Would more regulation have stopped the Credit Crunch?

Last night the FT teamed up with the London Stock Exchange to discuss whether we need more, less or different regulation for financial markets. John Kay and Martin Wolf led the evening with their talks. Both were suprisingly cautious about what you can expect regulators to achieve in the fast moving global world of finance. Both were pessimistic, expecting we will end up with more regulation of a kind which will not make us safer in future.

John Kay reminded us that 236 people were employed in the USA to regulate Fannie Mae and Freddie Mac. Were their jobs really necessary? They were slow to realise the seriousness of the predicament these two large companies got into, and were unable to do anything against the lobbying power of the mortgage companies when they did think there was room for improvement. Despite the Regulators the companies got into financial trouble which required a huge Federal bail out.

Northern Rock was a heavily regulated business in the UK. Its business plan and accounts were permitted by the FSA. It took its regulatory duties very seriously. No-one suggests it bent the rules or tried to misinform the Regulator. Indeed, in the last Accounts before the crash the Dirctors were busily planning how to reduce the amount of capital they held for a given level of business in response to the relaxation of capital standards being pushed through by the world Regulators in Basel II! I was told by the Chancellor I was wrong to propose getting rid of the mortgage regulations the present UK government brought in, as that would be dangerous! In all the years when we did not have such specific mortgage regulation we had no run on a mortgage bank. Its enactment and enforcement did not save Northern, or prevent Northern and others lending money to people against high house prices on high multiples of earnings. So what was it for?

The Northern Rock saga should remind us that sometimes regulations preversely make things worse rather than better. If there had been no capital adequacy requirements laid down, Northern’s Directors may have been more cautious. Because standards are laid down, Directors are tempted to say “Let’s deliver the required standard” assuming that will be prudent.

John Kay gave us a more modest list of things regulators could do. They could concentrate on policing activities to try to prevent or intercept criminal activity within financial businesses – attempts to steal client money in one way or another. They could ensure a comprehensive deposit protection scheme. The Central Bank should concentrate on providing cash to the system – where it has a monopoly – against reasonable security from the banks. The rest should be left to the market.

I found his approach convincing. I liked its modesty of aim, and the practicality of the individual recommendations. If Northern depositors had known they would get their money back under a protection scheme there might not have been such a run on the bank. If Northern had been able to get more cash from the Bank of England against proper security to protect taxpayers, the bank would have found it easier to pay off those depositors who did want to get out.

Those who want more aggressive regulation have to answer some difficult questions. Let us take this area of mortgage regulation. What would the government have done if their new mortgage regulator had had real teeth in the boom phase? Would they have watched whilst person after person was told they could not borrow money because they were not rich enough? Would they have been happy to see a queue of disappointed mortgage applicants told they could not get a mortgage against the stated price of the house, but only against say 80% of the stated value? Yet that is the type of action the Mortgage Regulators would have to have taken a couple of years ago to prevent the negative equity and the repossessions of today. The regulator would have to be both wiser about the state of the cycle and more powerful than the banks making the loans. He or she would also need protection against judicial review and legal challenge, as they would effectively be running the mortgage banks for them.They would be preventing banks from lending money when they wanted to on the terms they wished to offer.

It simply is not practical in a fast moving global market to find regulators who are that good and to allow them to make all those calls. The 236 regulators of Fannie and Freddie and the Regulators of Northern could not have prevented the respective collapses. Employing more of them, or tightening the rules, will not prevent a future problem. All the time we have boom and bust Central banking and boom and bust government spending and deficits, there will cycles that are beyond the powers of the regulators to fix. So let’s this time stop the humbug about how we “have learned the lessons” and will put in “regulation to fix it”. As the two commentators implied last night, the authorities are unlikely to have learned the lessons. Indeed, they are sending exactly the opposite signal. The message going out on both sides of the Atlantic is that private sector banks can make money in good times by lending lots, and can let the public sector pick up the bills when things go wrong in the bad times.


  1. Stuart Fairney
    September 9, 2008

    "regulations preversely make things worse rather than better"

    Very well observed. From my own industry, housebuilding, I can tell you for sure that fewer Oak trees are in the UK today than before the adoption of tree preservation orders. Setting aside the occasional dubious destruction, who in their right mind would plant one nowadays? And if you have a tree not subject to a TPO the prudent thing to do is remove it. Ergo, the very opposite of the legislators intention.

