Crash Analysis

I watched the second part of Will Hutton's Dispatches Report entitled 'Crash - How long will it last?' last night and was more angered than informed.

It didn't really tell us anything that we did not know or that I haven't blogged about but what it did was put it all in chronological order and summarise the events as seen by the key players. There were a number of quotes and events that are worth remembering from it and Will Hutton's summary was chilling enough that we had feted and lauded the bankers too much in the Labour Government's terms, for what reason it is not entirely clear, but what we have ended up with is the scenario that there is one industry in the world that can create as much wealth as it likes in any way it sees fit and if it fails, having rewarded itself stupendously, then the losses will be redistributed to taxpayers.

Life will then resume for these people - and to a large extent and with few notable exceptions, it will be the very same people who will be allowed to do it all again.

Highlights

It's difficult to know where to start but Alistair Darling's 'little boy confused' look is wearing thin but he claims that mistakes have been made in this business over thousands of years and so we must be 'Older and wiser' for the future. The clue was in the fact that the same mistakes had been made before - so we just repeated them on a grander, more complex scale with more catastrophic results.

What came across from just about everyone was the bewilderment on how the events unfolded and how little idea anyone has of how and when we will get back to normal. The one thing we can agree upon is that a whole generation will pick up the tab. Professor Buiter of the LSE was very pessimistic reckoning unemployment will rise over the next 4 years reaching over 10%, businesses will fail on a catastrophic level and there will be a great deal of austerity - he also was dismayed that taxpayers are left footing the bill for all this.

The one person who foresaw the recession that Gordon Brown denied could happen to us was Danny Blanchflower (not the former footballer but he was on the Bank of England's Monetary Committee). Blanchflower had persistently voted for interest rate cuts long before the crisis unfolded as he felt the Committee's obsession with inflation was masking the wider economic problems which were manifesting themselves - growth was slowing, unemployment was rising. He was publicly shouted down by his boss Mervyn King who has tried to shape himself as a bit of hero in all this but in fact was just another idiot who believed money can create more money, forever.

The most powerful image was of Gordon Brown addressing the City in June 2007 and thanking them for their work in creating a new era of prosperity in the City. Within months Northern Rock would have collapsed and the whole pack of cards began to fall. The enormous hubris and smug self-knowledge was the epitome of Brown for all those years yet as Buiter said, it was Brown who created the conditions for this collapse, it was his policies on regulation and taxation that created the feeding frenzy in the City that he allowed to go unchecked because he really did not consider that it was all built on nothing more than sand.

Sir John Gieve, intimately involved in the Government's handling of the deals with the banks described the crisis as a series of 'drunken lurches' - just when you thought you had got a hold of it, another thing knocked you off your balance. In fact, it was more the Government responses which have been an extended series of knee-jerk reactions from which no-one really knows what the full liabilities are - we have lost count of the billions and billions of our money we have committed in cash, loans, guarantees. We can only assume that the top end figure of £1.3 trillion is the sum of it.

The bank executives held up in front of the Treasury Committee were seen to eat humble pie. The bigwigs surrounded the baby faced former Asda Marketing manager, Andy Hornby, who as CEO of HBOS blew the market leading position of the UK's largest mortgage provider. He should have been sent back to stack the shelves. Fred Goodwin, the arrogant head of RBS, had the last laugh when the Government sent one of his kin in Lord Myners, a professional Non Executive Director who had no idea what he was supposed to do or let himself in for, and so agreed with the other NXDs to allow Goodwin to walk away on his own terms. What an idiot, and he's still there as the City Minister.

Meanwhile Goodwin described the Government's offer for RBS as a 'Drive by shooting,' showing his ignorance. If that had been the case, then surely he would have been dead. As it is, he is far from dead unlike the thousands who lost their jobs and the taxpayers who underwrite his incompetence. It has now been found that around 25% of his bank's lending had been insecure. It's like in our own businesses having to write off 25% of our revenue because our customers would not pay - we would be out of business and never trusted again.

