Category: Blog

The Central banks concerted action is a move in the right direction, and better late than never. It is part action and part spin, as it is designed to rebuild confidence to get banks lending to each other.

The reason they will not is that they are all worried about meeting their regulatory requirements.

It was the capital requirements placed on banks by regulators that led so many of them to bundle mortgages and other loans up into special vehicles and funds, and spread them around the market. Under the regulators’ rules this enabled banks to lend more with less capital. Encouraged by very low interest rates, they did this on a huge scale, with the regulators watching them and saying nothing. The regulators should have limited the amount of this lending by scoring it differently for capital purposes, or by demanding a more prudent valuation of the packages.

When interest rates were hiked by the Central Banks in the US, Europe and the UK, this started to undermine some of the loans made to individuals who struggled to pay. This in turn undermined the value of the packages of loans spread all round the banking system by regulatory requirement. This has now led banks to need to husband their own cash, limit their new lending and try to tidy up their own balance sheets, to offset the large losses they are having to report. No wonder they do not have money to lend to other banks. Now the regulatory system is doubling up the impact of the higher interest rates, and making banks sit on cash instead of lending it.The Regulators are effectively tightening after the damage has been done.

This is a massive disaster for the world’s regulatory system for banks, made far worse by the lurch of the Bank of England and the other main Central Banks from boom to bust in their approaches to interest rates and monetary management. The Fed has been more decisive in trying to correct for too much tightness. The Bank of England is still a long way behind the plot.

It is high time there was proper recognition of the crucial role played in this sorry story by the regulators. They designed a system which powered huge off balance sheet lending. They allowed it to be valued on a favourable basis with relaxed capital requirements on banks. Now they are doing the opposite, at the very time when they need to relax a bit to get banks able to lend to each other again to keep the system going.

There is at the moment a fashionable syllogism:

Regulation is there to prevent individual banks crashing and to prevent system failure

We have a tightly regulated system which has just witnessed 2 German banks and 1 UK bank get into trouble, and has witnessed a freezing of the markets

Therefore we need more regulation!

This is another area where we do not want more regulation. It is an area where we need governments to show some skill and some understanding of where they are in the credit cycle. At the moment we have boom and bust governments, allowing skewed regulatory requirements when money is too loose, and threatening too tight a regulation when money is too tight.That is the way to make a bad situation worse.

Today the Prime Minister will sign away important powers of self government from the UK to the EU.

At least we have forced him to do the deed himself with cameras to record it for posterity.

This Treaty sacrifices more vetoes than any predecessor Treaty. It helps create an EU foreign policy. It reinforces EU moves to its own defence and criminal justice policy. It gives far too much power to the central EU institutions, to be exercised in an undemocratic way.

Not a vote has been cast in favour of such treachery.

This week we were allowed a debate on European matters. The government again ruled out the referendum on this transfer of powers which they promised before the last election. They made that promise because they knew the transfer of power was unpopular, and they wished to avoid debating it properly in the General Election. They kept saying in the Election there was no point in discussing the Treaty because there would be a full 3 week campaign and vote on it on another occasion.

The government’s case, put by the chief butcher of our freedoms, Mr Miliband, was that Parliament will decide. He claimed that is right way to do it in a Parliamentary democracy.

I and other Conservatives pointed out in the debate that if Parliament is to decide, it has to have a vote on this Treaty before the Prime Minister signs it. Miliband denied us that vote this week, tabling a motion on the adjournement, and refusing moves by Bill Cash and others to debate a proper motion on whether to ratify the Treaty or not. It makes a mockery of the government’s claim, that Parliament will decide, and that Parliament matters.

The government’s offer of around 20 days of debate on the Bill to put the Treaty into practise is cynical and crude party politics, not democratic procedure. They hope 20 days of debate on the EU will allow them to brand Conservatives as fixated about the EU which does not emerge high up voters’ list of priorities. Every time we table an amendment of substance to reduce the impact of the Treaty we will be told that it cannot be allowed because the Treaty is done, dusted and signed. It will be 20 wasted days, with the government majority used to steamroller through a disgraceful Bill that the British people and their elected representatives have been denied a vote on.

This should be remembered as the death of democracy day. This is the day that the UK accepts an undemocratic Treaty which even contains powers to avoid these difficulties in future when the EU wants to grab more power from us.

The BBC Today programme had a second go at Northern Rock this morning, and did allow Lord James to set out some of the reasons why nationalisation would be a bad thing. He reminded us that managing the Group would be very difficult for the government, there would be conflicts of interest with their role as Regulator and that there could be competition complications if a nationalised Rock used public money to take busienss away from others.