    Where as, if the legislation was repealed, people could plant trees again without the thought they might one day frustrate future development, nor would there be the need to remove unprotected trees "just in case"

    1. James
      September 9, 2008

      I've actually planted several dozen native trees including oaks, on a few acres of land I've laid to grass next to my property.In fact it borders several properties with a well used public footpath running around part of it.These saplings given free by my local council to enhance the countryside.
      I have no doubt that at some point in the future this land would be ideal building land, given the population explosion that's forecast in the decades to come,although I hope not in my lifetime as I prefer the view of trees to concrete.
      The pressure then on 'safeguards' such as TPOs will be as great as they are today on Green Belt, and both will be brushed aside with the stroke of a pen.

      1. Stuart Fairney
        September 10, 2008


        Fair enough, your land, your call. Of course if you retain ownership, short of a compulsory purchase, you can ensure no building in your lifetime with or without trees.

        I was merely suggesting it is illogical to plant trees with the potential for statutory protection, if you have any development aspirations.

        In my experience (around 15 years in housebuilding) I am yet to meet a single person who has declined an offer of several hundred thousand pounds over and above the existing use value of their land because they were opposed to development in principle. Indeed, the complete and almost immediate reversal of position is often amusing to observe when they realise you want to develop THEIR land.

  2. Blank Xavier
    September 9, 2008

    I had the a similar thought a few days ago.

    We had a regulator to ensure Northern Rock couldn't happen. Northern Rock happened. Conclusion? the regulator didn't work – and we're not talking about a small failure here, we're talking about tens of billions of pounds. Logical response? make it work or get rid of it, since it costs money (301.7 million UKP in the year 2007/8, with indirect regulatory costs estimate for banks at 1.6% of total operating costs – although of course much of that might well be spent anyway even without FSA requirements – these figures are from the FSA web-site).

    (The FSA is funded by the companies it regulates, so it costs consumers money, since it is an operational cost and operation costs do not by and large reduce profit margins; they simply increase the price of goods and services).

    Question then becomes – can the FSA be made to work? what state is it in already? why did it fail?

    The problem seems to be that the FSA is a political football. Parliament decides its remit. This means the party in power has an interest – as ever – in the behaviour of the regulator. In others words, it is not a truly non-governmental, independent body. As such, I don't see how it can ever work properly, in its current form.

    And if it is made truly independent, the problem then becomes the typical problem of any regulatory body; it becomes dominated by those it regulates.

    Regulation is a white elephant. The real solution is consumers using their own brains to make their own decisions – and we attack this solution by regulation since we mislead people into thinking they don't have to think because someone else is doing it for them.

    1. mike stallard
      September 9, 2008

      "Much UK Financial Services regulation originates in the European Union. The EU is also very active in developing rules for Europe's financial markets that are designed to deepen the Internal Market. Since the UK has to give effect to European law, active engagement with Europe is essential. Indeed, around 70% of the FSA's policymaking effort is driven by European initiatives, including the Financial Services Action Plan (FSAP)."
      google: fsa+eu
      and this is what comes up.
      So there's your answer.

  3. Andrew Forbes
    September 9, 2008

    If, as you say, "private sector banks can make money in good times by lending lots, and can let the public sector pick up the bills when things go wrong in the bad times", then the public sector's only option is to regulate heavily to ensure it doesn't happen again.

    So, while public bail-outs prevent the financial system crashing (which has its merits, you must admit), the red tape may well put the brakes on a full recovery.

    This assumes ideal world regulation, i.e. that this govt gets it right this time. However, since this govt generally makes a complete horse's of everything it interferes with, we can expect the worst of both worlds, at vast expense.

    1. Andrew Forbes
      September 9, 2008

      terribly sorry; would the moderator please delete the stray apostrophe in "interfere's". I really don't know where it came from. I get as irritated as anybody about that sort of thing.

  4. Sell a Home Fast
    September 9, 2008

    Too bad they haven't learnt their lesson after all this happening.

  5. Tony Makara
    September 9, 2008

    People are too easily granted credit, and lenders need to pay more attention to whom the money is lent, their circumstances, level of job security and age. Throwing credit at a twenty year-old is not a good idea, even if they do happen to be working full-time. Its difficult to know where to draw the line and thats where the skill of bank managers and other lenders canplay a part.

    This is not a problem that can be solved top-down with yet more regulation because we are dealing with a culture of borrowing, one in which people are spending what they don't have, what they may never have.

    The old maxim's about working people putting away 10-20% of their wage into long-term savings now appear to be lost. We need to get back to a savings culture. (Mr Redwood, This is where government can encourage a savings culture by allowing tax-free savings accounts!).

    Of course it doesn't help that we have a service-heavy economy that cannot pay for better wages out of productivity, leading to people resorting to credit to achieve, albeit, a transient improvement in living standards. A move back into the hard industries and agriculture will provide greater scope for better wages and less dependence on credit.