Then there was the brainy Lord Adair Turner, another serial NXD, who sits on more committees than God. As Chair of the FSA he sat by and did nothing and then has been allowed to write the new constitution of the same body when he should have been out on his ear. We paid in excess of £250,000 a year for his part time role and he sits on Boards and other bodies earning an absolute fortune for giving wisdom in hindsight.

Why do we allow incompetence to re-root and grow again? Just because he has a nice accent and went to the right University.

Even in his hours of 'superman' status in rescuing the banks, Brown got the basics wrong which allowed the banks to continue to run themselves, restructure as they wish, reward themselves as they pleased, lend when they wanted to, and give failed executives bumper pay offs in their pensions or lucrative consultancy packages. Brown may claim that he cannot watch every detail but this is precisely the issue. It was the detail that eluded him the last time round. If he had bothered to check he would have understood that lack of diligence and attention was driving the whole financial system to a point that it simply had to implode.

You cannot keep getting something for nothing.

Lessons To Learn

When the last Conservative Government was turfed out, there was much criticism of the way the country had been run, the decisions taken and particularly of fiscal policy (let's not go down the sleaze route for now). What has happened is that New Labour sold its traditional values to a bunch of spivs in the City who took over the reins. With tax breaks and a free passage to do as they please, they created a scam so obvious yet intricate that they made money out of nothing.

The rise of the Private Equity House and Hedge Fund and the emphasis on buying and selling businesses for vast profits through leverage and minor tinkerings overrode the investment in technology, innovation and the future. It was all about the here and now and how rich you can get. Tony Blair could not get away fast enough and is so busy doing meaningless City jobs earning £ millions that you can see what was on people's minds. The old values were gone - 'Champagne Socialism' was here. Peter Mandelson led the charge claiming that the Government would be delighted if people got fabulously wealthy, as he has done curiously as a career politician.

The lesson we have all learnt is that if you allow greed to run the country then ultimately it will cost the rest of the citizens. For while we may like it, but when the cloak is pulled away we just find out we have been robbed.

But now we have had a taste of it, no one wants it taken away. So all the money that will be spent will be to try and preserve the status quo for a few more years before the next big crash. Boom and Bust is here to stay - Gordon's credo was is his own modus operandum.

G20 - Hopes, Fears and Humble Pie?

When a similar Summit was held in London a few years ago, City trader-types thought it was funny to photocopy money and lob the copies out of their office windows along with bars of soap at the mass of protesters below. It caused an angry reaction which resulted in a good deal of property damage.

This time around, Banks have sent around internal memos urging restraint and recommending that employees should turn up to work today and tomorrow in casual clothes for fear that besuited people will be automatic targets of the wrath of the protesters on their way to the G20 Summit at ExCel in Docklands.

How strange it is that the very people upon whom the traders poured scorn and fake money the last time around are the very people who have pledged real money over the next 30 years in taxes in order to save their very careers.

A modicum of humble pie would not go amiss.

Our Hopes

After Gordon Brown's rather forlorn round the world trip on a mission to nothing, G20 kicks off for real tomorrow and Brown has reassured us all that there will be a broad consensus on the strategy and actions in order to lead us out of the financial chaos we are in. The likelihood of getting such a general agreement was dampened when the French threatened to walk out of the Summit before it had begun as they disagree fairly diametrically with the UK and US approach to the problems faced. It is good news that President Sarkozy is on his way now, hopefully with the lovely Carla in tow.

As much as we all may be angry with how this disastrous situation has come about and however much we may disagree with the enormity of some of the solutions, the one thing I am sure we would all hope for is a broad agreement on what to do about it.

