Evidence abounds that free enterprise societies are more prosperous and people in them enjoy more freedom than state planned economies. Capitalism should be popular. It brings us jobs, new technologies, great entertainment, good shops.
Today the mood is sour. Good political speeches these days have to include a denunciation of “banking culture” and a demand for more regulation with stronger criminal sanctions. The latest revelations from Barclays do not make good reading, and are likely to be followed by similar bad news from some other leading banks.
The answer to this is simple. It has never been an attractive feature of free enterprise that some organisations can become so large and powerful they are able to rig, damage, or interfere with the market. Monopolies and cartels are against the law – unless they are in the state sector of course. Most people agree that cartels and monopolies, price rigging and fixing, are wrong and should be prevented. I have always supported a strong competition law, designed to prevent just such accumulations of power.
That is why I opposed the Competition authorities allowing RBS to take on ABN Amro, and opposed Lloyds taking over HBOS. That is why I have consistently favoured splitting up large banks that have grown too big and have then needed public money to prop them up. It would have been much better to sell off the bits that worked in 2008 when large banks fell badly, and to save the taxpayer most of the grief by making bondholders as well as shareholders take the strain of their failed banking models.
So what should be done today about the latest banking scandals? They should be properly investigated and appropriate action taken to deal with wrong doing. Where the government is a leading shareholder it must be active in ensuring proper standards of conduct in its banks, and make sure the people leading those banks create the right climate within them. In the case of private sector banks it is the job of the shareholders to appoint and support management that provide the right leadership. Barclays is now doing this by seeking a new CEO.
Above all, this latest revelation about practices in the last decade should move the government to want to break up RBS. The bank is far too large. We need more and new competitors on the High Street capable of giving us a good banking service. We need banks where High Street loan and deposit business is important to them, and where the reward levels of the bankers make it worthwhile to do it well at a cost we can afford.
July 3, 2012
Indeed competition is the real protection for the consumer there is very little indeed in banking at the moment. The charging systems and structures are absurdly complex and expensive. Regulation is clearly needed too – buts needs to be intelligent and to ensure real competition. Regulators too easily go native and become to close to (or even bought or tricked by) the industry they regulate.
Regulators are clearly often incompetent. They need to look at water, energy, the legal professions, the court systems, banking, pay day loans, credit cards, the lobbying systems and government where cartels and monopoly exploitation of the public is rife.
Far to many laws are passed which are clearly for the benefit of certain industries or professions and directly against the interests of the public forcing them into pointless expenditures by law.
July 3, 2012
So in 2008 the BOE knew full well of the Libor manipulation with Sir Mervyn even making a quip in public that Libor was āthe rate at which banks do not lend to each otherā.
When are those mainly responsible, those in the state sector at the BOE, the FSA, and Labour politicians going to resign?
July 3, 2012
Lifelogic
Will be interesting hear what Mr Diamond will say tomorrow.
If it is eventually proven that the Labour Government had been in contact with the Bank of England, and they are both implicated, (even in a minor way) of colluding with any of this.
It will prove that Mr Brown’s claim that the Bank of England was totally independent (of Political influence) was untrue.
If I was Labour I would be very careful for what I wished for.
A full investigation may well come back and bite Mr Balls very hard indeed.
Let us hope that a full investigation can be completed as quickly as possible, we need the results before the next election. !!
July 3, 2012
I have to agree with you lifelogic. I am severely depressed at this time. I am suspicious of this government telling me anything any where near the truth. This explosion of politician concern in how LIBOR is calculated leaves me cold. Nobody trades on the LIBOR index; there is no market in LIBOR rates; everyone in the market knows it is a work of fiction and they have other indicators that tell them who is pulling plonkers. How many of our faking outrage politicians actually know what LIBOR is?
July 3, 2012
So the story now seems (rather conveniently) to be:- Someone at Barclays misinterpreted a memo in relation to the BOE conversation in 2008 and then instructed staff to send false data to the LIBOR people. No one, I assume, in the Labour Government, the BOE, the FSA or at Barclays or any of the many accountants noticed the reduction in Libor and the variance in the true cost of credit that Barclays were actually having to pay relative to Libor. Or the anomalies in the markets with the default insurance cost.
That is even less believable than thinking Cameron is a pro business, Eurosceptic, Tory who believes in small government, low taxes and will grant a fair referendum soon.
July 4, 2012
lifelogic: “That is even less believable than thinking Cameron is a pro business, Eurosceptic, ”
That’s because he isn’t, there are only a handful of capitalists in the Tory party, and fewer who believe in the principles of individual freedom.
It’s become a client party of the ‘Big State’.
July 3, 2012
All well and good – but overlooking the one major factor which has led to this and other scandals. That is the unholy combination of an attitude of ‘caveat emptor’ on the one hand, and an increasing reliance on government regulations on the other.
It looks more and more as if bankers and regulators have been playing a game of hide-and-seek between themselves, with no regard to the actual customers.
I don’t know if something like these LIBOR manipulations would have been avoided if banks were made to split between so-called High Street banks and investment banks. I think however that the government should split the banks it owns into those two entities. This, I suggest, may become important if and when the ā¬ crisis and the desperate attempts to ‘solve’ this will reach our banks.
July 3, 2012
The only problem with this idea was that the UK banks problem where with their UK residential mortgage books, and additional for RBS over paying for ABN Amro. None suffered any significant loses in the investment banking arms. If this had been in place at the time of the crisis we would now own the domestic business of all the major banks rather than just 2.
July 3, 2012
colliemum ,
“I donāt know if something like these LIBOR manipulations would have been avoided if banks were made to split between so-called High Street banks and investment banks.”
I am sure you know a lot more about banking than me but I have a problem with these entities continueing to categorise themselves as “investment banks” .
Many so called investment banks no longer make their money out of fees and services but make it out of proprietary trading instead .
They have balance sheets which are much larger than would be required by an investment bank .
Surely that makes them thinly disguised hedge funds ?
July 3, 2012
Yes, I think a return to a ‘Glass-Steagal’ type arrangement (retail banking/investment banking separation) would be the least worst solution under the current system.
‘Investment banks/hedge funds, call them what you want, can do whatever they want under the law as long as they are 100% liable for the risks. That is the only way that you will, for the most part, stop this systemic abuse…(John sometimes mentions Northern Rock here but I don’t think that is a good example to discount the separate banking entity argument) Sure, you will still get some that still do ridiculous things, but it is containable. It is clear that the present situation is not, as this risk negligent modus operandi appears to have infected a large number of banks.
The public must have access to honest, competitive banking where they can have a chance of saving money and getting a loan…and the government must ensure that it happens.
zorro
July 3, 2012
Full separation is not needed or desirable. Just good regulation on a daily basis and a proper “will” and legal framework to ensure any losses end up in the right place.
But where do we get good regulation, certainly not from the BOE or the FSA staff it seems.
July 3, 2012
Listening to Alastair Darling on the channel 4 news, just now, I find his implication that no one, in the state sector, authorised the Libor fiddling very hard to believe. At the very least they must have known full well what was going on and did nothing. It seems that very many people indeed, in the city, knew it only too well. After all, many were betting on these rates every day. Is he really saying that his government was so out of touch, not to even notice.
This at a time when they were considering helping the banks, their financial positions and later rescuing them? Surely this is totally unbelievable.
July 4, 2012
You cannot believe a word they say now……With regards to banks, in a perfect world, I might agree with you lifelogic, but it is not so and that is why they need the separation. The only regulation that will work is if these chancers risk money and end up on skid row. The regulators as you have indicated are not competent enough to deal with the banks, and this will not change. So, we have to find a practical solution (which has worked previously) and implement it. If we have slower growth, so be it, but we need dependable, sustained growth, not credit fuelled nonsense and then slump.
Zorro
July 4, 2012
Without the sexy proprietary trading , synthetic derivatives and 100:1 leverage aren’t the returns likely to be too boring and meagre for the City and pension funds ?
Aren’t banks balance sheets going to have to return to the size they were 20 years ago before they ditched responsible behaviour and restraint for wreckless greed ?
July 3, 2012
@zorro
Risk management is something that big companies pay lip service to, but don’t always take seriously if they think they’ve found a winning formula.
Does anyone believe that they didn’t have information at their fingertips showing the disparity between their borrowing and lending arrangements which led to their liquidity problem?
July 4, 2012
Absolutely, but they could have been allowed to fail and pay the consequences (including any potential criminal liability)……but they didn’t because they were in cahoots and had an implicit guarantee/get out of jail (almost literally) card…….If they know what will happen to them, they won’t do it. The authorities were utterly negligent in allowing this to happen under their watch…..Mr ‘no more boom or bust’ had better get his lines ready….
Zorro
July 3, 2012
Zorro ,
I agree with you about seperation without wanting to restrict banks from offering a full range of genuine services to business customers .
Quote “āInvestment banks/hedge funds, call them what you want” .
Sorry but I think terminology IS important .
I don’t think it’s acceptable to accord these entities the status of “investment bank” when they indulge in proprietary trading up to and including shorting the shares of their own customers .
July 4, 2012
Agreed. My point is 100% liability, including criminal liability.
Zorro
July 3, 2012
colliemum: “That is the unholy combination of an attitude of ācaveat emptorā on the one hand, ”
I’d disagree, ‘caveat emptor’ is an excellent principle, teaches people a salutatory lesson and they are less likely to be burnt by the same trick again.
