Wednesday 31 August 2011

Cable is right, shock

31 August 2011 today. And what a month it has been Gaddafi falling, Irene, a 20% stock market fall, the end of the Euro in sight, to mention just a few events of the past month alone. We are certainly cursed with living in interesting times.

So, perhaps with some perspective saying that Vince Cable is right about something is not the most incredible thing to happen this month. However, I am a trenchant critic of Cable's. Worse I have met the man a couple of times and he is no better in the flesh. His grasp of economics and business is poor considering he is one of the only Lib Dems to ever have had a real job.

Today though, he is trying to be firm on insisting the banking commission regulations about our Banking Sector are enforced. There is lots of speculation as to exactly what will be recommended and lots of FUD from the banks about how much it will hurt them.

They have a small point on the need for international regulation to enable a fair playing field. But apart from that they are just weak with their defence. The main 5 retail banks are so big they played a key role in both blowing up the UK economy in the first place and now in helping to keep the UK on the edge of recession. The Banks also say they are already well buffered from further troubles by all their capital raisings and new regulation already imposed; their shareprices at 12 months lows suggests markets think otherwise.

It is not radical to say that this cosy monopoly must not be allowed to continue and threaten the Country again. I am not in favour of shrinking the financial sector as some kind of suicidal class war stunt, but reducing macro risks to the economy has to be a key plank of Government policy; along with ignoring the siren calls of an overpowerful lobbying effort on the part of the cartel.

We shall see what happens, but noises from Osborne in the past have suggested he agrees with Cable on this in private; which will mean an interesting month ahead again for Bank share prices.


Nick Drew said...

yes, it's bluff-calling time

you can send a hoodie-looter down with a straight face when you are sorting the bankster-looters at the same time

Goodwin this means you, we haven't forgotten

Mark Wadsworth said...

Agreed, esp. Nick's comment.

They ought to seriously consider scrapping corporation tax on banks and ruling out the Tobin Tax as a complete non-starter, and instead to crank up the bank gross asset/liability tax instead. The revenue maximising point would be, by and large, roughly the point where the damage that an overly large banking sector causes starts to outweigh the good which banks bring. Win-win!

CityUnslicker said...

Mark agree entirely - a tax on excessive leverage is the right way to go.

andrew said...

increase the reserve requirement - or make leverage of any sort more expensive - more leverage = more risk.

=100% - you pretty much cannot lend

=3% - pretty much where we are

Historically it was higher in the UK.

Sebastian Weetabix said...

To my total astonishment I find myself agreeing with Mr. Wadsworth. (But speaking as a confirmed rent-seeker & home owner he can still take his LVT & shove it where the sun does not reach.)

Anonymous said...

Look like 'call me Dave' Dave has capitulated to Big Banking. Isn't there a Rothschild link to Dave via his Gran? Or more directly, maybe his Bullingdon alumni 'had words'

Timbo614 said...

Talking of bluff, counter bluff & subterfuge what's your take on this ND?

BlackRaven said...

taxing leverage is a good idea.

however taxing leverage right now seems like a very bad idea, given that it will increase the cost of funding for everyone in the economy.

increase capital requirements is again a good idea, however doing it now only to relax it later when we are booming again just reinforces the credit cycle.

the premise though that the financial industry is a huge risk to the UK economy rests on media inculcation rather than hard analysis. the housing bubble has little to nothing to do with investment banking.

Nick Drew said...

Timbo - well Russia is fairly prone to cock-ups at the mundane level, but there are no coincidences at the strategic level

my take: this has been done deliberately on the same day that the Exxon deal is announced - not so much a punishment for BP as a warning to Exxon

Exxon it was that thought they were above all this when they went into Sakhalin: but (to their utter amazement) they were wrong, and suffered expropriation along with the rest of the western oil co's

now they are cockahoop again - "this time it's different"

but the Russians seriously enjoy showing you that they always have the upper hand on home turf. You may recall my little 2008 Predictions triumph, when I forecast (in Dec'07) that they would invade a neighbouring country around the time of the Beijing Olympics (to the utter and 100% predictable disgust & dismay of the Chinese - it was the rudest thing possible, which was the whole point)

the message is: we are so bad, we don't even mind being seen giving your best mate a thoroughly uncivilised kicking on the same day we are showing you the red carpet: but are you going to complain about it ? Thought not: now, mind how you go !

CityUnslicker said...

Black Raven - When the reforms come in is indeed a thorny issue. However to delay deciding on what they are for a couple of years will only add to instability. the Bank spinners pushing this line are looking for the full long-grass nirvana. We should have none of it, counter-cycliical buffers are us.

Timbo614 said...

@ND, Thanks, Roughly the impression I got - There is no such thing as a coincidence in that game. "Look what we can do to you on behalf of a tiny shareholder" - Now are you sure you have understood all our rules ?

BlackRaven said...

CU I agree that having a decision made adds to stability, imho making it time dependent is not a good idea though, surely a better idea would be capital requirements that rise with gdp growth? That way you've really got something counter-cyclical?

The problem with doing anything that Vince Cable suggests is that it will only encourage him. There is no evidence that half of the measures he suggests would do any good though, for instance splitting financial institutions by function would add absolutely no stability to the system.