Gordon Brown refers a lot to Protectionism and I think he needs to be clear about what he means here. On the one hand we are concerned in Britain that British jobs were taken at places like Lindsay Refinery and on programs like 'The Apprentice' there is a definite swing toward doing things to support British business; we also need free trade between borders in order to help get our economy ticking again. But that isn't necessarily what the PM means - he wants more flow of capital and credit into the British economy as literally hundreds of billions have been withdrawn from our money markets in recent months and lending has dropped sharply. It's lending to other banks, of course, but he wants to get that into the wider economy to fuel more accessible mortgages and resurrect the housing market. This is what fuelled our economy over the last 12 years and the PM wants to reset the clock to August 2007 to get it all back to normal.

I don't think that will be achievable. Every country has a duty to get its own house in order and some have suffered more at the hands of the global markets than others. President Obama wants a global response but he was clear in his bail out directives on capital projects - American construction, American steel, American labour. He would have been stupid to have said anything different.

What we would all like to see as well is some kind of global consensus on how banking should look for the future. It is more than clear that the system was not just broken but it was flawed from the beginning - it needs radical change and a re-focus on the core duties of banks which is to provide capital and credit. We would like to see more active, watchful and powerful regulatory authorities which have a global remit to not just monitor wrong doing but to look at business models, profiteering, bonuses and business ethics to ensure we do not have the sleepy old yes men of last time. It is a tragedy that our FSA is being remedied by the same executives who presided over the mess we are in - we need new people, fresh ideas and a commitment to facing banks down not pretty words.

No matter what Lord Turner and Hector Sants say, the FSA had all the remit to tackle banking previously - they just chose to ignore what was going on.

Transparency is a word I like. I would like to see a more transparent banking system that we can see and understand. That people invested in banks in Iceland is all very well but they should have a clear view of how these banks act and what risks there are. How we do that? I don't know but it is tragic that the 300,000 or so investors at Dunfermline Building Society had no idea their savings and investments were at risk through the suicidal business activities of the society's executives. Somehow we need to see that.

Transparency means Government and Public Service too. We have been disgusted locally over the state of public servants' ethics and it is time we got a clear view what our elected and unelected officials get up to, who pays them outside of us, how they spend our money, why they pick fights with other countries and how they account for failure.

The last year has brought into sharp focus the difference between responsibility and accountability at the top level - not one senior politician has accepted the accountability for the actions or inaction.

The culture of greed has almost destroyed us - it is even apparent in the music of the young. We have become a 'must-have' society and it has made us all spend far beyond our means. We have been invited to leverage our assets to produce more money which has fuelled a frenzy of profiteering and a bonus culture which has literally driven us to the point of ruin. It would be something if we could get the G20 countries to agree that the bonus culture at the top end is curbed which will lead to more sensible lending - it means a reduction in personal debt is a priority rather than enticing us to grab the money being pumped into our economies to increase our borrowing.

That has to be suicidal.

Our Fears

The worst that can happen is that the G20 countries walk away with only a statement which does not address any of the above but that they issue some carefully worded platitudes which really mean there was no agreement on anything. The next few months could be crucial for us all and we need these people to agree on at least one course of action in unison - perversely, even if it is the wrong one.

I fear that the G20 group will look upon the protesters and believe they are not representative of a wider opinion. We all deplore mindless violence and unpeacful protest - the whole protest is at risk of being hijacked by those looking for a fight. But this time round, there is a profound and fundamental opinion pervading in our society that believes that much of what we see today could have been avoided and that it was the very people who are assembling in London who slept on the job to ignore the signs. With due respect to new guys like Sarkozy and Obama, our fear is that we aim for a return to the status quo and not to radically change our system so that this cannot ever happen again. Without tackling this, we will be cursed with more booms, followed by ever increasing troughs.

If, in 3 or so years time, we are all remortgaging to leverage regrowth in our assets, then G20 will have failed. We must find a way to get back to sensible borrowing based on household income and avoid the lunatic lending of the last 12 years.