I would agree it is a result of the regulatory state trying to mitigate risk and promising ‘compensation’ for rash decisions, that has led the economy to where we are.
colliemum: “It looks more and more as if bankers and regulators have been playing a game of hide-and-seek between themselves, ”
Yes, but lets not forget that the politicians who set the whole shooting match up, happily turned a blind eye.
A parliamentary inquiry into banking practices by the very people who santcioned and often benefited from those practices, is a very poor joke.
July 3, 2012
The Libor manipulations should have been very obvious to a good efficient regulator by looking at the borrowing rates in the market, the libor rate and the cost of default insurance against any of the banks going bust and doing some sums. Anomalies should have stuck out a mile to both the regulators (and to the people at the top of the banks). Once again it is mainly the regulators at fault. How many regulators and politicians like Balls have resigned so far?
July 3, 2012
Did the bank of England not pick up on these anomalies? They must surely have been aware of the very high borrowing costs of some of the banks and the Libor rate anomalies what on earth was Mervyn King doing playing fruit ninja?
The regulators and the bank clearly should have known the costs of borrowings and default insurance cost for all the banks – after all the government was providing a deposit guarantee to them all! They are clearly incompetent (or worse) from top to bottom.
July 3, 2012
The BOE were allegedly directing the banks regarding LIBOR
http://www.bbc.co.uk/news/business-18665080
July 3, 2012
From Guido – LIBORgate: Diamond v Tucker at Treasury Select Committee
After resigning as CEO of Barclays this morning, Bob Diamond may yet exact some revenge on the government when he testifies tomorrow in front of the Treasury Select Committee.
There are two LIBOR fixing scandals ā the first involves traders massaging the settling of LIBOR rates a few basis points, mere hundreths of a percent, off market reality to flatter their trading books. It appears to have been going on for years and not just at Barclays. This was not so petty corruption.
The second LIBOR fixing scandal is of a different order altogether ā it involves the wholesale systematic substantial misrepresentation of true LIBOR, with the encouragement of the Treasury, the FSA and in particular the Bank of England. The policy was to under-report LIBOR rates at much lower levels than were actually trading in the market. This deliberate policy was to cover-up the increased risks to the UK banking system revealed by higher LIBOR rates.
It is emerging that Gordon Brownās economic adviser in Downing Street, Shriti Vadera, an ex-UBS investment banker, circulated a paper on āReducing Liborā at the height of the banking crisis, which she argued would be āa major contribution to the stability of the banking system and to the health of the economyā.
That message will have gone out to the Treasury in Whitehall, the regulators and the Bank of England. They in turn will have given a nod and a wink to the investment banks. Bob Diamond is reportedly furious that the ālowballingā of LIBOR rates by Barclays ā which was explicitly encouraged by the authorities to stabilise already panicked markets ā is being used against Barclays. Bob Diamond is expected to testify tomorrow that the Bank of Englandās deputy governor Paul Tucker encouraged the ālowballingā.
The politicisation and manipulation of interest rates is ongoing even after Gordon Brown and Shriti Vadera are long gone. The Ā£275 billion Quantitative Easing (QE) programme implemented by Mervyn King with George Osborneās blessing is designed to artificially lower interest rates. We currently have a false market in Gilts, it is arguably the biggest bubble since the South Sea Bubble. It is cheating pensioners and savers of income on an unprecedented scale. This is a robbery organised from within the Bank of England ā¦
July 3, 2012
Pestowire.
Try Barclays home page where you will find their pre-briefing for the Select Committee. That contains on page 24 the text of a memo from Bob Diamond that reads as follows:
Barclays records show the calls with the BoE happened on 17th September 2008 and 29th October 2008.
Poor reporting by Peston here. Perhaps he was relying on “senior” Whitehall sources? He certainly appears to have ignored Barclays’ submission.
July 3, 2012
PDF file of Barclays’ submission:
(link given did not work – but this evidence is available-ed)
July 3, 2012
LL I have been saying precisely that! From what I hear through the grapevine, Libor manipulation is neither new, nor uncommon. Any regulator worth their salt MUST have seen it.
Tad
July 3, 2012
We also need to make it clear that the Government will never bail out a bank again.
July 3, 2012
During the last administrations, when Peter Mandelson was “seriously relaxed about the prospect of people getting filthy rich”, a jeremy Bentham would have insisted that legislators not allow bankers to get into the situation where they were able to cause such misery in the first place.
July 3, 2012
Entirely right-but it won’t happen. There is no-one in government with the guts to do it.
July 3, 2012
I note that Marks & Spencer intend offering banking services. I hope other respected High St. retailers follow suite.
July 3, 2012
Err can I suggest you look up Tesco Bank, Sainsbury Bank. It interesting when considering the idea of breaking up the banks that these new banks have only offered limited services. That might suggest they do not think there is money in offering a full domestic banking service.
July 3, 2012
Dig further and you find they are simply providing a branding front for some existing banks.
July 3, 2012
I hope the banking services are rather better than their food and clothes are nowadays.
July 3, 2012
Government guarantees bank accounts so banks can act more recklessly without causing a run. Government regulates to make it very hard for new small banks to start up. Government encourages mergers and take overs. Government bails out banks when they get into difficulty due to criminal or simply stupid activities.
Can we see a common theme here?
It is government that creates monopolies. In the case of banking they do it so that they can finance the massive debt they have built up. Government has created this problem along with many others. If free markets existed most of the problems would be dealt with sooner and with far less cost.
July 3, 2012
Yes, you are correct. its called Corporate Socialism.
July 3, 2012
Indeed the barriers to entry for any new bank are one of the main problems. But most of the blame should clearly lie with regulators, politicians (also auditors and the accounting rules which failed so dismally – just look at the RBS rights issue document).
July 3, 2012
The banksters lobbied for all the things you listed.
July 3, 2012
Given that the free market results in monopolies and cartels it’s clearly unfit to attempt to fix these problems.
July 4, 2012
Do you want me to list all the government monopolies and cartels and discuss their track record. How many hours have you got? No, make that days.
July 3, 2012
The proper mechanism of free markets to facilitate competition is to allow failing businesses to be replaced with competent businesses. Withdraw all state life support if business and let the market work.
Rigging markets is a definition of fraud. Let the police start an inquiry.
July 3, 2012
This has been tried before. Look at the history of banking in the UK and you will see the effect.
July 3, 2012
Do you know what? From down here we see enormous amounts of hypocritical hand wringing over the Murdochs, and now more hypocrisy over the banking scandal. We all know that politicians have been wooing the press for decades and we all know how Mr Blair/Cameron and Mr Murdoch were best friends. We also know that the FSA costs a lot of money and has been put in charge of regulating bankers. As has the Treasury under Mr Brown.
So guess who gets the blame?
PS It actually made me swear when the Head of the FSA appeared on TV to say “Wasn’t me guv.”
July 3, 2012
The problem is the closeness of the political media elite, many are nieghbours in exclusive London enclaves, friends from Uni or public school. Just look at Sarah Sands, who is the editor of the Evening Standard. She is a close friend of Tony Blair. Last week he was guest editor of the paper.
July 3, 2012
Mike
I listened to the past head of the FSA on Radio Five Live this morning whilst driving, probably not a good idea, as I got as angry as you at his responses.
So, So many failures !
I think the FSA must stand for something else, other than their official title.
July 3, 2012
There has to come a point where bankers, including the governers of BoE (see that two of their pensions went up by over a million quid last year thanks to QE), with the collusion of politicians stop ripping people off to line their own pockets.
Politicians, journalists, bankers – now completely discredited and distrusted by virtually everyone in the country.
Where do we go from here?
July 3, 2012
Totally agree, so here is the answers to your questions
1) Vote for alternative parties to Lib/Lab /Con
2) Don’t buy newspapers
3) Put your money in a mutual building society
July 3, 2012
Here’s a nice question;
“Did all the large Banks co-operate in manipulating the Libor rate in 2008 in such a way as to force Governments to bail out the whole Banking sector?”
That is a fairly indigestible proposition, but desperation removes moral boundaries.
July 3, 2012
NO. Indeed they where looking to show a lower LIBOR rate so would have reduce the need for a rescue.
July 3, 2012
“Monopolies and cartels are against the law ā unless they are in the state sector of course.”
Yes, the Bank Of England being one of the worst offenders, of course. I certainly hope that Mr. Cameron’s Parliamentary inquiry will include a serious grilling of the top officials at Threadneedle Street. In the Sunday Telegraph, Liam Halligan wrote a very good article in which he stated that, “Britainās banks are, quite clearly, out of control.” Spot on, and that includes our Central Bank as well as the commercial ones. Hmm, I wonder also if the Treasury gave the nod to Mr. Tucker over the LIBOR manipulation? I suspect that this one will run and run.
July 3, 2012
One has to consider the wholly unacceptable links between politicians and banks, and one facet of this is Legislators being quietly offered a place on the Board when they leave politics. The risk will always be that this is a clandestine way of paying for favours, and whatever the reality the appearance will always be suspicious.
One such cosy arrangement occurred during the time of the Libor scandal when a …. UK politician went to work for (a bank-ed) after leaving office.
One hopes that the inquiry will not turn away from whatever it finds wriggling under the rocks.
July 3, 2012
Indeed politicians, banks, regulators, civil servants, and lawyers are so often taking taxpayers for a ride all over the place.
July 3, 2012
The banks were encouraged by the last government to maximise tax receipts.
This lead to bigger banks but appears to have reduced investment in infrastructure providing poor service to the customer. Look at what has happened in RBS and is still ongoing in Ulster Bank with old computer system breaking down and an inability by the bank to repair them or to successfully articulate the problem.
