Wednesday, 8 July 2009

Macroprudential Regulation - The New Nirvana.

Lord Adair Turner is an intelligent man. No, seriously, he is.

He must be, as he sits on umpteen bodies and boards and earns a fortune. He also can divert poison arrows, the hallmark of a true top-level operator. So having been at the helm of the Financial Regulator (the FSA) at the time of the biggest financial disaster since The Great Depression, it is only sensible that he should not only continue the job (and all his others) but be given the task of re-writing the regulatory system and be given more powers.

That's modern management at its best and 're-writing' is the operative word. For the more astute of us, whose simple minds could not compute ever increasing asset values and vast profits against the meagre rise in household incomes and so predicted a massive hole in finances, it comes as little surprise that 'Macroprudential Regulation' just reads 'More of The Same'.

You better believe it. You see one of the most obvious outcomes of the massive bank bail outs that sees British taxpayers liable to the tune of £1 trillion is that as banks collapse and require bail outs that would make many African nations' GDPs multiply, then there are vast profits to be made on the upside. In the aftermath of Fred Goodwin's pension fiasco, he has agreed, in a humane gesture worthy of us all giving a beggar 50p at the bus stop, to relinquish some of his pension entitlement, granted by the Government, and so save a significant amount on his pension pot.

Conversely, the new CEO of RBS, Stephen Hester, is in line to pick up double that saving in a single bonus payment for 'turning the bank around' - around £9.6m we are told. 'The Lord giveth and the Lord taketh' - this Lord being Lord Myners.

I may be a useless mathematician and businessman but I reckon that if someone bailed out my company to the tune of around $40bn, took over the liability of all my dodgy debts, bridged my funding gap and allowed me to make tens of thousands of innocent workers redundant, then I could do that with ease.

You don't have to be clever - just turn up and sign the forms then take the cheque and say. 'Put it on their tab' while pointing at the taxpayer.

More of The Same

You see Macroprudential Regulation is hardly different to what we had - some firmer language maybe but the same officers are in charge, the same executives (by and large) to watch over and EXACTLY the same financial system to regulate.

The really tough questions have been avoided like how to control bank lending or bonuses that can be paid - simple things which, to the armchair sage, are very obvious. We are told these are complex issues only because no one wants to spoil the game. Gordon Brown wants lending back to August 2007 levels so that he can get his 'economic genius' status back and banks want to get back to the business of creating profit out of thin air to pay each vast bonuses.

Indeed, we are all at it. We want our assets to rise again, so that we can dip into our 'worth' and get more credit to fuel our way of life while banks want it all to start again so they can earn vast profits not from the interest we would pay but by selling our debt on a massive revolving carousel and earn commissions every time it is sold. Meanwhile, the Bank of England was at it it too. In order to get us all to borrow more again, they introduced Quantitative Easing, usually the last hope of failed Juntas or Banana Republics to prop up dying currencies, in order to entice us to do so.

Debt, Debt and More Debt

But life is not the same. Last month saw the largest monthly rise in unemployment for years and now nearly 10% of our workforce is unemployed.

Over 400,000 more people last month stopped paying taxes and became a burden on the Welfare State - that biggest 'Ponzi System' of them all that makes Allen Stanford and Bernard Madoff look like pickpockets. Almost before the number swelled the dole queue, it was announced that Alistair Darling had got his numbers wrong again - tax receipts dropped in all areas while benefit payments rose, swelling our monthly deficit way past his estimates and adding to the ever increasing borrowing burden that he continues to under estimate. As we announce sweeping measures to reduce Public pay as a precursor to massive job losses in that sector, superannuated pension schemes and dole payments need to be paid by these tax receipts which work on the Ponzi systems of current tax payments to pay the existing members - it is not a vicious circle but a downward spiral.

The Government responds by increasing debt and so issuing more Bonds to be auctioned off and if only it were that simple that we could just add to repayments and interest. Bonds are like the glossy adverts you get on TV from companies like Ocean Finance, who sail by on beautiful yachts to rescue stranded people on the islands of heavy debt. They neatly roll up all your debt, irrespective of any assets, and consolidate it all for one easy payment - hey presto, you have a Government Bond. There seems no end to how much we can borrow as there will always be enough mugs, well off enough to pay the debt, i.e. Taxpayers

Until now. A few months ago, the first warning shot came when a Bond auction failed for the first time since 1995. Big credit rating agencies began to question our maths and ability to repay the debt and threatened to adjust the status of our Sovereign Debt. There was a worry that the stupid British taxpayer will not be able to pay it all off. There was good reason to think why, as our ability depends on massive credit to be released again which means another wave of bank bonus bonanza and poor financial regulation - we were not adopting any kind of long term, watchful measures to curb the excesses.

The world of debt finance at last has become suspicious that you cannot go on borrowing, you have to get your finances in order at some point and that will hurt us.

No Pain, No Gain

The Credit Crunch and Recession has revealed some hard lessons but we have not learned a thing. We still want our holidays in the sun, our second homes, our nice cars, our next gadgets and there is no way our annual household income would sustain all that. There has to be easy, cheap and plentiful credit for us all to have access to, to provide it - just pay later, irrespective of the interest rates.

Our whole society depends on it. While in South Africa recently, I met a group of eight pleasant students who had been there for several weeks having each increased their student loans by more than £3,000, supplemented by Government grants. As they vomited on pub floors playing their drinking games and then went off to the casino seeing double, they simply said they would pay it all off later or default. We start them younger and younger down the long road of permanent hock.

There was a time when a proud British subject would have no more debt than their mortgage. Now it seems fashionable to have everything on finance and to leverage more out of our assets. Macroprudential Regulation is just another fancy term for 'More of the Same' but this time the ink looks a little sterner. The players are the same, the bonuses will be the same and the rich will get far, far richer - again.

The clock is already ticking to mark the minutes and seconds to the next Credit Crunch and associated recession - it will be harder and deeper than this one and that will be only a stop over on to the next one and the next one ad infinitum. Until someone has the fortitude and guts to stop it all in our tracks and get some reality, we will blunder drunkenly from punch to punch in the endless boxing match of life.

Once again, we have missed the opportunity for wholesale reform because of one simple factor. The same necks were on the line. We should have cleared out the regulator, the bank executives and the Government and started again, but that would simply not do. The Wheels of Finance must go on and Gordon Brown's neck must be saved.

More debt? Loverly Jubbly.

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