The problem with capitalism is that it is great when things are going well - we talk of honourable projects like reducing carbon, funding new projects to find fuels and materials that will conserve our resources and of helping others less fortunate than ourselves. The moment capitalism fails, it tries to patch itself up at any cost. There is a huge risk that all the good work to drive environmentally based projects and awareness will, at worst, dissipate and, at best, get set back years as we clamour to pump precious capital and money into a system that failed us so badly at the cost of all else.

The cries of the developing world have been drowned out by the siren calls of international rescue packages designed only for developed countries. At a recent African Nations Summit, the theme was that Africa did not cause this problem - it did not bring down the banks or financial system. Its problems have remained constant while we fly around our cliquey groups, mustering resources and taxpayers' money to rescue the few elite people many of who were personally richer than the combined wealth of millions of African people.

My biggest fear is that we consume far, far too much of our money saving a few rich people at the cost of a generation of Africans desperate for our help.

Humble Pie

I have talked of the banking community viewing the protesters very differently from before. This time round, real money in tax pledges have saved the necks of the arrogant people who threw the photocopies of cash out of their windows. Today and tomorrow, they will avoid eye contact and being recognised by the protesters for fear they may get a piece of their mind - and it would probably not stop at mere words.

My biggest hope is that we will have a banking system that breeds people with sense, compassion and real purpose instead of self-seeking, greedy, arrogant and repugnant people who in the face of losing billions still feel they are owed millions. I hope that the current crew not just eat some humble pie but that they remember in future that it is our money and our future with which they play. Accountability, going forward, should be the watchword and next time around let us all hope that the law helps us redress any excesses instead of mere moral indignance.

I hope, perhaps unrealistically, that the G20 Summit will be a platform from which the world will change for the better. I don't expect it overnight but some time in my lifetime is not too much to ask.

Sugar And Spice And All Things Nice

Extra sugary syrup on the pancakes was the recipe in Washington yesterday as Gordon Brown went from Tony Blair's poodle to American lap dog in one unmercifully long speech.

Yes, we all know America is a fine country and represents the source of the rescue of the world economy and, yes, we know if it reverts to protectionism it will spoil it for the rest of us, but come on Gordon, did you really have to behave like a smarmy used car sales man crossed with a shoe shine boy? It was embarrassing to say the least.

God Bless America

From its very creation to the inauguration of Barack Obama, Gordon was in rapture at its 'bold affirmation of faith in the future' and he was equally gobsmacked by America 'leading insurrections in the human imagination' so much so that he was amazed that 'your belief that there is no such thing as impossible endeavour'. He virtually foamed at the mouth as he expressed his love for America, 'And let it be said of our friendship - formed and forged over two tumultuous centuries, a friendship tested in war and strengthened in peace'. Then Gordon reverted to standard format, calling on his personal experiences and heroic past, 'My father was a minister of the church and I have learned again what I was taught by him; that wealth must help more than the wealthy'.

The thin line of the theme was building his friends up to his central, seemingly desperate pleas, far more blatantly than was necessary perhaps, 'So should we succumb to a race to the bottom and a protectionism that history tells us that, in the end, protects no one?'. So he pointed to the unseen future that he would like America to help him create, 'As the Greek proverb says, why does anyone plant seeds of a tree whose shade they will never see?' For his intellectually challenged audience he even explained it patronisingly to emphasise his desperation.

Finally, 'And if these times have shown us anything it is that the major challenges we all face are global.' Just in case the audience hadn't got the message, which in a nutshell was:

'Help! We've washed a load of money down a drain and we need tons more.'

From Poodle To Lap Dog

Quite what Congress made of all this obsequious goo and desperate pleas was hard to discern as Americans have a habit of applauding even if someone has dropped their trousers and farted 'God save the Queen' in B minor. But for me, Gordon Brown came across as a lame duck, obsessed with the idea that only far more money than his calculator will allow him to think of borrowing pumped down the throats of banks will rescue this economy - and only one country he's friendly with has pockets big enough. The smarmy, syrupy speech was a far cry from the plain message delivered by Winston Churchill at the same pulpit but was awfully reminiscent of the 'We're all in it together, lads - you, me and God' from Tony Blair.