July 3, 2012
“old computer system breaking down and an inability by the bank to repair them”
We do not know exactly how the events unfolded; however, old computer systems, unlike old cars, do not wear out; if anything they become more reliable as all the bugs are ironed out. The problems her stemmed from a cavalier attitude to the scheduling and support of mission critical systems. It’s not unusual for overnight processes to fail; what was unusual was the inept way this one was handled.
July 3, 2012
But was it in fact inept? The failure was so profound and prolonged with people’s a/c records being, it seems, deleted at one stage and thereafter the system so extremely difficult to rebuild that I wonder if it was not hacked, which is a far more serious issue? Especially if it was a hacker trial run to see if it was possible to break down a banking system.
A local shop-keeper some time ago advised me that we should all keep several hundred pounds in ready money so as to cope with a breakdown of the electronic banking systems (debit, credit cards etc) because in the event of a breakdown, cash would be king and in the short term the only way to keep food on the table and fuel in the car. Which makes sense, it seems….
July 3, 2012
Err it wasn’t an old computer system it was a CA7 scheduling error, I agree that basic Change Management Procedures weren’t adhered too. The length of time to “fix” is determined by the backlog with in excess of probably 100 million transactions a day the backlog build pretty quickly.
July 3, 2012
One problem the inquiry will face is how it should handle the inevitable pointers to irregularities at foreign Banks. Formal arrangements with other regulatory authorities would be an attractive proposition.
At the moment there is an ongoing court case in the USA which alleges that a major US Bank successfully pressured a rating agency to give its mortgage backed securities the highest rating. The purchasers of the securities depended on that rating and lost their money.
The banking industry is global and so is the corruption and fraud.
July 3, 2012
JR: “They should be properly investigated and appropriate action taken to deal with wrong doing.”
Would you be more specific about how this should be done? Will the role of the BoE and government in this scandal also be investigated, revealed and appropriate action taken? But by whom?
Reply We have independent prosecuting authorities in this country who can investiagte without fear or favour if there is evidence to sustain a charge or complaint.
July 3, 2012
So naive.
July 3, 2012
I would not put it that way, but apocryphal evidence suggests that independence is sometimes compromised.
July 3, 2012
All it takes is for a few good men to take a stand for what is right….
zorro
July 3, 2012
“Reply We have independent prosecuting authorities in this country who can investigate without fear or favour if there is evidence to sustain a charge or complaint. “
Would this still apply if it turns that the government have given tacit approval to the LIBOR rate fixing?
July 3, 2012
Unbelievable! Have you looked at the Crown Prosecution Service recruitment page Mr. Redwood? Look for the (words left out) emblems at the bottom.
Reply: What is wrong with the endorsements?
July 4, 2012
If the Crown Prosecution Service, which is supposed to be impartial, has endorsements from and has been approved by another organisation then it is effectively subordinating itself to that organisation to a degree. One of the organisations which “endorse” the CPS is Stonewall.
Stonewall is a (a pressure group -ed) Supposing a case was brought that involves Stonewall or the issues that it stands for either directly or indirectly by the CPS?
If the CPS were to bring a case against those opposed to (some Stonewall action etc) can the impartiality of the CPS be taken seriously?
July 3, 2012
Competition is indeed the only way forward. More regulation is not.
We see that with the FSA, OFCOM and the energy regulators, a regulatory body ends up as a partial cheerleader for an industry and never does anything of note. Partly because regulators spend so long around an industry learning their way of thinking. Partly because of being wined dined and treated well, (which could stretch-ed) to corruption and promise of future jobs. Partly because the regulator needs to look good to get bonuses and grow so they collude to find policies that make them look good without upsetting the applecart.
I would also add the BoE’s QE and absurdly low rates for so long, alonside constant bailouts are not helping the capitalist cause. This is in fact simple central planning and massive state subsidy and nothing to do with capitalism but in the eyes of the public they see banks and capitalism as going together so it gets a bad name.
(As an aside I have no idea what we do about rates now – thanks to the BoE causing so much inflation in recent years whilst rates were low, and with people’s wages not going up with inflation, we now have a situation whereby if you did raise rates many could not pay their mortgage who could 4 years ago and any change to a more sensible level will cause another crisis)
July 3, 2012
You would think that….. but Cast Iron believes that the low interest rates are a sign of his success….a result of his policy of ‘cutting public spending’, and ‘paying down the debt’ (he actually says deficit most of the time, I think)….So with that level of economic literacy, who really knows what they will come up with next?
zorro
July 3, 2012
It isn’t always possible to increase competition by breaking up companies as this can turn regional monopolies into local ones. When this occurs only more regulation will fix this problem.
July 4, 2012
The energy regulator OFGEM is now required by statute to ignore consumer interests in favour of greenery. Blame Ed Miliband’s 2010 Energy Act.
July 3, 2012
about time Brown and Balls were put in the dock.
July 3, 2012
This is absolutely spot on. Companies have been allowed to get too large – globalisation sounds good but it often seems to mean that a few companies get larger and larger beyond anyone’s control and greed and corruption take over. Half our troubles lie with the competition authorities who have simply not been doing their job. Any medium to large take over, which limits consumer choice, should have been called in and the presumption should be against the takeover unless there are outstanding reasons for it. The competition authorities ideas of competition are too limited – why else have we only four large banks to serve 60 million people? Why have we only one main High Street Chemist? Why have so many overseas companies been allowed to buy up British firms to the point when nearly a majority will be foreign owned. Asset stripping and taking our intellectual property in the process. No other country has allowed this to happen to their important busiunesses. Things need to change and a start should be made with the competition authorities who are too weak and whose outlook is too narrow..
One ironic thing emerged yesterday – British businesses apparently do not want us to leave the EU – at the same time they demand a reduction in regulations – where do they think all these regulations come from! Or do they secretly want to keep the regulations to stifle up and coming competition?
July 3, 2012
“British businesses apparently do not want us to leave the EU”
If this is true, and I don’t doubt it, I would not be surprised. A single currency is far more conducive to business than multiple currencies. The problem with the euro is not the single currency per se, it is the political dictatorship and the fact that ANY fiat currency requires a single set of laws forcing you to use it(legal tender laws) and central taxation to force a minimum demand for it.
Now if they had a Bretton Woods type gold standard single currency, or better, then they would really be loved by business, and , I suspect, many more people. Of course, all the politicians would hate it.
July 3, 2012
Companies have not been ‘allowed to get too large’. State corporatism and crony capitalism has made that possible, nay encouraged it. Big companie fear competition from smaller new entrants. Hence all the reg-yew-lay-shuns.
July 3, 2012
Hi Liz
Where does the “British Businesses don’t want to leave the EU” come from please
July 3, 2012
John,
I have notices that there seem to be some smaller deposit taking and lending organisations starting up now, which offer a better return for savers and provide the necessary funding for small businesses and mortgagors.
Please can you press for the Governement Deposit Guarantee to be extended to these capitalist shoots in order to level the playing field.
July 3, 2012
“Governement Deposit Guarantee” or risk underwriting by the taxpayer, is the root cause of the crisis. We don’t want govt pledging taxpayer money anywhere near private enterprise.
July 3, 2012
This is certainly a big part of the problem – especially if the Government and Regulators incompetently fail even to monitor the risks they are taking – on as they very clearly did.
July 3, 2012
I agree with the thrust of your argument. In the present fevered political atmosphere where, among those with the power of decision, are the cool heads to ensure that the promised future banking regulation and legislation are soundly based? News clips of yesterday`s yaboo exchanges between the main parties do not inspire confidence.
In the past hour Mr Diamond has announced his resignation as CEO Barclays with immediate effect. This sounds the right decision. In consequence, it appears that the rsignation of Mr Agius, as Chairman, is put on hold while he looks for and appoints a new CEO. What a mess! The immediate future for Barclays looks bleak.
Lionel Barber, editor of the FT, suggested on Sky News that Diamond`s sudden resignation may have been connected to the suggestion that the Bank of England (in the person of Mr Tucker) was somehow involved. Another fine mess. Mr Tyrie`s Committee will have a busy time tomorrow trying to sort out this little issue.
In the meantime, Treasury contingency planning should factor in a decline in its future annual tax take from the City.
July 3, 2012
“The immediate future for Barclays looks bleak” – I do not agree with that – they will bounce back just fine and hopefully will not have to pay Diamond’s Millions – which he is demonstrably not worth. Indeed no one “employee” ever is.
Rewards like that should be for shareholders and risk takers. Get the remuneration powers to shareholders in an effective form.
July 3, 2012
I couldn’t disagree with you more. There are only a handful of people in the world who can manage an enterprise as large and complex as Barclays and other major conglomerates. Bob Diamond has been paid what he is worth on the open market. He has been extremely successful and his bank have created jobs and profits for Britain and other countries for quite a few years now.
There is a lot more to come out of this sorry affair, not least the nod nod, wink wink role of the Governor of the B of E , the head of the FSA and the senior advisors and Cabinet ministers of the previous Labour Government under whose watch and direction all this started.
July 3, 2012
Absolutely, get rid of the hopelessly overpaid CEOs who it is very difficult to establish in tangible terms what they bring to businesses…
zorro
July 3, 2012
We shall see. One day we will discover how many clients they will lose over this episode – both retail and corporate. Their reputation has taken big knock – though probably not as bad as that suffered by NatWest.
July 4, 2012
I think there are likely to be some rather more damaging findings at some of the other banks.
