Tuesday, 25 August 2009

Who Regulates The Regulators?

You know one of the big problems with the whole concept of regulation, whatever it may be for, is that it is a fat cat job with virtually zero responsibility and no accountability.

Of course, Lord Adair Turner of the FSA may tell you otherwise but let's face facts, on his watch 5 high street banks went belly up and more had to be bailed out as he presided over the worst financial disaster since The Great Depression. As if that was not bad enough, he gets to write and implement the new regulatory plans, called Macroprudential Regulation to help us understand it more easily, and these are little different to before.

Meanwhile, some £17m in bonuses have been paid to the 2,500 staff of the FSA while they have also received substantial pay rises of up to 10%. It is a huge price for abject and total failure to the do their jobs.

And while their own snouts are in the trough, the City is right back to its old habits. Not only has the issue of massive profits from high risk deals already raised its head as we still dole out more money for the whole collapse of the little game last time, but also we are actually talking of paying incredible bonuses to City staff just a few months after we all thought the whole concept was both wrong and risky. In fact, it's worse.

The bounce back to profitability by banks was inevitable - they couldn't go down again after we propped them up. So the banks and their traders are actually taking profits on a massive scale on the back of our money, lent to them at virtually no cost, with a blank cheque underpinning any losses they may incur in the future.

In that environment, they cannot fail and they still have the chin to ask for bonuses and the regulator stands back as if this is the way it should be. It is still paying for failure, as some take their employer's to court for bonuses they think they should have earned when they clocked up the losses. We are paying for failure and the bounce back - we must be absolutely stupid. We are - in fact, the City relies on it.

It seems crazy, yet when you delve into what the regulators get out of keeping their heads down and saying nothing in their part time jobs, you get a sense of why it is not good practice to stick your neck above the parapet and criticise the obvious. For one simple reason, other than the obvious rewards, is that each and every one of them are part of the same fabric and system. Lords, Dames, Sirs and the right education and backgrounds and the single biggest qualifier of all, a portfolio of Non-Executive Directorships to prove you can stand the heat and pressure of part-time jobs and know how to make a few bob out of them.

And they do. Lord Turner is on umpteen quangos and whatnot as well as boards - at the FSA alone he earns over £200,000 a year for a few days a month and he even gets that unbelievably wrong. Then you have the other regulators like Lord Mogg at Ofgem where he does a marathon at 3 days a week regulating the energy market. He claimed over £35,000 in expenses last year to do that job alone and that included a £5,300 plus for a first class season ticket and a £5 canteen meal as well as a subscription to the Financial Times. His CEO, Alistair Buchanan, lives in Egham just a few miles from London and the office but he managed to clock up £5,700 for 23 overnight stays in hotels in London amongst his £28,000 of expenses. Lord Mogg gets £145,000 a year for his part-time job, of which this is only one, while Buchanan gets a derisory £260,000.

The story is not pretty at Ofgem as they all are at it. Mogg managed to do £18,765 in travel in 14 months on 30 trips abroad (why??), and that's going some as I travel almost every week to somewhere in Europe and can't challenge that spend. Buchanan's curious 23 nights in London hotels included £826 for just a single two night stay.
The point here is that these bodies are there to supposedly protect us from these industries but in both cases all they do is to consume money and we foot the bills - and they are huge. There seems to be no rules by which they have to work and they can clock up vast expenses, salaries and bonuses without a jot of accountability as there is none required. The FSA stands watching as the City again squabbles over headhunting and acquiring staff with vast new salaries, bonuses, golden handshakes, earn-outs and guarantees to bolster the 'talent' in their trading areas while they cull vast swathes of staff in the only consistently profitable parts of their businesses.

And, yes, we pay for it as it is all funded by taxpayers' cheap money, capital and guarantees and, of course, new cash from Quantitative Easing.

If someone had said 6 to 9 months ago that we would allow all this to happen again then they probably would have got lynched but thanks to the regulators once again being unaccountable and standing to one side to let the industry get on with getting back to normal, we have just let all happen again.

And it may just get worse when it collapses next time. Not until we get wholesale reform and proper regulation in with the right people at the top, who are not part of the system and not just cash sumps, will we actually get some change. And, boy, do we need it.

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