However it turns out, the one thing you can be sure of is that we will be following American policy whether we like it or not for the long term as we have 'assumed the position' and they can ask what they like. The good news is that the ray of hope is Barack Obama - I would rather him call the shots than Bush.

For Brown, this was the realisation of all his little fantasies - evoking his memories of JFK, of the Moon Landings, Ronnie Reagan with a pick-axe at the Berlin Wall(?) and culminating with Obama's inauguration at the 'Shining city upon a hill'.

Yes, that would be the City with a fairly high fatal crime rate, the country whose best selling kids PC program is about how to steal a car, whose pinnacle of music lauds materialism and violence, whose gun culture nurtures atrocities at schools, whose lawmakers support torture and detain people for years without trial on non-sovereign territory, whose commanders invade defenceless countries in the name of WMD disposal, whose leaders support degradation at Arab prisons.

I am not trying to vilify the United States - it is an inspirational nation. But Brown's outpourings made them sound like an army of Samaritans - perspective was in order rather than grovelling for his political life.

The Sump

The US Fed poured around $13bn into GM alone and as we speak it teeters on the edge of bankruptcy if more aid cannot be gotten to it very soon. AIG, that veritable shredder of cash clocked up losses of over $100bn (that's around $500k per minute) and needs yet more aid to stop it from slipping under. Citigroup today joined the band of illustrious companies with penny shares as its stock price dipped below $1 - once it was the most highly capitalised bank in the world. Last month, it was estimated that 500,000 Americans lost their job and in the UK, on the news that interest rates have yet again been cut to just 0.5%, the stock market dived 3% and the Bank of England announced it was to introduce 'Quantitative Easing' (QE) or printing more money - usually the place of last resort for 'Banana Republics'.

QE is the stuff of ridicule in Niall Ferguson's 'Ascent of Money' and the last major economy to try it was Japan. The good news for Gordon Brown is that it is another 'suck it and see' method to stimulate the economy as Japan found. Too little QE and nothing happens, too much and you flip into a rapid cycle of big inflation.

Richard Quest on CNN simplified things for the majority of us who stand incredulous that we are resorting to archaic methods to stimulate the economy. Imagine a pyramid of champagne glasses, with just one at the top. QE is the process of pouring enough liquid into the top glass so that when its full it overflows to the glasses below which in turn slowly fill to overflow and start to fill the glasses below them. If you think of the Bank of England supplying the liquid or money, then the top glass may be banks, the ones blow are businesses and the ones at the bottom are you and I, the consumers. When our glasses are full, we spend like mad dervishes and all the ills of the world go away - theoretically, as no one has successfully used it.

Of course, there are slight complications - nothing to worry about but Gordon's theory book doesn't say how much money should be printed. But that's not a problem as he didn't have an earthly clue how much money was needed for the bank bail outs which have failed as well. Fear not, we taxpayers love to see our money thrown away and made less valuable - carry on.

I shouldn't read anything into the fact that the Debt Management Office, those chaps in charge of raising our borrowing for us by auctioning off our debts, had to sell out our debt at the lower end of the spectrum on the latest tranche of £2.5bn of 30 year bonds. Many believe that we may well have a failed auction soon as the almost endless series of auctions of our bonds continues to support our borrowing. And investors are beginning to run scared that we may not have the wherewithal to pay for it.

Now you see why Gordon is so desperately cloying in the US.

Britain Leads The Way

Gordon would be the first to point out that he saved the world from oblivion. Lord Mandelson believes that was only the start. The green shoots of recovery are visible in the form of Kate Winslet who represents that creative genius of Britain's future. In Mandelson's demented words, 'She is the start' of a bright new future.

That creative future seems to include Michael Jackson, who has announced a series of 10 concerts at the O2 Arena as his farewell tour or at least the one to get him out of hock. If we had an ounce of conscience, we would ban him from these shores. I know he got acquitted but you have to admit, in his case, there is no smoke without fire.