July 7, 2012
Don’t forget that – unlike some nationalised banks I can name – Barclays is actually making profits. No doubt HM government and opposition will pursue their vendetta of Barclays until it stops making profits. Fancy daring to refuse a government bail out, then to show independence and a ‘toxic culture’ and to succeed in the process. Unlike ‘toxic asset’, which has a definite meaning, ‘toxic culture’ just means that some pretentious busybody doesn’t like what you’re doing or what he guesses you are doing.
July 3, 2012
Agree. Note also that the Niall Ferguson Reith lectures deal with banking and argue that we need clear regulation that should be enforced and not more and vastly complex rules that only a few expert lawyers can understand. Clarity and transparency: that seems to be the message. See
http://www.bbc.co.uk/programmes/b01jmxqp/features/transcript
July 3, 2012
That’s a good idea!!!!!!!!!! Ever tried writing regulations?
July 3, 2012
Yes.
Keeping it simple is a good idea. Having the power to say “boo” is important. Lose that, and regulations aren’t worth the paper they’re not printed on.
July 3, 2012
I do think it’s important to note that poor old Lloyds TSB was effectively forced to take over HBOS, to put it out of the (then) government’s misery. Under Brian Pitman, Eric Daniels and their senior colleagues it was always the most prudent and tightly-run of all the big banks. Almost uniquely among directors of the big banks, Daniels was a banker; and a very good one, at that. Lloyds’ (later Lloyds TSB’s) very conservative policies kept its books almost completely free of the toxic securities hoovered up by competitors with high-risk business models.
Inevitably, its stock-market rating suffered for years, by comparison with more ‘exciting’ competitors like Fred Goodwin’s RBS. It is grossly unfair that Lloyds is – in popular and populist demonology – bracketed alongside the 2 Jock banks and rash, jumped-up building societies such as Northern Rock and Bradford & Bingley. Yes, ‘we’ own much of it, but the back-story is cheerfully ignored by smart-alec commentators in the Press.
Daniels and his chairman, Sir Victor Blank, were – to all intents – trapped in a corner by Gordon Brown in mid-September 2008 and implored to buy HBOS. They were not allowed sufficient time to do the necessary due diligence but, like the gentlemen they are, did the decent thing to save the government and country from a gigantic face:omelette embarrassment. They were railroaded into the deal, and the twi banks merged 4 months later, just before the inherent idiocies of Peter Cummings’ HBOS corporate loan-book became public knowledge.
Why on earth don’t your party make more of this? Credit where credit is due, and blame where blame is identifiably deserved. The failure of Lloyds was not inevitable, and was a direct consequence of Brown-Balls’ ham-fisted economic dirigisme. It is inconceivable that they did not know just how huge were HBOS’ concealed liabilities. Without their interference, Lloyds would still be a superb business today.
Usual disclaimers: I don’t know any of these gentlemen, and am merely an open-minded and informed observer.
July 3, 2012
I think this open minded and informed observation needs more publicity and a response.
July 3, 2012
It greatly annoyed me. I had been expecting banking collapse for some time before the run on Northern Rock. I carefully evaluated the banks to decide which was safest, and notwithstanding that Lloyds were not the cheapest to bank with, rated them as most secure. Finding that Brown arranged to taint every bank he could made me think he considered himself to be Samson pulling down the temple around him.
July 3, 2012
John, I agree with all the above. However, the existing punishments appear to be pathetically low.
Regulators will always have trouble identifying wrongdoing until after the event. The policing of corporate integrity should be mainly achieved by those with a large financial stake in the company (senior managers, directors, shareholders) being absolutely terrified of what they will lose if a punishment is imposed. Everybody would then put integrity and honesty at the top of the desired attributes for managers. Dishonest behaviour would be reported. Anyone who even hints at breaking regulation would be slapped down by colleagues.
Everybody should be aware that their investment and their job is at serious risk if rules are broken.
The Barclays fine (and similar fines) should therefore be a factor of 5-10 times larger; that kind of punishment would be a game changer in attitude. Company valuations, and hence corporate pay, would be heavily influenced by the companies reputation for honesty and integrity.
And as the government needs revenue, why not take it from those who do wrong, rather than everybody?
July 3, 2012
I would like to hear your views on the evidence that reducing Libor was a deliberate policy instigated and encouraged by the Labour Goverment and the Bank of England.
Reply: I look forward to Mr Diamond’s evidence to the Treasury Committee tomorrow, as he could illuminate that matter.
July 3, 2012
The Sky News ticker tape reports that Barclays Chairman has confirmed that its Chief Operating Officer (Jerry del Missier) instructed his staff to lower LIBOR rates. That should now read “former Chief Operating Officer” who has resigned with immediate effect. They have also released an internal email re the phone conversation between Diamond and Tucker; this suggests that senior figures in Whitehall were querying why Barclays LIBOR rates were in the top decile.
Tomorrow the Committee room fan is sure to be busy.
July 3, 2012
So I wonder how a lower LIBOR rate was a potential factor in people losing their homes – so went Grant Shapp’s line of arguement I am led to believe!
July 4, 2012
I’ve just seen Bob Diamond’s testimony to the Treasury Committee and I do admit to mounting anger, not towards Mr Diamond but towards the bunch of tenth rate time servers who were questioning him.
Take the Chairman for example. He seemed to see his job as being to defend the establishment – the Chancellor, the Bank of England and the FSA. He is one of those dreadful bullies who
– tries to insist on a one word answer when clearly a longer one is required
– repeatedly asks loaded questions
– gets very annoyed when someone points out that he is asking a loaded question
[A tip for Mr Diamond: when someone asks you a loaded question, just respond ‘Do you still bite your toenails?’]
Then there’s the line of questioning from the plebs on the Committee about Mr Diamond’s management style? ‘Why didn’t you know about the criminal behaviour on the libor trading floor? You’re the CEO; you should have known.’ To which the legitimate response is: ‘It’s not for you or me to say what constitutes criminal behaviour but a court of law. And people who spend all of their time worrying about possible misdemeanours two or three levels below them never make it to the top – you committee members are good examples.’
July 3, 2012
Do we not have anti competition laws designed to prevent market manipulation/dominance in all markets.
If we do, then do they need changing/revising to become more effective.
Or
Were these laws for every one else but Gordon Brown, who wanted/facilitated two large Banks to join together, with disasterous results.
July 3, 2012
Monopolies Commission
What do they do.
What are they for.
Do they work.
Why did they not act.
July 3, 2012
Why is there only one monopolies commission?
July 3, 2012
Alan Jutson: “Monopolies Commission”
Act under orders of the European Commission. Which is seeking ‘World beating’ conglomerates. To show the US that the European Union is a world beater, doncha know.
For them bigger is better, until the whole shooting match collapses, whereupon it’s all the fault of the nasty Americans.
July 3, 2012
APL
So they fail in their Primary function then.
Why am I not surprised.
May as well not have them and save a few bob.
July 3, 2012
My question for the Monpolies Commission is how could they have allowed Little Chef to take over (the much better) Happy Eater especially as it is obvious that they cannot hack it and are closing restaurants right and left?
July 3, 2012
The Monopolies Commission determines how much market share the banks wishing to merge currently have any how much they will have compared to their main competitors if they merge. They then decide whether the merger should go ahead.
So if a merger will result in a bank controlling 60% of the market it is likely to be blocked.
If a merger will result in a bank controlling 20% of the market but the next largest bank only controls 3% of the market it is likely to be blocked.
If a merger will result in a bank controlling 20% of the market and the next largest banks control 18%, 17%, and 15% of the market it is likely to be approved.
In conclusion the likelihood of a merger occurring depends on the level of competition after the merger.
July 3, 2012
Because there’s only one Monopolies Commission, we need more competition in that sector…
July 3, 2012
Redwood is right, the banks should still be split up and (as the late James Goldsmith showed) breaking up the cozy management cartel would probably improve returns for shareholders, i.e. us.
Bailing out the banks (or more accurately, bondholders) was probably Brown’s biggest mistake after selling off our gold. I see no reason why a successful insurance company (DirectLine) should also have been nationalised just because it was part of RBS. Indeed the corrupt culture of casino banking has leaked into this business and there is another scandal coming on whiplash injuries.
When the banks failed, they should have been allowed to go into administration with the government guaranteeing deposits. The administrator should then have sold off the assets, such as retail banking systems and buildings, and divided any surplus amongst the bondholders. Although that option is past (assuming no more horrors emerge from their dodgy books) it is still right that they should be broken up so that we re-establish a functioning, competitive market in banking that we so clearly lack today.
July 3, 2012
However, Lehman’s UK administration is still going on after 4 1/2 years and no dividends have as yet been paid to creditors. If a major UK bank fails it is highly likely most of the other UK banks and large financial institutions, and corporates would have significant exposure which might in turn mean they would have to file for administration. All the UK banks and a number of major insurance companies, pension funds, and corporates all in administration would make todays problems look small.
July 3, 2012
“the banks should still be split up”
The market would do the job better than any govt quango.
“Bailing out the banks (or more accurately, bondholders) was probably Brownās biggest mistake after selling off our gold. ”
The banks are being bailed out on an ongoing basis. At various times through QE, IMF, Operation TWIST(suppressing long-term rates using money raised from short term bond sales), and central bank open market operations. Not to say, up until recently, by rate rigging.
“Although that option is past(restructuring the banks)”
There is never a more urgent need for this than now. As we are now seeing , delaying or ignoring doing this has not relieved the crisis.
July 3, 2012
I agree wholeheartedly.
We need more of the old “Mutual Buidling Societies” to;
Spread the risk
Improve market choice and to
Reduce the influence of the Big Banks who appear to have concentrated too much power and caused the problems.