He might have added the biggest reason of all – taking on more than ??100 billion of liabilities would be a huge commitment for the taxpayer. We the taxpayers would undoubtedly lose substantial sums of money we could ill afford to lose, even if they did nationalise it for ??1 and faced down the lawsuits of aggrieved shareholders who would object to such a confiscation.

Lord James proposed something he called “work – out” instead. This is more commonly known as “run-off” in the financial world, and is used for for example for insurance companies in trouble where they have to be closed to new business. The existing book of business is then managed to a successful conclusion over the years. Of course that is the fall back option, should the current shareholders and directors fail to make a success of running it as a going concern, and if the takeover bids do not result in an agreed deal.

The governnment needs to do some straight thinking and some straight talking for a change.

IT HAS TO BE A TOUGH AND FAIR BANK MANAGER, MANAGING THE LOANS WITH A VIEW TO GETTING THEM REPAID AS QUICKLY AS POSSIBLE.

IT HAS TO REMAIN THE REGULATOR OF THE FINANCIAL MARKETS BUT SHOULD STRENGTHEN THE INDEPENDENCE OF THE BANK OF ENGLAND IN THIS FIELD WHERE IT TOOK SO MUCH OF ITS POWER AWAY TEN YEARS AGO

IT SHOULD RULE OUT BECOMING THE ONWER OF NORTHERN ROCK, AS THIS WOULD COMPROMISE ITS ROLES AS BANK MANAGER AND REGULATOR.

Today we were told that we were to receive "The first ever Children’s Plan" Is this a 5 year one left over from the Soviet Union we wondered? Will Marxist songs and invigorating exercise be essential ingredients, as a government backed play strategy is part of it? Apparently it goes alongside the 10 year strategy for young people which we already enjoy.

We discovered that at the core of the plan will be a switch from age testing to stage testing. Unfortunately the printed text from this incompetent Minister had that phrase the wrong way round, saying he would switch from stage to age testing. Although the first time he read it out he got it right, at a subsequent attempt he reverted to the wrong version in the House.

We learned that teaching English to all pupils was central to the task. The printed Statement itself offered:

Sentences without verbs
More sentences starting with "And" and "But"
Split infinitives

A highlight was the conclusion that new primary schools should be co-located with the "police, social care, advice and welfare services…". When I asked him if he really thought a police station on the same site as a primary school would make the school more attractive to parents he looked puzzled as he did not seem to realise co-locating police with children at school could
mean siting the police station at the school.

We are promised extra money to ensure graduates involved with early stage learning, and to offer masters level qualifications to new teachers.

It all sounded like a further attack on the excellent private nurseries run by caring adults with some flair for looking after and enthusing young children.

Today was vintage “Today”. We had the plug for Vince Cable’s idiotic idea that we should nationalise Northern Rock, with no alternative comment or criticism. No-one has explained how taking over responsibility for all ??100 billion of the Rock’s liabilities would be better for taxpayers than merely lending them less than a third of that sum against security from their assets.

Then we had an interview with some inarticulate government Minister about forthcoming cuts in physics departments in Universities. Aggressive repititon of the same question – would the Minister cough up an extra ??80 million which someone had said they would like – wrecked any chance of the rest of us understanding the issues or the problem. His repitiatious statement that the cash available had increased did not advance our understanding much either. Neither questioner Sarah nor interviewee Minister had anything to say about where all the money that had been approved was going, and why the “cuts” all have to fall on physics teaching. It is pathetic that public debate is reduced to a slanging match or a dialogue of the deaf, with one side saying the money has gone up and the other saying it’s not enough. There is never analysis of how much is spent, how it is spent and how efficient and effective the recipient is. Politics should be about priorities, not about sandbagging the taxpayer at every available opportunity.

It was yet again a very expensive Today programme for taxpayers- after wanting to take on ??100 billion of Rock risk saving some physics for ??80 million was a bargain! Will they never give voice to those of us who want to save the taxpayers money and run puiblic services better?

This is almost a first – you won’t often see this, amidst the long list of things to repeal.

I do think the Competition authorities in the Uk should make clear that we will not accept take-over bids for UK based companies by sovereign wealth and investment funds. I do not think we should allow national governments to be able to nationalise UK companies and do with them as they wish, especially where Uk buyers have restricted rights and opportunities to buy assets in those countries.

It would be quite easy to amend Competition law or clarify Competition practise, by stating that all such attempted takeovers would be automatically blocked by the Competition authorities as anti competitive.

