All That Education And Nothing To Show For It

To some of us, academic achievement did not always come easy. To some, whizzing by exams and getting firsts at some Oxbridge College ensured a lifetime of achievement. All they had to do was turn up.

For those who fit into that bracket at the FSA, that's about all they did do. Today, the Chairman of the FSA, Lord Adair Turner, was giving his interpretation of events leading up to the world's worst financial crisis since the Great Depression of the 1930s to the Treasury Committee.

The Light Touch

We have heard the contrition at these committees from the likes of Andy Hornby, former CEO of HBOS, who was very sorry indeed - more sorry than Fred Goodwin, ex of RBS and Eric Daniels, CEO of the new Lloyds Banking Group. After an estimated £1.3 trillion of liabilities hurled at the taxpayer, sorry doesn't seem to quite cut it. I think for many of us, exile in Guantanamo Bay would not be good enough for them - sadly President Obama has shut it down too hastily.

This time we had the turn of the vicious city watchdog, whose job it was to watch over 10 major banks and in that time only 5 of them went bust - it could have happened to anyone. Turner alluded to a 'Light Touch' that was 'politically preferred' and so the FSA complied. That part was easy, most Chairmen of watchdogs have several other jobs so it easy to get distracted. Not the same could be said for the highly paid Hector Sants, CEO of the FSA. His lucrative salary was plenty enough to turn a blind eye to the obvious.

Intelligence Lacking

Let's face it, most of us with half an ounce of intelligence knew that the housing market was massively overcooked. The relentless price rises, year after year were fuelled by a flawed business model in banks which allowed them to leverage each new debt to raise new money to fund the next debt and the next capital. It was an upward spiral that simply had to implode because at some point the connection between the debts and the value had to disconnect. This is where the genius Gordon Brown tries to blame sub-prime but that was just a manifestation of the fragility of the model - it could have just as well have happened anywhere. The funny thing was that because the UK did not have many sub-prime mortgages, it was reckoned we would not be vulnerable. The problem was that there were many points of weakness in the model, any one of which could have taken the one thing out of the equation upon which all other things depended - Trust that the assets were at their original value when the original loan bargain was struck. Britain always stood to lose the most if this was ever recognised as our house rise was way ahead of others.

Wallop! The moment the flawed model was exposed, everybody was caught up in the web of debt swapping, derivative flinging, exotic swallowing, option swilling daftness that was the model. Trust was lost and the one thing they all needed to survive was credit and it simply dried up as no one knew who held what debt.

The FSA couldn't see that because they did not have the time in their busy days, they operated their 'Light Touch' very lightly, they had not the intelligence to notice, they were well heeled enough not to care or they were part of the deception system that allowed the whole scam to survive and flourish (delete as necessary).

What Does A watchdog Do?

Some of Lord Turner's answers were so pathetic as to wonder why he was not summarily dismissed from his post for not at least taking the time to come up with more plausible excuses. His constant references to 'political assumptions' make you suspect that perhaps the Government were pulling his strings but you would think a successful businessman in the past would have more guts than to just sit at a desk and do nothing.

But it's what he and all the highly paid idiots there did.

It beggars belief that he and Sants still have jobs anywhere, frankly. They have presided over the unhinging of 50% of the British banking set up and allowed the taxpayer to become liable for all their lunacy. Not once did he or anyone else step in to ask questions over business models and methodology. Yet he thinks the way the FSA acted was 'competent'.

Lucky for us it wasn't 'incompetent' or else we would have really been in trouble.

Independence

Lord Turner consistently referred to political assumptions and lack of independence and I think there is no smoke without fire. It seems the Government tack was to tone down the role of the regulator and this probably is endemic in all the watchdogs. Each are manned by Chairmen who have at least 5 or more other Non-Executive roles, are paid lucrative salaries and and are hand picked for their abilities to do what they are told.

So what happened to the CEOs? Surely the same can't be said of the well paid Hector Sants? Well the sum of it came when he outlined what was the only consideration to be taken into of when a senior banker was put into a post - whether he had a criminal record or not. It reminded me so much of the Monty Python sketch of the guy being interviewed for the Secret Service - he was asked, 'Can you keep a secret? Well you're in.' It would be funny if it wasn't so real as this was in response to HBOS appointing an executive to be in charge of risk at the bank who had no previous experience of the field.

The saga continues tomorrow - I just wish I could make it all go away. The shower of total incompetence belies the intelligence of the people involved. Surely they had more sense of conviction to do the job properly no matter what the Government said? How can they be kept in these jobs for the future if they didn't care before?

For a fraction of the £900,000 a year Hector Sants earns anyone who read the papers and could add up could have done his job the proper way. But that of course would presuppose that they cared enough to take it seriously in the first place.