July 3, 2012
Do you agree that “ring fencing” in the way put forward by the Government is simply impossible and that Barclays should never have had an Investment “Banking” Division in the first place?
July 3, 2012
No ring fencing would have meant we would now own Barclays as well.
July 3, 2012
My point was that ring fencing is laughably inadequate and, a la Glass Steagal (l?), Retail (Banks) and Investment (Parlours) should have separate ownership. Hard to believe anybody could doubt this. Made all the difference in America till Clinton changed things.
July 3, 2012
Well, not quite….
America had its Savings and Loans crisis of the 1980s, but that was probably also due to inappropriate deregulation, turning building societies into banks and creating a property bubble.
Sound familiar?
July 3, 2012
As you quite rightly explain, your recommendations in the past have fallen on deaf ears. Why should we expect a change now notwithstanding the sense?
The banks are now so heavily regulated and so protected with taxpayer funds one wonders why the government has not simply nationalised the lot.
It would be a grave mistake however, grave mistakes seem to have been on the rise since 2007.
July 3, 2012
The usual unmeasurable generalities so beloved of politicians. ‘Too large’ ‘A good banking service’ ‘More competition’
Have you ever heard of ‘specific, measurable’ etc.
Presumably you are happy to force up the cost to the consumer to achieve this. If not in a mature market where I presume you agree that the lowest cost provider will ultimately succeed, HSBC with their vast deposit base and who incidentally haven’t been included in the Libor scandal nor required government support, in fact put money into the market, will always out price their rivals.
Maybe there is a bit of a clue in the fact that a company like Tesco with their vast customer base and established network have not seen a way to make money out of what you are suggesting. M and S have just started an initiative, incidentally with HSBC’s support.
July 3, 2012
Hear hear. You might also point out the last entrant to the maket was Egg. Which was never able to make money and was finally sold to Barclays.
July 3, 2012
I see that your colleague, Steve Baker, is promoting a bill which make bank directors personally liable without limit for the activities of the banks they control.
What joy to have seen Fred lose his house for the problems he caused…including the foolish ABN AMRO nonsense
July 3, 2012
But attacking bankers is a good way for the political classes and their clacks in the media to distract from politicians.
We have seen Labour spreading the lie that the recession was caused by the banks – as it they had all been somewhere else and the bankers running the government when government deficit and banning of productive technology was going on. And the Tories letting them away with it because they like having scapegoats too.
Now we see Barclays being crucified when it is apparent that what they did was done on the nod of the Bank of England and unless the BoE were deliberately deceiving their boss, on the at least implicit command of Ministers.
Nor is manipulating Libor comparable in its costs to ordinary people with the deliberate actions of the monetary policy committee in letting inflation rip when they were, at least in public, charged not to.
How many of us, asked to put momey in a bank or a government, would be more confident that they would get it back from the l;atter. None – if it were not so taxes would not have to be compulsory.
In purely practical terms this attack on the banks is likely to kill or drive offshore the only major industry the British state has not so far been able to stifle, and thus deprive the Exchequer of Ā£100 billion and drive us deeper into recession. This is a high price for ordinary people to pay simplt so that the politicos will have a scapegoat for their own creation of an unnecessary recession.
July 3, 2012
“In purely practical terms this attack on the banks is likely to kill or drive offshore the only major industry the British state has not so far been able to stifle, and thus deprive the Exchequer of Ā£100 billion and drive us deeper into recession.”
There is an excellent case to be made that the banking sector , far from providing windfall taxes, has cost the exchequer windfall taxes as the financial sector has crowded out productive enterprises. Successively lowering rates destroyed capital and drove businesses to the wall, inflation masked productive inefficiencies which resulted in jobs being lost to countries that could produce more efficiently, and not least the best and the brightest were lured away from engineering and into finance.
When the middle man becomes the biggest player in the economy, the economy suffers.
July 3, 2012
Yeah, and they killed my cat. Really, that is verging on the ridiculous. You must have digested some marxist conspiracy theory.
July 3, 2012
PositiveMoney, New Economics Foundation, Martin Wolf of the Financial Times, Mervyn King (Bank of England), Professor John Geanakoplos (Yale), Professor Elizabeth Warren (Harvard), Professor Steve Keen (Sydney), Max Keiser & Stacy Herbert, Professor Richard Werner, Peter Schiff, etc, etc. etc …
I suppose they could be all wrong too PERHAPS ?
It’s not the Banks that are at fault – it is the System by which Banks operate.
Concerning your Cat … have you tried the RSPCA?
Politicians listen to main stream neo-Liberal Economists – people who’s faith in what they were taught is bordering on Religious Belief, rather than a Science. They believe that Banks, Credit and Money are not important enough to include in their Mathematical Models of the Economy, they believe they can model the Economy on a One Product and One Consumer – and then scale it up. Alan Greenspan and Ben Bernake saw a Freight Train coming towards them but could not recognise it for what it was.
July 3, 2012
1. lower rates makes the present value of existing debt higher. capital = assets – liabilities. Capital is serially eroded as rates are serially cut.
2. Inflation gives temporary export advantage based solely on price, competitive inadequacies based on productive inefficiencies are masked and thus not addressed leading to export problems later, not least, jobs are lost as uncompetitive factories eventually are forced to close.
3. Many of the brightest mathematics and physics grads are doing financial modelling instead of engineering.
Commiserations for your cat.
July 4, 2012
These are all Central Banking issues. They are to blame, not the private banks who operate in the conditions set by the politicians via the Central Banks.
Far too many people are confused about this, which is why they are falling for the rantings of (word left out) academics and commentators, like Keiser and Herbert.
July 6, 2012
@Winston Smith,
Max Keiser and Stacy Herbert also criticise the Central Banks.
It’s difficult not to criticise the actions of Banks that manipulate LIBOR but you have a good point to make.
The very structure of the Financial System seems to encourage irresponsibility and fraud.
The word “Scandal” seems to indicate that Bob Diamond didn’t commit a crime. Perhaps becasue he hasn’t been charged with one yet.
Banks are required by the system to lend something that doesn’t exist until the Borrower signs the contract. An economy that has only one way to create money – through debt; is likely to regard debt as good. How can an economy live within it’s means if money can only be created through borrowing.
If I live within my means, someone else will have to go into debt to create the money that I have. If the UK lives within it’s means, some other Country will have to go into debt to provide our capital.
PFI – created by the Socialists, has shackled NHS Trusts to debt. Labour’s economic miracle – “No more Boom and Bust”, will eventually signal the demise of “Free” healthcare. The Police are even struggling and are now considering going into partnership with Business. If the Police get into debt, who ever controls that debt will control the Police.
Reply: It is a good feature of UK criminal justice that someone is innocent until and unless proven guilty after trial. Mr Diamond is innocent, and has not been charged with any crimes.
July 3, 2012
Watch a few back episodes of Max Keiser on RT?
Arguably the financial offshore vehicles used in these secrecy jurisdictions may be responsible for enabling Ā£100’s billions of lost tax revenue maybe just in the UK. I mean how would you know the real size of the problem its opaque for a reason.
Ref Nick Shaxson Trasure Islands.
Ref: Richard Murphy/Tax Justice Network.
and many more.
http://www.huffingtonpost.com/joshua-m-brown/best-financial-journalists_b_1605584.html#slide=more232429
July 4, 2012
If you wish to make such a case I would be amused to see you doing so. Perhaps you could explain that if derivative dealers were not dealing derivatives they would be the ideal people to be employed as drillers of shale gas and builders of nuclear power stations – the skills being interoperable.
That is a ludicrous claim. A free market would allow all these industries to prosper. The lack of growth of the latter 2 is entirely down to politicians banning it and owes nothing to drillers being snapped up as financial analysts.
July 4, 2012
I believe it is well recognised that an Engineering Mathemetician can just as easily apply Mathematics to Finance as apply it to Engineering.
Gary is right, Financial salaries are very attractive and can easily draw Mathematicians away from Engineering. Financial “Products” incorporate a lot of very advanced Maths.
A Free Market would gradually increase the Mathematicians pay offer to attract them back, but Banks also have huge subsidies and (recently) financial innovations have created huge short term profit making opportunities.
Engineering Firms generally receive less subsidies and have to make real things – raw materials, plant and equipment cost money (how ever you define money). They also have to pay VAT. Banks do not.
Banks also have to maintain Buildings and pay for Computer Systems, but then, so do Engineering Firms.
I don’t think anyone is suggesting that a Mathematical Prodigy adorns boiler suit and picks up a massive adjustable spanner. I’m sure many can though.
July 3, 2012
The main thing that I have noticed is that MPs are only too quick to demand the resignation of the top man when the banks do wrong (and have now managed to get the resignation of the both Chairman and Chief Executive at Barclays), but when it comes to a major mistake in his Department, the Minister never resigns as it is always the fault of some Civil Servant. The last Ministerial resignation over errors was, if I remember correctly, Lord Carrington who resigned because of his failure to keep an eye on the Falklands situation. Since then no minister has resigned as a result of policy errors, the only resignations being because of personal impropriety.
Nethertheless, MPs seem to expect standards from industry that they don’t uphold for themselves, whereas in my view it should probably be the other way round, with MPs and Ministers setting the standards.
July 3, 2012
Yeah. The three legs of successful economies. Freedom. Responsibility. Markets (aka competition). Banking has been a de facto state sanctioned specially priviliged cartelised supplier of a State monopoly product for year. And under FSMA2000 is became proto nationalised by regulation. Hence it then failed.
