.

  • Comment number 95.

    # 81. At 6:06pm on 21 May 2010, copperDolomite wrote:

    > Robert, please refrain from likening this
    > bunch of snake oil salesmen to scientists!

    I've already told him off about it. Bankers are stuck
    on basic maths, like those lame "derivatives" that don't
    work. It's basically a load of hogwash - just "make work
    projects" to keep them busy.

    Half of them are unqualified, and that's why they have a
    chip on thier shoulder.

  • Comment number 96.

    "There'll be a powerful new consumer protection agency." - but you haven't mentioned it will be controlled and run by the Federal Reserve. Oh for goodness' sake.

  • Comment number 97.

    '$600 trillion derivatives market'
    World GDP is around £60 trillion

    Says it all really.

    It's money Jim but not as we know it.

    Funny

  • Comment number 98.

    #58: you quote a single bank, Citigroup as being brought down by proprietary trading and two banks (JP Morgan and Goldman Sachs) who were not. I will add to your list Northern Rock (insane lending), HBOS (insane lending), RBS (insane borrowing and lending) none of which were brought down by proprietary trading.

    That is exactly my point there is no evidence that proprietary trading is the root cause of the problem, some banks who engaged in it did rather well others badly. The much bigger problem was that banks failed on one of their basic functions - lending on property.

  • Comment number 99.

    # 98. At 08:48am on 23 May 2010, Justin150 wrote:

    #58: you quote a single bank, Citigroup
    >> as being brought down by proprietary trading and
    >> two banks (JP Morgan and Goldman Sachs) who were not.
    >> I will add to your list Northern Rock (insane lending),
    >> HBOS (insane lending), RBS (insane borrowing and
    >> lending) none of which were brought down by
    >> proprietary trading.

    > The much bigger problem was that banks
    > failed on one of their basic functions - lending on property.

    Justin150 often trots this one out, and it's getting tiresome for me to keep shooting him down. He thinks it's insignifican that the biggest banks in thr world we're brought down by proprietary trading. But that's only half the story.


    We don't care why they failed. We only care that it impacted us. If they are too big to fail, with lots of tentacles everywhere, then we must break them up.

    In a small number of cases, the banks concerned may have been adequately managed by thier bean counters, but they were too big to fail, and that can't stand.

    I hope that's the last time I hear this hoax.

  • Comment number 100.

    I wish.

    The derivatives market is USD 1.405 Quadrillion.

    Your personal share is USD 206k.

    Time-bomb.

    https://www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/cgi/mi2g/press/190309.php

 

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