  6. Mark Wadsworth
    September 9, 2008

    The Central Bank should concentrate on providing cash to the system – where it has a monopoly – against reasonable security from the banks. The rest should be left to the market.

    John, that is brilliant, 100% agreed.

    It need go further than that. But when you say 'reasonable security' that assumes that the FSA/Treasury know what they should be looking out for vis-a-vis security – and in the case of NR either they forgot their own guidelines OR they deliberately turned a blind eye, as I explained a while back.

    The simpler view is that the present government were complicit in allowing easy credit as this stoked the house price bubble which in turn allowed them to boast of large numbers of consecutive quarters of economic growth, which is now blowing up in our faces.

  7. Alfred T Mahan
    September 9, 2008

    As always, your views are well thought through and persuasive.

    I wonder, though, if there is something that controls might contribute to this. The underlying cause of the credit crunch is the focussing of risk via CDOs. These dispersed the risk of individual defaults while concentrating the risk of a systemic problem such as a fall in the housing market. Many banks fell into the error of buying CDOs believing them to be low risk when in fact they weren't.

    This is more or less the same error that some syndicates at Lloyd's made in the 1980's and 1990's. Many insurers believed they were laying off their risk of a catastrophic claim by buying reinsurance. Reinsurers, in turn, spread their risk by buying retrocessional cover. However, because the market was careless about defining the underlying risk that was covered, the same claim could be passed from reinsurer to reinsurer a number of times until cover expired and someone actually had to pay. This 'reinsurance spiral' concentrated the loss in a few places – mainly Lloyd's syndicates which initially appeared exceptionally profitable because they bought less retrocessional cover, and so were the first to exceed their limits. Yet the claims kept coming in and were thus concentrated, with the disastrous results we all know.

    The parallel shows that markets are prone to 'groupthink' in which conventional orthodoxy is wrong and no one is is a position to take an overall view.

    For very many years pension funds and insurance companies have been subject to regulations allowing certain types of investment and prohibiting others. Insurers, similarly, are restricted in the type of business they can take. The system has worked well, although it is not faultless by any means.

    It seems to me that in both these cases regulations could have saved the day. At Lloyd's the removal of barriers between classes of business contributed to the spiral as underwriters wrote business they didn't understand. Restrictions on sources of premium income could easily have been adapted to ensure dispersal not concentration of risk. Surely it is a proper role of regulators to restrict banks from over-extending themselves in any one area? A limit on the balance sheet value of CDOs for solvency purposes would have done the trick – without recourse to the detailed regulation of individual contracts which you discuss and rightly reject.

  8. Harriett Baldwin
    September 9, 2008

    John – there is no question in my mind that regulation has made the credit crunch worse. For example, Basel requires a lower capital allocation for AAA credit securities. Hey presto – AAA ratings were then given to structured products that were a) illiquid and b) backed by highly correlated assets and c) difficult to price. The regulations created an incentive for the financial services industry to "game" the rules to their short term advantage rather than make prudent credit and capital allocation decisions.

  9. Acorn
    September 9, 2008

    I am reading that three quarters of the new money loaned into existence last year, by the US, was to pay the interest and principal calls on the previous years debt. There is not a regulation system on the planet that can handle that.

    The "Fractional Reserve Banking System", may have passed its sell-by date; even though it is only thirty eight years old. Its fundamental flaw is the process of "BORROW SHORT and LEND LONG". The system works fine when short term loans are available this month, to pay off last months short term loans. But when they are not, arbitrages between short-term and long-term debt fall into a black hole.

    Hellasious says "The Fannie and Freddie nationalization is the clearest sign yet that the global financial construct, based as it is upon huge piles of debt, is bankrupt and that we haven't yet figured out what to replace it with. Those who should know better are still beating a dead horse".

    Have a look at this site, good for amateur economists. Click "home" when you have read the link, some good stuff. http://wfhummel.cnchost.com/reformplan.html

  10. Francis Irving
    September 9, 2008

    It feels like nobody in this comment thread has been a (want to be) first time buyer in the last ten years.

    "The real solution is consumers using their own brains to make their own decisions" – some consumers did do that.

    They have basically been forced to rent for roughly the last 8 years (since house price to rent ratios, and mortgages to income ratios went crazy), and so have lost the social and personal benefits of ownership, and the genuine non-bubble increase in land value in that time.

    This is a curious area, where even if you act sensibly and prudently you get screwed by all the other people borrowing too much and pushing up prices.

    I'm all for trying your solutions of educating people to not take out insane mortgages. But I don't think they'll work.