Leading the way forward also was Harriet 'I'm not the deputy, I'm the Sheriff' Harman. Standing in for the PM, she was handling the pesky critters like William Hague at PM's Question Time. And she spent most of the time apologising for getting her facts wrong which is pretty much in line with PM duties so she's shaping up nicely for the job. Top of her list was that she had mistakenly said that Fred Goodwin's Knighthood was for services to charity. If the charity was his pension fund then he thoroughly deserved it for a sterling effort. However, she had to masticate on her words as he was in fact knighted, by Labour, for his services to banking - and now the nasty lot want to try and prise that and his pension off him. Fat chance.

As Harriet tries to convince us she is Gordon's successor by making big boasts about Goodwin's pension and how he shouldn't 'count on it', it is noticeable that many Ministers are distancing themselves from her, forcing to her to mollify her threats by claiming that they would have to legally explore how the heck they would do that after the event.

Now Harriet, if only you had done your job properly and thought about it beforehand then we wouldn't be in this mess. I know, that means actually turning up and doing your job, but hey, count your blessings, at least you have one. For now, that is.

The FSA Roars

Hot foot from their rather limp performance at the Treasury Committee Hearings where FSA Chairman, Lord Adair Turner, gave a performance worthy of an English pace bowler on a flat Barbadian wicket, we now have the new, shiny and very, very aggressive report on the way forward for the watchdog and the markets.

Turner and his CEO at the FSA, Hector Sants, basically admitted negligence and that they were sleeping on the job but that's because the Government had told them to - obviously that's why they were paid so much money to turn a blind eye. So, true to form, in order to solve the problem of having a financial watchdog with all the bite of toothless old Retriever, they have asked Lord Turner himself to come up with the hard hitting, insightful report on how he should have done his job in the first place. It's like asking Tom McKillip to investigate why Fred Goodwin has such a high pension.

Turner is the sort of go-getting tiger who says things like, 'We can see a strong argument for us getting involved in product regulation' and arguing for a 'macro-prudential' role. Turner also intelligently said that the biggest mistake of the tripartite (Bank of England, Government and FSA) was not Northern Rock but 'The failure to identify that the whole system was fraught with market-wide, systemic risk.' Of course, had they seen what Northern Rock was up to then they might have started to suspect everyone else was playing the same game - so it might have helped that they noticed at least something.

The FSA has already proved to be a job too much for the likes of Lord Turner - so he can't possibly be the same Lord Tuner involved in green issues also? Well it would be true to form - there's no point up fouling one watchdog when there's loads more needing the same.

Finally The Good News

It' only taken 22 years but it finally pulled into the platform and delivered - Eurotunnel finally paid a dividend.

On a heady profit of €40m on €748m revenues, Eurotunnel wallowed in the bath of warm, vibrant Euros which have lured many Continentals to British shores and shops to spend their valuable lucre. Earlier this year, I was amazed to see a chap standing with a sign at the Eurostar arrival area, saying 'This way to Bicester Village' but he was soon engulfed by a throng of eager, giggling Frenchies. Meanwhile, on a trip just last weekend to France, I was stunned to find Eastenders empty and the wine prices in the supermarkets very similar to those in my local Budgens.

Still, those stalwarts who hung onto the now worthless first issue of Eurotunnel shares,issued under the vision of the late Sir Alistair Morton, who obsessively saw the project through as the costs mounted and mounted, are finally smiling at the meagre dividend at last.

Having just crossed from Folkestone to Calais via the shuttle in just 35 minutes last weekend to enjoy the comfort of a lovely Chateau hotel that was a former monastery and all the fine food, I think some labours of love are just worth it, no matter what the cost.

A Week Is Along Time

They say a week is long time in Politics - sometimes it is just not long enough.

