Month: March 2009

This government does not know how to spell “freedom”, let alone understand it.

They now tell us they wish us to fill in details everytime we wish to travel abroad, as if were suddenly all locked into the USSR – or the EUSR as many of my correspondents would have it.

This would, they suggest, allow them to levy their parking fines, unpaid Congestion charges and any drink supplements they get round to imposing after the initial row has delayed it for a bit. They will use the cloak of anti terrorism to justify it, and their over the top anti terror laws. They fail to explain how they will be able to recognise a terrorist when they decide to leave the country when they failed to spot them on the way in, or failed to arrest them whilst they were living here.

This government has done more damage to freedom than any I can remember. They hold a referendum on regional government then ignore its result. They refuse to hold the referendum on Lisbon which they promised. They amalgamate the Revenue and Customs, so all parts of the tax raising bureaucracy can proceed on the basis that your money is theirs until proved otherwise. They impose huge volumes of stifling regulation on everything, then each time something does not work claim it is because there is not enough regulation.

From the government which brought you selective schools only for the rich, and driving in London only for the rich, we now might end up with drinking alcohol only for the rich.

The government presumably sanctioned their adviser to demand higher prcies for alcoholic drinks. Is this being nice to the rich – letting them have first choice at the off licence – or being nasty to the rich, by letting their livers rot first?

Presumably the government will just borrow more to stock the Ministerial drinks cupboards at the higher prices. Doubtless they will still be able to afford a snifter in the back of the Ministerial limo as the taxpayer takes care of their Congestion Charges.

So there we have it. After millions of pounds, after endless drafting by spin doctors, after a good lunch and thousands of airmiles, the Finance Ministers conclude they will “do whatever it takes” to end the recession.

When will that be then?

And could we know “What does it take”?

I suppose it is a kind of wisdom that the UK government has now twigged that each of the G20 countries is in in a different position, and maybe needs to take different action. They have certainly worked out now that there are very different views of what might help, ranging from the absurd Franco-German idea that more regulation will end the slump to the risky US idea that the way out of a borrowing crisis is to borrow more. Some wiser heads in the UK government team have worked out that the rest of the G20 do not see themselves as a Gordon Brown fan club, prepared to let him star in his own drama for political advantage at home.

What a pity there were no practical moves to start working through the bad and doubtful debts and the over extended leverage of the broken banks, without saddling taxpayers with the bills. And what a pity there was no break through on rising protectionism,and no mention of the present wish by many of those present to devalue their currencies at the expense of their fellow Finance Ministers.

What a pity as well, that no-one there was prepared to question the wisdom of the huge build up in government debt we are witnessing worldwide. Do none of them stand up for taxpayers, and for future generations now being born into collosal debt?

The government just does not get it.

Today we learn they are proposing new and much more extensive mortgage regulation, and regulation of everything else in the financial sector that they think should be regulated more.

I remember Labour introducing massive amounts of new mortgage regulation before the crash. I wrote explaining that their style of regulation would not stop a disaster, and that what they needed to do instead was make their regulation of banking cash and capital effective. They latched on to my former remarks and misrepresented them endlessly. I presume they did this because they realised their very intrusive mortgage regulation had comprehensively failed and I had been impolite enough to mention it.

The UK’s banking crisis could have been prevented by just one senior Regulator. That could have been someone senior at the Bank of England, if Mr Brown had not taken the powers away from the Bank in 1997. All that one senior person had to do was to say some years ago they would not allow banks and mortgage banks to go beyond a specified limit for the amount of money they could commit for a given amount of capital.

Instead, a large number of regulators all ticked boxes, carried out audits, intruded into huge amounts of detail on transactions, and looked the other way on the one thing that mattered. None of them noticed the huge increase in leverage, and none of them called time on it.

Employing an even bigger army of useless regulators after this crisis will not prevent another one. It will add layers of cost and complexity, but will not prevent extreme events.