    Prices are collapsing. One day they'll start to increase again, people won't look at their real values by comparing to rent, and then bit by bit they'll borrow more, bid up house prices percent by percent, gradually over a few years… Until people are borrowing 7 times their salary and getting 110% mortgages once again.

    I love markets. But sometimes you have to be upfront and admit when they fail everyone.

    1. Blank Xavier
      September 10, 2008

      I think you are entirely right to say that there are many people who have been disadvantaged by the behaviour of the property market in recent years.

      I may be wrong, but I think it is wrong to conclude that markets have failed.

      What we have had here is absolutely in *no* way a *FREE* market. The market has been massively distorted – for example by regulations on land use which have held down supply, while demand is constant or rising, which simply acts to raise prices.

      A free market would not have behaved in this way. It is *because* the market is not free that all the people ended up getting the short end of the stick.

      The failure here is on the part of the State for distorting the market.

  11. Tim Worstall
    September 9, 2008

    "Of course it doesn’t help that we have a service-heavy economy that cannot pay for better wages out of productivity, leading to people resorting to credit to achieve, albeit, a transient improvement in living standards. A move back into the hard industries and agriculture will provide greater scope for better wages and less dependence on credit."

    Umm, Tony, a little chat in your shell-like.

    Where are wages higher? In service industries like The City? Or in manufacturing? Or agriculture?

    Given that wages are indeed tied to productivity, this indicates that productivity is higher or lower in services than in manufacturing or agriculture?

    Or am I being unkind to you again by using both logic and economics to work through such questions?

    1. mike stallard
      September 9, 2008

      OK. So bankers, crooks, unproductive BBC officials, drug crazed celebs, local politicians and pimpsdrug pushers get paid a lot.
      But who feeds us?
      Who builds houses and out of what?
      Who defends us?
      We have become a nation of hairdressersskiverscarers in the community.
      So where is the national income (aka GDP) coming from?
      Sooner or later, foreigners will ask these questions.
      Then, of course, the pound will crash, as it did in Argentina a few years back.

  12. APL
    September 9, 2008

    Blank Xavier: "Regulation is a white elephant. The real solution is consumers using their own brains to make their own decisions – and we attack this solution by regulation since we mislead people into thinking they don’t have to think because someone else is doing it for them."

    I rather agree.

    But I have a hunch that the more collectivist a government is in its ideology, the less it wants that type of solution. It doesn't do for a government that would like to be seen as the solution to every problem to have independently minded people running around thinking for themselves.

  13. Tony Makara
    September 9, 2008

    Mr Worstall, you can't use earnings in financial services as being representative of earning in services across the board. When I refer to low wages in the service sector I refer to the millions who have to have their wages topped up by tax-credits. The retail service sector in particular can only pay for better wages through higher prices. as they are at the tail end of the economic process involved in the sale of finished goods, not much different from a corner ship. In contrast manufacturing and agriculture have the apply to support themselves and produce abundantly and are able to supply many markets.

    It is important to understand the creative nature of manufacturing and agriculture and contrast that with the one-dimensional aspect of the retail service sector which only exists as an auxiliary to manufacturing and agriculture. As ever you only base your analysis on aggregated figures and don't understand how data effects people on an individual basis. According to your abstract way of looking at things a millionaire could move into a village of paupers and you would class the villiage as being wealthy. If you fail to understand how economics impacts on people individually then I should forget any ideas you might have about a career in politics.

  14. DBC Reed
    September 9, 2008

    It is perfectly obvious that UK regulation would not have affected the Credit Crunch.Titter ye not but Brown is right: the Credit crunch is a globalised disaster emanating from the US where they built too many houses (no planning you see);sold some of the huge surplus in panic to the easily conned; bundled up the easily-conned's mortgages and sold them as "securities" to banks round the world: passed it off as just as one of those things when they began to disintegrate in the vaults as in a slo-mo special FX sequence from a Sci-fi horror spoof; then as a diversion (from screwing up world capitalism) played around with WW3 by sending gun boats into the Black Sea.
    I cannot see why the UK is putting up with all this. The yanks ( old rhyming slang apparently) should be making good the value of the securities they sold us in good faith.

    1. Stuart Fairney
      September 10, 2008

      Oh dear, no planning in the States eh?

      State level planning http://www.hcd.ca.gov/hpd/

      Federal planning http://www.hud.gov/

      Pesky reality getting in the way of knee-jerk anti-Americanism much?

      You might also want to look at the ASI blog

      which suggests it was the regulators forcing Fannie and Freddie to loan to riskier customers caused the dodgy loan book

      And the idea that UK planning delivers enough housing to meet UK demand? Don't even get me started.

  15. Eddie Allen
    September 9, 2008

    Too many fingers in too many pies and not a decent baker in sight.