July 3, 2012
The long term danger is that free enterprise itself will be tarnished and the sins of the banks will be used by anti capitalists, at one extreme, and the liberal left on the other to stigmatise enterprise and make it appear suspect. I see terrible long term danger in this latest scandal.
July 3, 2012
This is Capitalism.
It goes down as well as up. Banks are businesses. They are not special, any more than the ship-building and car industries were in the seventies. Banks have frequently gone bust in the past. Crooks can get in on the act and some were imprisoned if convicted during the 19th century. This has all happened in the past and will happen again.
Most politicians have no conception of a free market or “business”. Business is considered to be complementary, if permitted at all, to the economy and not the core activity of the economy. It involves risk. People can lose their money. The government taxes profits without risk to themselves. Generally, if a business fails the government do not lose. If a business prospers the government take a large cut in the profits.
If we live within a capitalist system then we must be made aware of the risk element and accept it. Politicians are out of touch as a farmer who is not close to his soil. Too many Tories appear to take the socialist line, whether it is to appear conformist or simply because they have no conception of how hard it is to run a business and make a profit. Get rid of Vince Cable. Get rid of the post of Business Secretary. We don’t need it. Just let us get on with running our businesses.
July 3, 2012
Once businesses start avoiding their taxes why should the Government help them? From the Government’s perspective the best businesses are the ones that pay the highest level of taxes.
July 4, 2012
uanime5: “Once businesses start avoiding their taxes why should the Government help them?”
1. Avoiding taxes is sound business practice and legal.
2. Government doesn’t ‘help’ a business. Government is a millstone around the neck of a successful business. Government takes money from successful business and gives it to their competitors in the form of tax breaks, relocation incentives and regional grants.
July 5, 2012
You are right, to a lot of Businesses the Government could and should do more.
I don’t think the Government is a millstone around the Banking Industries neck though.
Without Government Bailouts, Subsidies and Tax breaks – most Banks would have drastically smaller profits and would have to adopt alien strategies to them such as: “Only lending money to people who can pay it back”.
July 5, 2012
Rubbish.
From HMRC data over the period 2001 – 2011, 75% of HMRC receipts came from income tax, CGT, NICs and VAT. Only 10% came from corporation tax.
On a purely revenue basis the best businesses are those that generate the most tax revenue which would be those that employ lots of people, pay high wages and sell lots of stuff. All government does is add costs and bureaucracy which detracts from the core activity of a business which actually results in tax revenue.
Which do you want, a thriving economy which generates lots of taxes or a thriving bureaucracy like we have now which kills the economy?
July 5, 2012
“From the Governmentās perspective the best businesses are the ones that pay the highest level of taxes.”
I think your right.
Barclays paid 1% in corporation taxes, they should have paid 28%.
Probably because a lot of Business is done overseas – in Guernsey, Caymans, Jersey, Isle of Man, Hong Kong, Panama, Delaware (USA). Helping the UK EXPORT to International Markets.
I wonder where the other 27% went? ( sentence re named individual who was paid a lot left out, as high pay does not affect the tax rate on profits-ed)
Barcalys customers benefit with huge returns on their Savings Accounts? – no, I don’t think they have.
July 5, 2012
“Most politicians have no conception of a free market or ābusinessā. ”
I’m sure that’s not true – they must have read about it at least once; if only by accident. Just becasue David Cameron’s never worked in the Free Market doesn’t mean he hasn’t heard of it. George Osborne must have told him about it.
“Osborne’s first job was entering the names of people who had died in London into a National Health Service computer.[13] He also briefly worked for Selfridges, re-folding towels.[13] He originally intended to pursue a career in journalism, but instead got a job at Conservative Central Office.” – that was a lucky break then.
I was surprised that George Osbornewas a modern History Graduate, I sort of expected him to have a Mathematics / Economics based degree.
After re-folding towells (presumably that had already been folded by someone else) at Selfridges he went on to develop his Political skills:
“Osborne joined the Conservative Research Department in 1994 and became head of the Political Section. Between 1995 and 1997 he worked for the Ministry of Agriculture, Fisheries and Food as special advisor to minister Douglas Hogg (during the BSE crisis) and worked in the Political Office at 10 Downing Street”
The Boy done good!
July 3, 2012
Re State Monopolies:
Legal they may be, desirable they are not. HOWEVER, there are some circumstances where a state monopoly is the best arrangement.
Not all structures lend themselves to being broken up into competing private companies; the National Grid, railway infrastructure, gas supply are but some. It is possible to create smaller companies on a regional basis, indeed this is likely how things originated as a result of local private enterprise, but to revert is simply to create local monopolies.
A regulator may be appointed to ensure fair play, but I am yet to be persuaded that such as system works.
If it is possible for private companies to compete effectively in an artificial market controlled by a Regulator, then I would have thought the same expertise could be used to run an efficient nationalised industry with much less overhead and scope for better efficiencies of scale.
July 3, 2012
Re Cartels:
Just what is a “cartel” in the public sector? Could it be anything to do with a very small number of wealthy individuals (or organisations under the control of individuals) having undue influence over political party policy?
July 8, 2012
Cartels and the Competition Act 1998:
“Just what is a ācartelā in the public sector?” Bid Rigging.
“Bid rigging is a form of cartel that may arise when contracts are awarded by competitive tender. Here, members of the cartel agree with each other on who should win a particular contract and at what price. The possibility of bid rigging will be particularly relevant to public sector purchasers, given their legal obligations to award certain contracts by competitive tender.”
July 3, 2012
THE SIDESHOW CLOSES
So Barclays have been fiddling the LIBOR rate. The success of such fiddling must have been short term because reality catches up sooner or later. In any event, the idea of companies that are supposed to be competing with each other lending to each other is a bit cosy, isn’t it.
Meanwhile, there is a much bigger interest rate fixing scandal over which we have absolutely no control. By means of an ultra-low base rate and QE, HM government has been able to borrow at cheap rates in order to finance its grotesquely large expenditure, which it has made very little effort to curb (Labour would make even less effort). This has been at the expense of businesses wanting to borrow and pension funds. The last time I saw a figure, gilt yields were 1.63%, at a time when inflation is still excess of 2.5%.
There is only one suitable word for this – THEFT. Nor has it been in a good cause. By means of the actions of HM Government and the Governor of the Bank of England, the wise virgins have been forced to help out the foolish virgins right across the board.
I also suspect that there is a vendetta against Barclays in particular because they refused government ‘help’ at a time when RBS and Lloyds/HBOS were touching their forelocks and holding out their begging bowls. In the case of Labour, that vendetta is a reality. And the LibDems? And the Tory Wets?
July 3, 2012
Ye sthe so called LIBOR fiddling was at the short end, up to 1 month money so we have been told so far and therefore would have had no effect on such things as Mortgages.
July 3, 2012
“In the case of private sector banks it is the job of the shareholders to appoint and support management that provide the right leadership. Barclays is now doing this by seeking a new Chairman.”
Only after public outrage stoked Parliamentary ‘outrage.’ The free press did its bit here and unlike the phoney phone hacking ‘outrage’ the public really are universally outraged on this issue.
I do not believe that the shareholders would have acted otherwise – just as long as they were making money.
This isn’t a very good example of a self-correcting industry if it’s one that only ever acts when it is caught out.
July 3, 2012
I see little eveidence of any public outrage. I see plenty of faux outrage from socialist hypocrites in the media and pathetic politicians seeking to divert blame and responsibility from themselves. 99% of the public have no idea what is meant by LIBOR. They just form opinions from what is fed to them by the State broadacster, who provide 70% of digested news, and the cultural elite. Supplement this with natural jealousy of the extortionate rewards received by bankers and traders and you have a perfect scapegoat for the political/media elite.
July 3, 2012
I’m no Lefty – that should be well known in these parts. I am full of admiration for people who start businesses and create jobs. I am full of admiration for capitalists who make their industries grow by taking calculated risks to create winning products which go on to win market share.
I understood why Margaret Thatcher took on the unionists in the ’70s. The fact is that their members aspired to nothing more than to be able to afford double-glazing, central heating and, possibly, a second-hand car.
Above all else they wanted to work.
Fast forward to today:
The outright greed, corruption and lack of patriotism; the damage done to western economies – bringing us to a precipice unseen since the thirties – leaves the excesses of the trades unions in the shade.
Look at the difference in the way the Tories treat them.
I do believe that the credit crunch was caused by the closure of western industries and outsourcing of work and the preference for subsidised welfare dependents over subsidised miners – ironically the former living a superior lifestyle to the latter and more likely to become rappers than brass band players.
How else was the standard of living of those lucky enough to work (therefore votes) to be maintained in a high tax and low output economy but through the availability of credit and inflation – and the relaxation of banking regulation to cause a false property boom ?
I was wrong to vote for Margaret Thatcher. I was wrong to vote for David Cameron.
Let’s forget this modern tosh about us all being middle class now. This is a fib to lull the aspirant working class into thinking that they have a stake in the political landscape.
They have nothing of the sort. Least of all with the Tories who would rather drink with bankers than with car mechanics.
July 3, 2012
You may not see the anger, Winston, but you’re going to feel it at the next General Election.
Mr Cameron has to pull out all the stops to win those of us who are innately Conservative back.
July 3, 2012
Notice I do not comment anymore because of [Ed. [Censorship] ]. BUT look at Conhome and
other blogs.
July 4, 2012
@Bernard
I thought it was just my comments that were being left in moderation for extended periods.