Let’s just find one good person to be the banking regulator at a newly strengthened Bank of England, and cut out a load of the nonsense. Regulating mortgage process did not stop a single bad loan to someone who now cannot repy the mortgage. Controlling banks cash and cpaital would have stopped a lot of loans. It would have taken just four phone calls to the four main banks, a day’s work for someone who knew what he was doing. On the next day the senior regulator could have made a few phone calls to the Shadow banks to tell them that because he was controlling the main banks capital there would less borrowing for them too, as they got some of their excess leverage from the main banks as well.

Mr Darling has three aims for the Finance Summit this weekend – to borrow more money, to borrow more money and to borrow more money. It’s a strange way of sorting out a crisis brought on by borrowing too much.

His three way plan consists of
1. Countries to agree to borrow more to spend more
2. Countries to agree to find ways to get bad banks to lend more
3. Countries to agree to borrow more to put more into the IMF so it can lend more to overborrowed countries.

No wonder we are in such a mess, with thinking like this at the top.

He forgets the nature of the crisis. The UK, the US, Spain, Ireland, the Eastern Europeans and a few others borrowed too much. Banks got over extended, and then the authorities called abrupt time on the party leading to a huge hangover. Meanwhile China, Germany, Japan, and some others worked hard and saved hard, building up large surplsues which they lent back to the overborrowed.

The different countries need different solutions to help resolve the crisis. The saving and exporting countries could afford to spend more and create more demand at home. That would be very helpful. The countries that have borrowed too much need to control their borrowings and learn to live closer to their means. They need to save and export more, not reflate by borrowing too much.

The bad banks should not be bolstered and subsidised on the collosal scale this government favours. They should be made to own up to their losses, cut their costs, and get their businesses into shape. Far from lending more, they should be getting their risks into line with their capital. If the government must see more lending to UK businesses and individuals it should be done through good banks and new banks, not through the costly and distorting mechanisms of the bad banks. The government should learn that business does not need more loans, but more orders, not more bank debt but more revenue.

Putting more money into the IMF may be timely – who knows which country may next be in need of an emergency loan. They should also discuss what the IMF is going to make the over borrowed do to sort themselves out. Why not start doing it before having to seek an IMF loan? And why doesn’t the UK government see that we need to put our financial house in order as well.

This debtaholic Chancellor seems wedded to more debt. It is not the answer. We need to sober up and sort things out.He should start by calling time on more cash for bad banks. They just pay themselves too much and make bad investments. Haven’t we had enough of that? There has to be a day of reckoning for them. It is wrong of the government to delay it, putting the taxpayer at massive risk. Don’t let them go bust, but keep them short of cash so they have to sell assets, cut high salaries and get wise with their investments.

Most people now seem to agree the Regulators should have been tougher on banking cash and capital in the private sector, to stop the private sector credit excesses.

Instead of talking about how to prevent the last crisis, as they are now doing,we need to look ahead.

Shouldn’t the Uk Regulator today be warning about excess credit and borrowing in the public sector? And shouldn’t a tough Regulator be taking action to ensure that does not get out of hand? Don’t they have a view on how much banks should lend to the government, and on how much money should be printed? That’s all pretty important to the stability of the system.

I have always been careful to go along with the conventional wisdom and with the government spin that there are banks that are too large to be allowed to fail. I have done so knowing how powerful the spin against me would be if I ever suggested otherwise.

To concede that does not mean, however, that I have to support the huge sums of money the government has made available to bail out bad banks, and certainly does not mean I agree with buying shares in them which delays sorting them out. If the authorities are stupid enough to get themselves into the position where some banks are too big to fail, it is even more important they take prompt action to break them up so they cease to be too big to fail. The correct strategy with an unwieldy conglomerate like RBS is to break it up into its constituent parts and find answers for each of them. Some could be sold immediately. Some will need managing to health and some like the Investment bank can be closed down after the bits of value have been sold. You should also keep RBS short of capital and cash to force it to raise more of its own, and to prevent it from paying the absurdly high salaries and bonuses it is still paying when it is no longer making profits and raising private money to do so.

This is a good policy for the taxpayer, cutting the taxpayers risk and getting some cash back. It is a good policy for the banks’ customers, leading to more banks and therefore more choice in the marketplace. It is good policy for the regulators, making it easier to see what is going on with each business having its own balance sheet and its own more visible and accountable management team.