    Regulation under PIA for intelligent financial advice based on products carrying risk – GOOD.
    PIS used to know what they were doing and it was good clean regulation with no other pies to stick fingers into.

    Mortgage regulation – MCCB, again people who knew what they were doing and didn't need to dream up jobs and pies to convince us they had a grip on regulatory control with an easy principled based guide in one easy to read ( and understandable ) format where any member of the public knew their rights and the means to complain.

    The above should have been backed up with industry qualifications and the equivalent of a badge of accreditation which would also serve as an identity and propreity check for the publics good.

    As for regulation of lenders and ensuring the books are balanced, this was the Bank of England's job.
    The safest banking system in the world until Brown got his hands on it and gave the job to the FSA who knew nothing whatsoever about it and had it's fingers in the other two pies already.

    I've advocated getting rid of this bureaucratic monster(words left out)

    It serves no earthly purpose except to close businesses.

    Legal problems by Joe public are remedial through the ombudsman anyway so they are not required to plod through the finance industry weilding big sticks and running people out of business.

    I have literally prayed for a Conservative Government to shed the light of hope on this and to begin to rescue our once fine industry and to remove the 30,000 EU directives which are to all intents and purposes out of date before they're applied, unworkable because the FSA have no obligation to put them into understandable format which doesn't need three barristers to read them, and it imparts not one jot of help to the industry because it knows nothing about it.

    Bureaucrats never do !!
    They save their jobs first and everything else comes later.
    Like the mess at Northern Rock which was allowed to borrow great big chunks of money against mortgages which the ink hadn't dried on, and noone was looking because the Band of England thought the FSA were doing it, the FSA thought the Bank of England was doing it and noone thought they were responsible least of all Brown at the treasury who managed to get away with it so long.

    He should be dragged out of our commons by the scruff of his neck for what damage his ludicrous mismanagement and imbicilic bureacratic changes have done to the finace industry and make no mistake that it is HIS fault.

    Obviously you can appreciate perhaps that I'm against having a bureaucratic dictator in my country(words left out).

  16. Freddy
    September 9, 2008

    The real solution is to move away from the awful universal banking model. It is simply wrong to say that "the market will sort it out" when banks are mixing activities with huge systemic risk – deposit taking, payments – with activities that are highly commercially risky, like property speculation with 125% mortgages, and suchlike lunacies. When the latter blows up, the state feels obliged t ostep in to protect the former. This is not a market solution.

    John Kay is looking in the right direction. The only sensible system is to be explicit about what sort of banking business is subject to investor protection, and to require that this is performed by ring-fenced entities, with no cross-subsidies to and from the riskier areas. In particular, the clearing banks must be prevented from using depositors' money as cheap loans to their more risky businesses.

  17. APL
    September 9, 2008

    DBC Reed: "emanating from the US where they built too many houses (no planning you see);"

    Of course if the US hadn't created Freddie & Fannie to provide an artificial supply of finance to the housing market – a bit of a socialistic solution to a non existant problem – and of course if the regulation of Fannie & Freddie had not completely failed over the last ten years, we might not have had all the surplus cash flushing around the system.

    So, regulation in the US failed, Fannie & Freddie are massivly overleveraged and not one of several regulators with an interest raised the alarm, coupled with the Gordon Brown's 'reform' of the B of E in this country and the introduction of the FSA, which completely failed to regulate the market too.

    DBC Reed: "The yanks ( old rhyming slang apparently) should be making good the value of the securities they sold us in good faith."

    Caveat emptor.

    1. DBC Reed
      September 10, 2008

      @APL Your rebuttal to my message does not make any sense. You say that the American GSE's were created for a "non-existant(sic) problem".This is the first time I have heard anyone say ,even on the most right-wing revisionist sites, that the Great Depression did not exist and that the FDR era was a socialist con.
      You then complain that FMx2 did not regulate the markets enough (were not socialist and interfering enough?) to stop "cash flushing round the system".But we don't have these institutions and our banks created as much ,if not more, excess credit using that private-sector je ne sais quoi we all enjoined to defend to the last drop of working-class blood.
      You talk of "caveat emptor" as if you were buying a second hand car: "Its 'as found' mate".But financial services are monitored by ratings agencies, because the securities are so non-transparent that international business would be impossible without them.The American Agencies passed this American dodgy paper as triple A.
      Our trading law has it that a purchase can be returned to the vendor with full refund if it not fit for purpose: these "securities" certainly were n't.
      It is ludicrous that the USA is lording it over the G8 or G7 (whatever) when it has screwed up the world economy (compounded by the hypocrisy of a gigantic nationalisation) while seeing to it that a Third World country has to denationalise its water supply, sell it at market rates!, to get World Bank funding.