July 3, 2012
Those who rely on the MSM for ‘news’ may have been surprised by the current furore. Barclays is the first to ‘settle’ with the US authorites for their part in the ratefixing of the official interbank lending rate. There is far more to come. Alternative media sources have been reporting this story for some considerable time; they have also been reporting evidence of price manipulation in many of the markets in which banksters operate, this, in addition to the marketing of fraudulent products with fraudulently obtained investment gradings and products which are designed to behave differently as sold.
It’s time to clean out the Augean Stables. There needs to be an explicit clarification of the law that any attempt to move a price other than on the basis of a reaction to genuine supply or demand is a very serious criminal offence. That must obviously include markets for stocks and commodities: the use of computers to engage in automatic trading must be banned. There is very clear evidence that they are being used to defraud genuine market participants. There should not be a ‘successful’ banking sector at the expense of everyone else.
In order to assist the process of cleansing, it is essential that the law is changed to correspond with the US First Amendment. Furthermore, more effort needs to go into breaking up the MSM so that there is a genuine market in information.
July 3, 2012
I think you need to fully study the monetary system in an effort to understand the key element of our Economic System, one that you continue to bury your head in the Sand over – and that is Money itself: Where does money come from, who creates it and where is it directed.
Before condemning Barclays in a distractive Witch Buring exercise, let us first examine who enabled Private Banks – like Barclays, HSBC, RBS, Lloyds and others; to be so powerful?
You ignore the Subsidies, VAT Exemption for Banks, the virtually Free Deposit Insurance that we, the tax payers have to pay for. The lack of seigniorage for the 97% of Bank Created Money that would eliminate the National Debt and VAT for everyone, the dramatic reduction in Taxes – both National and Local. You go on and on about – “we cannot afford to spend money that we haven’t got”, “we must live within our means” – no wonder people are confused – if we didn’t live beyond our means – we would not borrow and we therefore; would not have a money supply.
We should not need to regulate a Bank if that Bank had to attract Deposits and could only lend those deposits.
Allowing Banks to create a Public Commodity – like Money; is like putting the Foxes in charge of the Chicken Coop. They’re going to kill every Chicken they can then eat them.
The purpose of a Central Bank is to help Private Banks and to create Debt for the Public. Look at some History about the Bank of England. It wasn’t created to help the British People – it was created to give the Politicians – soon after the Civil War, a means of raising money to fight more Wars, because England was near Bankrupt after the Royal Family were beaten.
Why is the BBC still pumping out Fairy Stories about how Banks actually work? Robert Peston’s video “How do Banks work” is described by the Bank of England as “very simplistic”. They are reluctant to criticise the BBC but cannot argue that it is an accurate and complete view of what Banks actually do. Banks are not Intermediaries, they are heavily subsidised and privileged – they feel as so they have earned them; they spend millions on Lobbyists to get Laws changed and Regulations lifted.
As always, money talks, and they create the money – so it is Natural to assume that Banks do all the talking and are lessoned to the most.
July 3, 2012
“Above all, this latest revelation about practices in the last decade should move the government to want to break up RBS. The bank is far too large. We need more and new competitors on the High Street capable of giving us a good banking service. We need banks where High Street loan and deposit business is important to them, and where the reward levels of the bankers make it worthwhile to do it well at a cost we can afford.”
I do agree with you on this.
Perhaps one of the greatest Dangers we face is that Banks and Bankers are all seen as “Evil” giving rise to the “Solution” of a Universal State Run Bank. This would be as bad an idea as the EURO – which is now falling apart.
I agree, It should be made easier to create more localised Community Banks – inorder to do this; it may also be required to remove the power for a Bank to create “Credit” money thereby removing the Necessity of having a Reserve Account at the Bank of England. The Law should enforce Money Creation by Government only, make CDOs, CDSs, MBSs all illegal. As sson as a Bank starts making loans it doesn’t have it then breaks the Law.
Smaller Banks could compete with that as they would have the Advantage of a more personal contact with their Depositors and Borrowers. Let the Big Banks lend to the big Corporations – but they will be under the same money making restrictions as the smaller Banks and have no advantage with regard to the current situation – that being they do not require such large Capital Reserves.
Yes – it is true that the Bank of England only enforces “Capital Reserve Ratio” of 0.11% on Banks over Ā£500 million, but they are not Liquidity Ratios which are regulated by the FSA. These are different reserves.
Banking Regulations in the United States are aimed at the Larger Banks – who can easily absorb the Cost of dealing with the Paperwork. These adversely affect Smaller Community Banks which have to comply with the same Regulations despite many of the regulations being irrelevant. We therefore are Regulating out of existence the smaller and more cost effective Banks, the Banks that can contribute the most.
I would be interested to know whether Vince Cable had any personal dislike for Bob Diamond. It’s easy for a weak Man to kick another when he’s down. I’ve seen no evidence that Vince Cable even understands Banking and Finance – I’m sure he’s great at reciting the content of text books. It is possible that Bob Diamond is telling the truth about his conversations with certain individuals. It’s a plausible story that Barclays may have “bent the rules” inorder to make sure that it didn’t create another bailout story. They could have seen this as helping the UK Economy by preventing themselves from falling in the bailout pit.
Que the ‘Former Fat Boys’ “Bailout!” song (Song contains some bad language, if you are offended then please do not listen/look at it).
July 3, 2012
Myths about our Economic System:
1. Banks do not Money (Yes they do , about 97% of it)
2. Banks act as Intermediaries between Savers and Borrowers (No they don’t, they create New Deposit Money everytime they Lend.)
3. Banks Lend using the Fractional Reserve System. (No they don’t – see item 2 above)
4. The Money Multiplier is How banks Lend. (No it isn’t, it may be Neat and Plausible, but it is the wrong)
5. Banks mainly lend to Small Businesses. (No, they mainly lend to Property Buyers and Speculative Asset Investments – only 8% of lending goes into productive activity)
6. Banks have increased the amount they lend to small Businesses. (Over the last 50 years the Bank of England has shown that SMEs are receiving less and less each year).
7. The Government can control the Economy by raising and lowering interest rates. (No they cannot, they can make Money cheap for Bankers but has your Credit Card Interest Payments reduced by an equla amount.)
8. The Pound is a stable currency. (The Pound – measured against other Fiat Currencies looks atable but when ,easured against real Assets, like Oil, Food, Electriciy and Gold is collpasing in purchasing Power).
9. We are better off now than our Parents. (Taking the main and essential expenses into account we are much worse off than our Parents as it now takes Two People in a Family to earn enough to pay the Mortgage, we spend less on Clothes, Food and Appliances but House prices have doubled – this incurs other costs such as childcare and cre for the elderly. With both adult members of a family at work, there is now double the chance that a period of unemployment will occur resulting in a loss of the Family home – Elizabeth Warren is a Professor of Law at Harvard, look her up and ask her, It’s a similar story in the UK ).
Do some research and stop trying to re-assure us that we can get this Dead Donkey of a Financial System to Live and Breath again, it’s on Life Support and comatose –
the only thing keeping making this Corpse seem like it’s alive is by pumping Air into it – the occasional twitch gives the impression of life.
Bank of England QE3 will cause the next Twitch in the Financial Corpse, making people rejoice at the “End of Recession”.
July 3, 2012
well said sir!
July 3, 2012
Unfortunately until these questions are put to MP’s en masse by financially educated voters we are at the whim of the FAT controllers.
Why not move to 100% reserve banking. Banks would indeed compete for scarce capital via deposits/loans or sharecapital. Reduce regulation on narrow banks with full reserve status and or unlimited directors liability.
QE for the public to pay down debt (Prof Steve Keen), or direct tax breaks for SME exporters or import reducing substitution -or temporarily abolish NI and then merge into one flat tax at approx 35%.
Hopefully,more and more can see the system for what it is.
July 4, 2012
Conrad Jones: “8. The Pound is a stable currency. (The Pound ā measured against other Fiat Currencies looks atable but when ,easured against real Assets, like Oil, Food, Electriciy and Gold is collpasing in purchasing Power).”
By 99% since this time last century.
And that one thing is the reason for the cancer, the dash for speculative growth rather than industrial productivity. That one thing is the sole responsibility of the organisation that controls the currency, the government.
The cause of our ills, devaluation of the currency and the government caused inflation.
July 4, 2012
Hi APL,
Thank you for your comments.
“government caused inflation.” ?
Do you mean the use of Treasury Bonds by the Government ?
Or are you referring to the reduction in regulation leading to the expansion of “Commercial Bank Money” (which increased greatly after 1971)?
July 3, 2012
Perhaps the banking sector needs to go back to first principles.
Learn right from wrong.
Understand ethics, service values and exhibit morals in the marketplace.
Differentiate between greed and honest profit.
And simply do what banks were fundamentally meant to do.
We need strong political, corporate and public leadership and judicial chastisement to make that happen.
Now.
July 3, 2012
Fear and greed are the realities
July 3, 2012
I think your message needs wider distribution than just to bankers. It needs to be heard by politicians, businesses, bureaucrats and religious leaders too.
July 3, 2012
Banks form part of a large world wide inter-connected complex financial system. System behaviour is not easily defined or controlled by the performance of individual nodes or the size of the nodes.
I can vouch for that in telecommunications systems a number of nodes were all perfectly stable to any test on their own but the inter-connected system was anything but. The unstable behaviour was a purely system phenomenon. Making nodes smaller does not guarantee anything about system performance.
Its the mathematics of the overall system that matters. Ecological systems can involve millions of tiny creatures yet still be unstable.