The Competition authorities were asleep on the watch in recent years. They should not have allowed the Lloyds/HBOS merger, nor some of the constituent mergers that created RBS. Allowing banks to come that big does damage the market, putting too much banking under common decision making and ownership.

I read yesterday that the FSA is now going to hire 280 extra staff and is going to make life frightening for banks. I don’t think that is the right response. The regulatory failure in the UK occurred thanks to the former Chancellor. He was the man who split responsibility for banks capital and solvency by making the Bank of England responsible for the banking system and making the FSA responsible for individual banks. He became the chief Regulator himself, as the Head of the tripartite system. He must take the ultimate responsibility for what went wrong.

What he failed to see was obvious. Banks were allowed to expand their balance sheets far too much. It does not take 280 people to work that out. Just one person who knew what they were doing could have seen that the top four banks were all expanding too quickly and had too little capital in relation to the amount of business they were writing. If I could see that from the sidelines, surely the Chancellor could see it aided by all the advisers he enjoys at the Treasury, Bank and FSA. They had the powers to make them have more capital for any given volume of business and should have used them.

When I wrote the Conservative Economic Policy review Foreword I read the banks balance sheets and described how the fast growth of the previous few years rested upon the weird and wonderful expansion of financial instruments in the banking and shadow banking system. I explained how this would now come to a stop and how times would get tougher. This has been selectively quoted by the Guardian website to suggest I thought the expansion was a good idea! They just refuse to quote the crucial following passages and the recommendation that the Bank of England needed to be given back its powers to control banks cash and capital.

For those who have read the quote about how the easy credit created good times, misinterpreted on the Guardian site, here is the following quote in the same Foreword about what could happen next, written in June 2007 well before the run on the Rock and the events which followed:

“As we write, there is considerable uncertainty about how far the Fed, the ECB and the Bank of England may go in raising rates to squeeze inflation out of the system. They must know there are huge pyramids of debt throughout the system, and inflation will not be killed unless the appetite for more debt is blunted. They also know (perhaps they didn’t!) that if they push interest rates too high for too long they could bring the debt structures crashing down, as we have seen with the sub prime mortgage collapse in the USA, leading to falling asset prices, rising unemployment and even recession. “

I rest my case.

Some have written in to praise, and some to express cynicism about the Conservatives announcement that they will be pulling out of the European People’s party.

To those who think they are saying this now because there is a European election coming up, I say, Yes of course. But this is not a cynical ploy. This no new policy, but a policy delayed by Conservative MEPs elected last time on a different platform who would not agree to pull out. They had after all told their electors something different.

This time all official Conservative candidates are standing on a platform of pulling out of the EPP, so we assume it will happen immediately after the European election. I voted for David Cameron as Leader partly because he made this promise. I believe he will keep it, at the first opportunity, which is immediately after the Election.

Yesterday I heard an inspirational speech from a member of the Shadow Cabinet. Yes, honest, I did. Don’t stop reading. I am not fibbing. Central office did not ask me to write this.

When I went to hear Caroline Spelman talk about the future of local and regional government in England I did not expect she would blow my socks off with her vision. But she did, in her gentle, understated way.

Listening to her, I saw in my minds eye the democratic cavalry massing on the hill. She wishes to sweep them down onto the battlefield after a General Election victory , to remove bureaucracy, waste, and hated regionalism. Just listen to this:

Unelected Regional assemblies – abolish
Select Committees for the English regions – abolish
Regional housing quangos – abolish
Regional planning quangos – abolish
Regional spatial strategies and housing targets – abolish
Targets and surveillance of Councils by Whitehall and regional government – abolish
Many of the specific grants – abolish – to be replaced by general grant
Council Tax capping – abolish

What would happen if a Council performed badly? The electors have to sort it out by voting for a change. What would happen if a Council wished to put the tax up too much? They would need to win a vote to do it.

Brilliant Caroline. We will save billions by sweeping away this hated regional bureaucracy and the panoply of regulations, guidance, controls and checks national government imposes on Councils.