  18. Mark Wadsworth
    September 9, 2008

    I missed some of this debate as we needed some more milk and I had to pop out to the 'corner ship' (TM Tony Makara).

  19. Tony Makara
    September 9, 2008

    Mark Wadsworth, my old headmaster used to stress the importance of checking everything twice, he was right! This hascertainly been an interesting thread today, I only hope that when the credit crunch abates, people will learn from the mistakes and find a non-regulatory way to create a more secure lending environment. As the gods punish us for our spelling mistakes, they also show a sinful sense of timing in punishing prime ministers who claim to have mastered boom and bust.

  20. adam
    September 9, 2008

    Wasnt it because their approach to the BofE was put out on the news wires which created a large run and further shortage
    of cash. None of that has been reported but its what i vaguely recall from the select committee.
    New European regulations i think they said.

    I understand our economy is debt based but i cant connect that with the credit crunch. If banks are lending using a fractional reserve what does it matter to them if people cant repay?

  21. Puncheon
    September 9, 2008

    Credit only means "he believes". Our prosperity is based on such slender foundations and we should not be surprised if we feel the odd wobble or two. Admitedly, there is no wobble so slight that cannot be turned into an earthquake by the interference of a Government minister.

  22. mike stallard
    September 9, 2008

    I think we can all agree that Mr Brown has been like a surfer. He rode the economic wave while it marched majestically to the shore. His arrogant smile proved that he was, indeed an economist like Bismarck, the real Iron Chancellor.
    He even did clever things like selling off the unneeded gold reserves, he borrowed and he overspent. He also taxed the pensions and invested in more and more bureaucrats.
    Then the wave hit the shore, crashed onto the surf and he got up, bruised, penniless and without any reliable people round him.
    His brilliant plan of the (EU) FSA, independence of the Bank and power to the Treasury made it so that the Bank could not deal tactfully by having a quiet word or two in the right quarter.
    Surely, anyone who can work the system will not want to be a regulator? And who will tell these regulators what to look for and what to do?
    The front page of Private Eye says it all. "Chancellor in Creek Drama."
    This is not a study in regulation. It is a study in hubris.

  23. no one
    September 9, 2008

    sadly the shadow health secretary has been defending the nhs today, a body in need of no defence but wiping out

    and has poo poo d the idea of replacing the whole thing with state backed medical insurance, which would force the providers to optimise, and react more quickly to real patients

    shame the conservatives cannot see the bleedin obvious here

    the landscape is wide open for a party that defends the patients rather than the dross of the nhs

  24. adam
    September 9, 2008

    Why is it costing 4.5 million just to 'value' Northern Crock.

  25. Patrick
    September 9, 2008

    Rules are for fools.

    There was an interesting piece on newsnight a while back which proposed removing all traffic lights and signals from roads. The same argument was given. Ie that "perversely" road signslights cause more accidents and actually reduce traffic flow and not enhance it.

    When you see a green light you generally put your foot down without need to think too much. Of course, if you are involved in an accident, its okay as you had the legal right of way!!!

    The other thing about regulators is the huge cost.

  26. Mark Wadsworth
    September 10, 2008

    Patrick, now you are talking!

  27. StevenL
    September 10, 2008

    In my experience regulators only react to events that have happened and big business doesn't go always go along with regulation anyway. Look at bank penalty charges for a perfect example of this.

  28. Bazman
    September 10, 2008

    Remind me who won and lost the most in this tale of to much, to little regulation? For the winners there was just the right amount.
    I do not believe for one second the winners did not know what they where doing.

  29. Eddie Allen
    September 10, 2008

    (CBS/ AP) Struggling to survive the credit crisis, Lehman Brothers Holdings Inc. plans to sell a majority stake in its prized investment management division, slashed its dividend and may even consider selling the entire company.

    Lehman, whose shares have plunged more than 80 percent this year as investors lost confidence in the financial services firm, also said Wednesday it lost $3.9 billion during the third quarter. The company, like others on Wall Street, suffered from wrong-way bets on mortgage securities and other risky assets.

    The company did not name a buyer for a 55 percent stake in its prized investment management business, which includes Neuberger Berman. And it plans to spin off to shareholders $25 billion to $30 billion of its commercial real estate portfolio into a publicly-traded company called Real Estate Investments Global early next year.

    The company also plans to slash its annual dividend to 5 cents from 68 cents weighed on stock futures.