It is pathetic that the government has a department for regulatory reform and legislation to deregulate, but no idea on what to repeal.

I submitted 65 proposals to them before the last election, held a Parliamentary debate, and sent them the proposals again last year. There are proposals in <a href="http://www.conservatives.com/getfile.cfm?file=ECPGcomplete&ref=GENERALFILE/3585&type=pdf">Freeing Britain to Compete</a>, the Conservative Party’s Economic Competitiveness Policy Review.

Have they lost these as well? Maybe they put all our proposals on a CD and put it in the post!

Al Gore today recommends once again higher taxes and a higher carbon price to cut CO2 emissions. He wants to tax the poor off the roads and let them stay cold in winter. Rather like Maria Antoinette, he would probbaly say "let them walk and wear thicker woolies". There is no mention of incentives and technology, the magic weapons in the battle to reduce our dependence on burning carbon.

Meanwhile, the UK government has decided to take another tilt at windmills. Urging more renewables (a good thing), they are ordering many more wind farms (a more questionable thing). I hope it is windy on Christmas day when we all want to cook our turkeys. It would not be good being told by the electricity industry in 2020 we will have to wait for a windy day to have Christmas lunch.

The government should also audit the carbon needed to make the wind turbines, install them, maintain them and replace broken parts. They should then add in all the carbon expanded to make stand-by plants for days when it is not windy. Then they might see that "wind wind" is not always "win win".

I went on my annual pilgrimage to see the local Premier side in action yesterday at the kind invitation of a constituent. As a circketer who likes most sports, I went with some trepidation and heavy heart, expecting to see a Liverpool masterclass in ball control, passing, and the occasional goal to give them victory over the home side. How wrong I was!

Instead I saw the multi millionaire multinational Liverpool side outplayed by Reading. They were not just outplayed, they were made to look ordinary. At times Liverpool looked like a school team with everyone chasing the ball, failing to stay in position, run into space and to play an open passing game. I saw tall talented Crouch lose balls in the air because the shorter Reading players jumped higher with more purpose. I saw great Liverpool players lose heart, or fail to show the energy and the skill you expect of such highly paid and highly rated players. I saw Reading players give time and again of their best, culminating in a magical free kick drifting into the Liverpool goal via a Reading head, and a breathtaking run by Harper to craft a goal out of very little by running round the goalkeeper. Hunt gave his best for 90 minutes, and was everywhere harrying the Liverpool team.

The extraordinary decision to call Gerrard off at 70 minutes when he was the main hope of Liverpool, playing with power, determination and skill made it look to us as if the manager had surrendered the tie with 24 minutes still to go. Liverpool lacked punch and the will to win once Gerrard had gone, and not had enough of it with him trying to rally them when he was on.

If I was a shareholder in Liverpool I would want to know why such a team performed so badly for so much money. As someone who believes in free markets I do not begrudge talented people the large sums the global market and global brands can bring. But if top players expect millionaire pay we should expect millionaire performance, and should expect a big element of the pay to be performance oriented. The Reading stars earned their bonus, more modest though it doubtless was.

It was a great day for Reading fans. I enjoyed it enormously, and thought it most amusing to see how little at times great football club owners buy for all their money! We English like the underdog. Yesterday the underdog was Cruft’s finest.

Belgium remains hopelessly split. It is in a way the very embodiment of the European dream. Regionalism in Belgium has been fostered so successfully that the Flemish speaking part of the country now wants nothing to do with the Walloon or French speaking part of the country. The country has quite enough adopted EU law to keep it going. The Eurocrats only worry is there is no longer an official government in place to keep on forcing the new Directives onto the Belgian people. It’s a lovely irony, that European regionalism has destroyed the last vestiges of Belgian national authority (never strong),which in turn weakens the political method for forcing new EU law onto people in Belgium!

It also shows the power of regionalism, especially when it is backed up by linguistic, cultural and economic differences. The EU project generally is likely to splinter other nations. Indeed the scheme is based on divide and rule – setting Catalan against Castillian, Scot and English, Southern Italian against Northern Italian, Walloon against Fleming, Basque against Spaniard. The EU felt that if it weakened state power it could occupy the vacuum it helped create by taking new state power at the EU level.

What is might discover, in the longer term, is that it cannot contain the petty nationalisms it has helped release. The EU is playing a dangerous game with people’s snese of their own identity. The collapse of Belgium may not in the long run be as good as some EU fans think from the EU point of view. Member states have been very important so far in preventing dissent with the EU from getting out of hand, because they still have some legitimacy. The EU has no similar legitimacy to put in place, once the member states lose it as they have in Belgium.