You cannot disconnect the banks from the outside world as trade requires banks to trade between themselves. I doubt a system design based on a larger number of inter-connected smaller nodes will make the system stable as you still have the inter-connections and the from that the feedback which controls the system mathematics.
The university of Kent is just one university of many researching Financial System Stability which demonstrates the field is not yet understood.
Comparison has been made between the Financial System Stability and the stability of biological systems.
If I had to make a complex system stable the easiest way would be to start by severely pruning back the number of interconnections so the system became far less complex and more easily modelled and controlled. I’m not sure you could do this to the world financial system and still have a system that worked. I’m not sure anybody or organisation is empowered to do this as there is no single owner as for the internet.
The internet is simple in comparison with the world financial system.
July 3, 2012
I agree there has been some interesting work done in this area: these papers from the Santa Fe Institute give an insight:
http://www.santafe.edu/research/working-papers/abstract/acce9c73f978ba6558940d9568e9234a/
http://www.santafe.edu/research/working-papers/abstract/408ee8eb8997af12bb091a0eb38f91cc/
http://www.santafe.edu/research/working-papers/abstract/284ab660cd9cb16f89f517d67c460695/
Andrew Haldane is also worth reading, because he has grasped these issues.
A recent example:
http://www.bankofengland.co.uk/publications/Documents/speeches/2012/speech582.pdf
July 3, 2012
so far we have seen the court of public opinion trash politicians, reporters, big business, small business, banks, tax advisors, government, the police…. This can’t just be a small number of loudmouth students with time on their hands – there seems to be a groundswell of “anti” feelings out there. Look at the facts, and take a more reasoned approach and most of this bile can be seen as nonsense, but real, reasonable people seem happy to believe it all. Where does it end?
July 3, 2012
Spot on ā RBS is now a discredited name and is too large.
Smaller lenders capable of giving the customer more attention rather than relying on just a set of covenants derived from monthly management accounts.
A radical approach is required.
July 3, 2012
There are very few state monopolies as the private sector is usually allowed to compete with the state sector. For example private delivery companies compete with Royal Mail, private hospitals compete with the NHS, and private schools compete with comprehensives.
Also I’ve found an interesting article about the pros and cons of the UK leaving the EU.
http://www.independent.co.uk/news/world/europe/what-if-britain-left-the-eu-7904469.html
July 4, 2012
Private hospitals compete with the NHS. It’s hardly a level playing field. You still have to pay your taxes in full even if you are also paying for private health care. The same principle applies to private schools competing with comprehensives. You don’t get reduced council tax if you send your children to private schools.
July 3, 2012
I think if they do start to look properly they will find a whole lot more that all the money the banks hold wouldn’t compensate for.
Investment, savings and pension companies all have a holding account to put deposits and transfers in before the contract is set up, many will have a rolling sum in there of around Ā£100m. The interest they get is 0.5% and don’t bother shopping around, its 0.5%. The rate has changed a handful of times in the last 25 years.
Isn’t it interesting that over that same period credit cards for instance charge about 21% to 24% apr regardless of base interest rates? Anyone think thats a high margin and one that strangely doesn’t seem to move much?
Inv bankers/Merchant bankers take a charge of 3% to 3.5%, it was that rate in the 1970s, its that rate now. The companies looking for mergers and aquisitions now are far bigger now so thats a hell of a take (paid for out of job losses). Isn’t it strange there is no price competition here??
There is a dilemma because the banks don’t hold enough to pay the compensation to pay that so how far would the governments and regulators want to tred?
I chuckled when I heard Adair Turner on the Andrew Marr show. When the LIBOR fixing was announced I thought thats come about for one of 2 reasons:
1. A change of view in the UK that what they new all along it was time to deal with it for what ever reason.
2. The US had a change of view and decided to deal with what they also knew was going on all the while. Of course, that would automatically mean the UK, to save face would be forced/bumped into doing the same.
Then came along Adair Turner on Sunday to clear that one up, it was the US first.
The real dilemma here for the governments is that a full investigation would wipe every penny out of the banks in litigation and we are back to bailout.
A country somewhere will get it sorted and when that happens there will be a huge shift of money to them. We do need to get to the bottom of this but somehow not let the lawyers create a second crisis.
July 6, 2012
“A country somewhere will get it sorted and when that happens there will be a huge shift of money to them.”
Either a Country, a new Form of Currency or an old form of money.
I cannot think of a single Country in the World that isn’t having it’s Currency debased at the moment.
July 3, 2012
There was a paper some 10-15 years ago (possibly around the the time of the Natwest takeover??) that suggested that the optimum size for a bank was about Ā£20bn of assets (so maybe Ā£40-50bn now?). As I recall, it wasn’t so much based on systemic issues, as on the nature of the bureaucracy involved. Above that size either everyone spends their life in meetings and nothing gets done, or noone knows what’s going on and the normal controls start to break down.
Of course, this explains a lot about another big bureaucracy, the one that consumes half our GDP….
July 3, 2012
cont… It seems Bob Diamond is angry at having to leave his beloved Barclays that he put life an sole into, no doubt feeling unappreciated.
In 2008 there was a famous bailout but what the general public are not aware of is there was a second bailout of near similar proportions and I can scoop an exclusive here. My wife, an expert in certain brand names had run up an eye watering sum with the aid of Bob Diamond.
Looking into this I realised what a racket this was, fortunately I put a stop to it. However the racket involves throwing unlimited amounts of money at people with massive charges making huge profits. Looking at the wider public I can see who eventually picks up the bill for that gravy train. Its the taxpayer paying housing benefits, counselling, and all kinds of services to deal with so many people run through this gravy train for the banks where we are left paying the bill, paying the bailout and picking up the pieces.
Bob Diamond boasted to the UK that Barclays didn’t need a bailout whilst getting bailouts from the US Federal Reserve. I wonder if thats what changed the US’s change of view.
July 3, 2012
This debacle is not confined to Barclays, and before the dust settles, many other banks will be on the hook. Not only that, it appears that Diamond is relishing the prospect of spilling the beans regarding the possible delinquency of the Bank of England, and maybe also some Treasury officials during the Brown administration.
It makes me wonder whether it is ever feasible to think you can ever configure a safe regulatory regime, when so many agencies and market players have a vested interest in the same wrong answers.
July 3, 2012
And I always thought a LIBOR rate, was the rapidity with which an untrustworthy political told porkies. You live and learn!
Tad Davison
Cambridge
July 4, 2012
I’m gone to convey my little brother, that he should also pay a quick visit this website on regular basis to get updated from newest reports.
July 4, 2012
Interesting to see where Bob Diamond goes now. Don’t for get all the previous posts about jealousy and paying top money to attract the best talent. I haven’t. Obviously the worlds banks will now be climbing over themselves at this fresh opportunity to employ such talent and now he has be released to do more useful work will see his pay climb even higher.
July 4, 2012
He run for U.S. President – he has all the qualifications:
1. American
2. got lots of money.
3. knows Bankers.
4. wears nice suits.
July 4, 2012
Bazman: “Interesting to see where Bob Diamond goes now.”
Don’t worry about Bob , Bazman. There are a couple of vacancies on the Spanish bank Bankia’s board after the operation was valued at negative 13 billion Euros.
Bob can borrow my linguaphone ‘Teach yourself Spanish’ course and in two shakes of a lambs tale he’d fit right in.
July 4, 2012
over 40% of our economy is command and control
from the health service to the state schools, the end customer has no buying power and service is take it or leave it
to the provision of state sickness insurance those that pay the most in end up in the worst conditions if the worst comes to the worst
pervserse incentives and inefficient practises abound, hiring and promotion based on which school you went to encouraging a substandard self selected elite running the country
the proof is in the pudding and the pudding smells very bad indeed
July 4, 2012
Interview with Simon Dixon, Max Keiser:
“Bob Diamond: Itās easier to blame him than reform banking, butā¦”
July 5, 2012
I’m not blaming John Redwood for this but could it be that Copyright Laws are being used to censor certain information.
This is the second time a link of mine has been removed.
The whole point of my comment above was the link.
Is this China ? What happened to freedom of speech (and freedom of information)?
Is the Government’s view – “if we can’t defend it, censor it!”
Reply: I delete links which I have no time to check out. As you should know by now I have now wish to censor Alternative views. If you want to say something the write it out in your own words and it will usually be posted. I do have many other things to do as well as moderate this blog, so you could help me by what you post.
July 6, 2012
Fair enough, I will do that in future.
Thanks.
July 8, 2012
I don’t see how having 5 smaller banks where there is one now would have prevented the crisis because they share a common culture. The problem stems from governments and the public wanting to live beyond their means year in year out so banks throughout the world became over-leveraged meeting this demand. 5 smaller banks would have done exactly the same on a smaller scale so the overall results would have been the same .
There are some banks that didn’t fall into the trap such as Standard Chartered but you could hardly say that was because it was a small bank It was more that it had a different culture from most banks.
I was reading on Zero Hedge that it is impossible to have a political solution to a balance sheet problem. The world simply has too much debt and debtors are finding it increasingly difficult to make coupon payments.
Bank assets (mainly debts) dwarf base money (money in circulation and central bank reserves). Global bank assets are around $100 trillion but base money is only perhaps a tenth of that. Markets will force de-leveraging.
Policy makers do not want bank asset deterioration because it leads to bank failures which would escalate throughout the world. The only chioce then is to print money, to manufacture electronic credits and call them bank reserves i.e. create new base money to reduce the leverage.
I suspect Germany will have problems facing up to this concept being applied to the EZ because of their past history of hyper-inflation..