  30. David Belchamber
    September 10, 2008

    "They could concentrate on policing activities to try to prevent or intercept criminal activity within financial businesses – attempts to steal client money in one way or another. They could ensure a comprehensive deposit protection scheme. The Central Bank should concentrate on providing cash to the system – where it has a monopoly – against reasonable security from the banks. The rest should be left to the market".

    A good formula, I believe. Additionally, only one body should regulate the mortgage market, not three as at present.
    Also there should be greater accountability; I read that the CEOs of both Fannie an Freddie left immediately.
    That should happen in our banks and building societies when there is a monumental foul-up, as in these cases, – and in government!

  31. APL
    September 11, 2008

    DBC REED: "This is the first time I have heard anyone say ,even on the most right-wing revisionist sites, that the Great Depression did not exist"

    Did I say the great depression did not exist? It seems you are telling us that Fannie Mae was responsible for the end of the great depression?

    That would be a pretty significant achievement if true.

    Looking at the timeline, Fannie Mae was established in 1938 and the great depression had already been going for nearly a decade by that time.

    One year between establishing Fannie Mae and the [generally accepted] end of the great depression would really be quite an acheivement.

    I don't believe it!

    Freddie Mac was established in 1970 with a similar brief to Fannie Mae, so either Fannie Mae was not doing its job very well or Freddie Mac was unnecessary? Either way, Freddie Mac had nothing to do with ending the great depression.

    DBC REED: "FDR era was a socialist con"

    Many of the things he did are considered unconstitutional.

    DBC REED: "You then complain that FMx2 did not regulate the markets enough"

    No, the regulators who were supposed to be regulating Fannie and Freddie did not regulate them, i.e. regulation did not work!

    DBC REED: "But we don’t have these institutions and our banks created as much ,if not more, excess credit using that private-sector "

    No, we didn't have these institutions, but our institutions did have access to the cash generated by Freddie and Fannie. Which was spread around the global market, why do you think the Chinese were so excercised at the prospect of a collapse of F&F?

    DBC REED: "But financial services are monitored by ratings agencies, because the securities are so non-transparent ."

    If you are happy to buy something you don't understand because someone you don't know tells you, "go on mate, it's good to go!" Then frankly you probably ought not to be buying that thing.

    DBC REED: "that international business would be impossible without them."

    There is nothing 'non transparent' about a Company bond or a Municipal bond, or a Certificate of deposit or a Letter of credit. There are lots and lots of perfectly transparent financial instruments and international business has, in the past managed perfectly well without the more opaque and exotic instruments.

    1. DBC Reed
      September 11, 2008

      @APL Excuse me but you said" The U.S. created F& F to provide an artificial supply of finance- a bit of a socialist solution to a non -existant (sic) problem". I simply suggested that there was a problem with the lack of credit in the Great Depression and that Fannie Mae was created to ameliorate its effects in housing.(Freddie Mac came along later to provide competition -what happened to that BTW? )
      I believe the supply of finance is bound to be "artificial" at all times; if the US had not resorted to means you deem unconstitutional……the rest is obvious/unthinkable.
      At least you're honest about FDR and his socialist solutions to problems:
      unconstitutional.(BTW is nationalising F&F unconstitutional?)
      I take your point about it being the regulators causing F&F to create great floods of credit for housing,not F&F doing it off their own bats.But it is distinction without significance.
      The other points are too tortuous to pursue. And people must be getting very bored.
      The point that most right-wing posters on this site are not registering,including its custodian I'm afraid, is that it looks like the game is up for free-market liberalism.Market failures can no longer be blamed routinely on too much regulation, too much government spending, (not compared with rescuing capitalism by nationalising Northern Rock and The 2 American GSE's ).De-regulated institutions have had a clear run and screwed it up, in spades in the USA. Subtle counter arguments notwithstanding, including Stuart Fairney's above which sees booster organisations such as HUD and HPL as like British planners and expects British planners to 'deliver' more houses, the public is going to get the message and Mr Businessman will go back to being suspect ,seedy and unfashionable as he was in the 50's and 60's.( I'm not saying this is right by the way .)

      1. APL
        September 12, 2008

        DBC REED: "Excuse me but you said"


        DBC REED: "This is the first time I have heard anyone say ,even on the most right-wing revisionist sites, that the Great Depression did not exist”

        So, in fact nobody said the GD did not exist.

        DBC REED: "I simply suggested that there was a problem with the lack of credit in the Great Depression and that Fannie Mae was created to ameliorate its effects in housing."

        It is difficult to reconcile what I can see you wrote earlier, with what you claim to have written. But I take it that that is what you intended to write.

        DBC REED: "I take your point about it being the regulators causing F&F to create great floods of credit for housing,not F&F doing it off their own bats."