As Tony Blair sets off for his first visit to Gaza as he has been so busy earning money elsewhere, Fred Goodwin is kicking back on the next week of his well-negotiated retirement and we discover that simple calculations put the top up of his pension pot at some way higher than first anticipated. It was reported last week that his pension pot was topped up from £8m to £16m to pay his £693,000 per year pension for life from his current age of 50. Sadly, as usual, the Government got the number wrong and at current projections, Independent Financial Advisers like my wife, immediately said he would need double the pot and sure enough that's what is estimated.

A mere slip of the finger on the calculator by Darling, Myners and Brown cost us a further £16m in a short negotiation. If only they had more time.

But the situation should be solved any time now as Harriet Harman has stepped in and warned Fred Goodwin directly that he should not 'count on' keeping his pension. Once again, it is a super-sound bite by Harman designed to increase her popularity in the slow process of building a bid for the Party Leadership. Sadly, it has already been said to no effect by Darling and Myners but she got the last word and that's what counts.

Fat Finger Syndrome

But that's nothing. Spare a thought for the UBS Trader who had 'Fat Fingers' and inadvertently pressed the wrong buttons to place an order for 3 trillion yen ($31bn or £21bn) when he meant 30m yen. Everyone had a good laugh and allowed him to pull the order.

If only we could do that on our Government's idiotic mistakes on failed bank executive's pensions.

Big Number Syndrome

It seems Gordon Brown has got obsessed with big numbers. It won't take millions to solve things but billions every time so when Goodwin talked of wanting no pay off versus the billions he lost, no one bothered to look at the millions he asked for topping up his pension as he would only get paid less than a million a year. It's that simple - Brown, Myners, Darling et al all thought it was a fair deal. It's only when you stack it up to what the average teller earns that it becomes significant and that's the problem.

You deal in large numbers only, you forget the detail.

It's rather like watchdog chiefs and Government Advisers. You wouldn't want cheap ones as that smacks of lack of intelligence. But then we had Lord Turner and Hector Sants wheeled into the Treasury Committee, a more Lily-livered pair of obsequious twerps you could not have found. They nodded and cow-tailed to the Government and toned down their approach to banks so that 5 out of 10 major ones went bust. The incompetence is shameful, their excuses even worse, yet incredible failure is rewarded. They did what they were asked to do so they keep their jobs and lucrative salaries and benefits, a sure sign they did exactly as Darling and Brown asked of them.

Can we blame them? Yes - but once again, the Chancellors get away with total negligence.

Rewarding Failure

One absolute fact of this Financial mess we are in is that there is money in failure - both here and in the US. It is a far cry from the performance-related culture that business has tried to portray and Government force on workers.

As millions in Britain face a Big Freeze on pay, it is really heart-warming to hear that bankers who blew billions on poor decision-making like Fred Goodwin are set up for life. On top of Goodwin, the man who is widely blamed for blowing HBOS's billions via poor Corporate lending, Peter Cummings, walked away having 'retired' on a pension of £5,000 per week. Andy Hornby, ex CEO of the same bank, was dismissed and then retained as a 'Consultant' at £60,000 per month until he was shamed into waiving it.

How Cummings was allowed to choose 'early retirement' at 54 and get that kind of pension is once again negligent by the Government which now owns 43% of the newly merged bank between Lloyds and HBOS - yes the one where Brown personally intervened to see it through and then bail Lloyds out.

Time and again we hear of these 'minor' mistakes by the Government in the bank bail outs - how could they keep on top of the detail? Well, that was the whole point. The reason why we need a bail out is that there was negligence on a mega scale - now we see equal negligence in the solution. So we must ask the questions - where will all these billions go? How did you come up with these numbers and what will the money be used for - line by line?

Because right now, all we hear about is fat cats getting paid lots of money for failing, Government not being on top of the situation, thousands getting laid off and no credit feeding into the system. It has been an utter, disastrous failure on a scale too big for most to comprehend. But we understand the bits about Goodwin, Hornby and Cummings all too well.

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.