The key question
James Forsyth 10:54amClive Crook’s column in the FT is, unsurprisingly, well worth reading. He is relatively relaxed about the political state of play after this crisis, arguing that the overall argument about the role of the state and government intervention in the market will be “rhetorically adjusted” but “about where it was before the crisis”.
Crook’s thinking is that while the intellectual climate will become more favourable to the left, the realities will still keep politicians on a relatively fiscally conservative path. Crooks ends on this note:
I wish I could be quite as optimistic about the answer to this question as Crook.“The financial crisis was indeed a failure of regulation. The system was overwhelmed by innovation. Regulators are going to have to catch up and, you could say, try to hold innovation back. But finance is not a normal industry. The question to ponder is this: in which other industries will curbing innovation – also known as market forces – strike governments or voters, in the US or anywhere else, as a good idea?”
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Ian C
October 13th, 2008 11:07am Report this commentIf the west over-react with intrusibve 'un-smart' regulation then places like Shanghai, Mumbai and Moscow will become the new financial centres. That would lead to even worse future financial and, devastating for many, culture shocks.
Alfred T Mahan
October 13th, 2008 11:59am Report this commentThe government's already interfering with the internal management of the banks by dictating remuneration policy (we all know that in the long run prices and incomes policies don't work) and insisting on banks lending to certain customers, such as small businesses. Compelling banks to lend where they otherwise wouldn't is surely a recipe for disaster - vide the US Community Reinvestment Act, one of the main causes of the sub-prime problem in the first place.
So I'm not optimistic that there won't be more damaging interference from the Whitehall Wonders.
"Managed decline", anyone?
Arthur Gibson
October 13th, 2008 12:04pm Report this commentIf you want an industry where innovation is unnecessarily restricted, try looking at agriculture. The EU is now discussing the removal of pesticides that give us around 30% of our food, on very dubious safety grounds. There's no need to ask voters, because we have the Commission and the Parliament. Like pharmaceuticals, any new agricultural product requires years of state-led testing before it is permitted to be sold.
Tight control of banking just 'brings the industry into line' with other industries across Europe. Why should your money be any different to your food, or your health? The Government know what's best; why fight it?
David Bouvier
October 13th, 2008 12:11pm Report this commentYes innovation was the issue but not in the old sense of scary new instruments that had real uses. - just a bit of regulatory arbitrage.
The troublesome securitisations were really just another kind of 'off balance sheet' financing (perhaps 'off-ratio leverage' is the right term) allowing banks to incur greater risk than regulators would allow or than they themselves should prudently have allowed. Whether this was reckless or stupid I do not know - a bit of both probably.
To stop most of this problem a simple rule would have worked: that splitting an investment into different parts cannot reduce the total risk/regulatory capital requirement.
The banks my have shots themselves in the foot, but lets not forget it was the government who loaded the gun with years of low interest rates driving an asset bubble.
Nicholas
October 13th, 2008 12:35pm Report this commentNo doubt that Britain is heading towards the East Germany of 1960. The puerile and craven nature of what passes for public opinion these days astounds me. Run to the nanny of government for comfort and protection. Fools.
Ian C has spotted it. This will be the end of Britain as a financial powerhouse as other less-regulated economies grow and attract all investment.
Augustus
October 13th, 2008 2:53pm Report this commentIt is only right that the banks and their management are to forced to reform in exchange for being saved from extinction. Also, Europe has chosen the best course of action by taking shares in these institutions. The American system just buys up bad debts. The big test now is, will private investors also want to put money in the rescued banks? If they won't, or the plan doesn't work, they will have to be fully nationalised, and the rest of Europe would have to follow suit.
Forlornehope
October 13th, 2008 3:13pm Report this commentBoth the pharmaceutical and aerospace industries have very strict controls on innovation. In both sectors it is necessary to convince the regulators that an innovation is both safe and fit for purpose before it can be offered to the public. Even then some things get through but major catastrophes are mercifully rare in either case. Most people in both industries recognise this as necessary. Perhaps something similar could work in financial services?
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