        Again, you seem to be telling me I said things I don't appear to have written.

        The point about the regulators is that they didn't stop F&F creating 'innovative' financial products and selling them on the third parties. In short, regulation failed. Is that the third time I have said that?

        DBC REED: "I’m afraid, is that it looks like the game is up for free-market liberalism."

        Ah, now I see why you have been deliberately missing the point all this time.

        One final point:

        DBC REED: "Freddie Mac came along later to provide competition -what happened to that BTW"

        I can't see how you can have competition between two state sponsored organisations, I would rather call such an arrangement a cartel.

        1. DBC Reed
          September 12, 2008

          @APL we are still going round and round.
          As a sign-off : the point about the end of an era of free-market liberalism, is not that there might not be something to the theory under certain ,surreal, circumstances but that,so great has been the latest failure that people are not likely to trust it again,especially when the left gets its act together and starts scoring the open goals. The Net is beginning to carry such pieces as Workers World Gov't spends billions…. and after a time the right will have to moderate its extremist stance that markets are always self-righting for political reasons.

  32. Eddie Allen
    September 11, 2008

    SINGAPORE (Reuters) – The moribund U.S. housing market will need another two to three years before it recovers, and 100 to 200 banks in the country may collapse in the next year, a Nobel economics laureate said.

    Michael Spence said an oversupply of houses and weak demand from consumers combined with turbulent financial markets and high inflation will drag on the U.S. housing market, which is in its worst slump since the Great Depression in the 1930s.

    "It's going to take awhile to work that out of the system, probably a couple of years," said Spence, who won the Nobel Prize in 2001. Spence said he expects "100, 200" banks to collapse in the United States in the next year because a number are not well capitalized, and the U.S. government will let the smaller ones fail without intervening.

    "If you take a reasonable guess as to the value of the assets that they have, it's less than the liabilities, so they are bankrupt," he said.

    Global financial markets have tumbled after defaults on U.S. mortgages surged to record levels. Many of those loans were repackaged and resold, which has sapped liquidity from markets worldwide.

    In the latest debacle in the bust, U.S. government on Sunday seized control of the two largest U.S. mortgage finance firms Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), which have suffered combined losses of nearly $14 billion in the last four quarters.

    Spence said the government was right to take over the two companies, whose debt is held by central banks, because it reduced the risk of further credit tightening in markets, but it now needs to put money into the firms quickly so they can buy mortgages again.

    However, he said the firms and the government should not engage in "irresponsible" purchases of overpriced houses just so they can prop up the property market.

    "What we really need is financing for house purchases that are legitimate, and businesses that want to borrow money," he said. Continued…

    1. DBC Reed
      September 12, 2008

      Workers World article is correctly entitled Gov't gives away billions.
      My apologies.

      1. APL
        September 13, 2008

        DBC REED: "the point about the end of an era of free-market liberalism is not that .."

        At the risk of sounding like a disillusioned Communist or Marxist bemused that 'the people' knocked down the wall and voted with their feet, "But communism hasn't been tried yet, what is there not to like?"

        Liberalism hasn't been tried, not recently. IF the population thinks it is living in an economically liberal economy (and I grant you the majority don't give it a moments thought), they should really open their eyes. The EU for a start is a socialist, protectionist and regulatory organisation. There isn't an aspect of our daily life that isn't worth inspecting and regulating, be it which bin to put your rubbish in or how much oxygen you personally breath – for that is the flip side of carbon credits.

        DBC REED: "Gov’t gives away billions."

        Apart from the fact that in a liberal economy the government wouldn't have billions to give away, I have personally been railing against the bailouts (poor old John Redwood has been very patient), these companies should have been left to fail, the wreckage picked over by the survivors. That would have been capitalism.

        What we have now is more like government directed corporatism, which in my opinion is pretty much Fascism Given the lefty leanings of the European Union that might otherwise be known as National Socialism.

        But I give you lefties credit, you have enormous brass neck.

  33. lcguy
    November 8, 2008

    At this point, the question ("more or less regulation") becomes academic since president elect BO will do something to give the impression he has done something.

    On the academic front: what exactly would one like to regulate. Crises make for bad laws. You cannot increase the capital requirements to overcome the financial crash.
    Glass Steagall, the great lesson learnt from the 1929 depression, is now effectively being repealed when investment banks are part of normal commercial banks.
    The lesson drawn from 1929 was wrong !.

    Finally, if you regulate you would have to identify the evil. Happy lending is not bad per se, lending to people who will not be able to pay back the loan is something you cannot predict (or regulate). In the end I am afraid, one attempts to regulate greed which well intentioned politicians will pursue zealously and incompetently.

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