Thursday, 19 March 2009
Third World Regulators Put Gordon Brown To Shame: FSA Report (2)
With a 126-page, jargon- and graph-laden report like this, the danger of getting lost among the trees is great, so let’s start by staking out the wood:
Canada has largely avoided the worst of the ‘global’ banking crisis, and we know why. The UK is suffering very badly from it, and we know why. The difference lies in Jean Chrétien’s genuinely prudent regulatory approach versus that of Gordon ‘race-to-the-bottom’ Brown.
Where to begin on the Report itself ? Firstly, as CU says below, this is a very political document in that it conveniently sticks to Brown’s line that we’ve been taken unawares by a big boy who ran away. Turner, still more-or-less in his FSA honeymoon period, surely didn’t need to be this mealy-mouthed – if only in his own long-term interest. But, as with Butler and many another British report, even if there are signs the author knows what the score is (viz Turner’s live performance before the Select Committee), it’s just not good form for a gentleman to speak plainly.
It’s also rushed and shoddy in its production: typos etc abound - did a senior career civil servant get anywhere near this ? Looks more like spin-doctor editing in No.10 to me.
And what stuff it contains.
“Robert Shiller’s work illustrates that irrational exuberance is possible in housing markets as well as in equity markets” - we didn’t need anyone’s “work” to tell us that, matey (and Gordon Brown promised in 1997 to prevent it happening !)
“Inadequate capital against trading book positions allowed excessive leverage …Insufficient attention was directed to liquidity risks” – no sh*t, Sherlock !
“Getting macro-prudential analysis and tools right for the future is vital” – well, errr, yes.
I intend to run a short series on various themes from the Report over the coming days, but for now I’ll indulge in a little name-dropping to justify the headline above. Earlier this month I had the pleasure of dinner with the excellent Dr Tarisa Watanagase, Governor of the Central Bank of Thailand. In 20 minutes she described a more subtle, sophisticated and effective regulatory regime (which actually exists – in Thailand !) than that operated by Gordon Brown's FSA prior to the current carnage. Her operative grasp of the interplay of Pillar’s 1 and 2 of Basel II, and practical implementation of formula-based macro-prudential intervention, makes Turner’s analysis look trite, his conclusions timid and tentative.
With our whole economy hanging off the banking sector, Gordon Brown has given us a regulatory system worse than that of a Third World country. He must not be allowed off this shameful hook.
Posted by Nick Drew