Goodbye, Cruel World

Just back from several trips and I see the Government are going full on Middle East dictatorship back in Blighty.


Let's ignore Brexit for a bit, as there will be plenty on that this week.


Instead, the hand-wringers in chief have been getting upset about the internet and people saying stuff on it. 'Wont someone think of the children?" is the refrain and so of course now we have a new regulatory consultation. I can see some small merit in trying to stop social media from posting terrorist vids and livestreams - who wants that? However, state security and terrorism has been used by the Government since WWII to restrict freedom - who remembers not so long ago RIPA legislation being used by councils to spy on childrens' parents to see where they lived and if they could qualify for local schools.


So, of course, the Government instead have been taking their lines from their favourite companies, Google (who employ the ex-Conservative digital guru's, natch) and Facebook. Unsurprisingly as market leaders they are really keen on regulation to defend their dominant position. They are advocating lots of control that only they have the resources to police.


The form of this proposed regulation is fairly draconian covering:


"The plans cover a range of issues that are clearly defined in law such as spreading terrorist content, child sex abuse, so-called revenge pornography, hate crimes, harassment and the sale of illegal goods.
But it also covers harmful behaviour that has a less clear legal definition such as cyber-bullying, trolling and the spread of fake news and disinformation."


So, this website will be in real trouble, hate crimes are fast becoming the UK equivalent of the US wire fraud - basically, anything the Police or your enemies want to stitch you with is a hate crime. Trolling too covers anyone leaving a comment that is a little bit mean and Fake News, well what is one person's fake news is another's facts - it is the modern world (Let's think of an immediate example, crashing out of the EU will mean medicine supplies collapse in the UK - is publishing this fake news or denying it disinformation - who decides - the Government of course!).


So fun times ahead if this gets in. Maybe we can turn this into a Gardening Blog or some such, any ideas in the comments welcome.

What next for Payday lenders?

There have been many scandals in recent years, but the rise of payday lenders is one of the worst. The industry has mushroomed in the past 5 years, along with the pawn industry. That the pawn industry is now suffering is partly due to its huge over-expansion and also the fluctuating price of gold making commercial decisions harder.

The Payday loans industry by contrast has grown and grown with 200 lenders now registered with the FCA as it now tries for the first time to regulate the industry as of today. Yup, you heard it, as it starts from today trying to regulate the industry. All these adds for Wonga etc that have been around have all been part of an unregulated industry.

Now, as Capitalists, we have a lot of sympathy here with people borrowing to make up short terms needs as they wish. It's a free country is a saying you don't hear so much these days for obvious reasons, but nonetheless, people should be free to make choices. However, when the choices come with 4 pages of font size 2 text and usurious rates of interest then it is not a free choice - its a bad choice. It's not good Capitalism to have those with capital freely pray on those without and its not a free market where the particpants are at such opposities in terms of power and competence. basic regulation is always needed to underpin fair markets in any system.

Long ago, the FSA as was had a principle of Treating Customers Fairly, this meant that firms could sell products but should seek not to rip people off blatantly - in fact this is the basis for many of the derivative and PPI mis-selling claims that abound.

My take on it is that the owners for Wonga et al are not long for this world and if I was them a swift use of share capital to acquire less opaque businesses would be the top of my agenda. Even the FCA are going to twig that 2000% interest rates are usurious and are effectively a rip off of the stupid and ignorant which is far from what should happen in financial services transactions.

The industry will as a whole survive as indeed people have perfectly legitimate reasons to need short terms lending from time to time (I know I do!), but I would expect some rather sharp changes in practice in the medium-term. One thing that is a shame is that with all the LIBOR and FOREX scandals going at full whack, I doubt the FCA has enough capacity to do the job effectively in the short-term

Banking reform in deep crisis

It is not being seen like this, but I do think there is a big crisis in Banking reform in the UK in particular, as well as EU and the World more generally.

Clearly there was a need after the disastrous credit build up of 2001-2008 to make some big changes to Central Bank policy making, Government Policy making and private bank regulations. All of which when you think about it was going to be messy as so much needed to be done so quickly.

As ever, the US come up with the simplest ideas - in this case the Volcker rule - to try and fix things quickly. And of course the UK, beladen with all-knowing bureaucrats, goes for the complex route.

So we ended up with the unhelpful Vickers report which did somethings but did not split the Investment and Retail banks up which would have made everything alot simpler.

Worse is Basel III and the meddling FSA. The latter is not helped by the Governments refusal to put the detailed meat on the Vickers bones - so they are left not sure what guidance to issue. Basel III meanwhile stipulate capital increases fro banks to allocate against products.

You may or may not have noticed that this has ended Investment banking as was. There are many markets that simply are not economic anymore - the amounts of capital allocated is too great to mean returns. As such only advisory businesses work and fixed income and equities, as well as come trading has simply been stopped. Hence the tens of thousands of redundancies in the City - RBS, UBS, Credit Suisse, Citi are all making five figure redundancies at the moment. Yet to come, but baked in now, will be the loss of support jobs in Legal and Accounting firms.

Bank don't know what products are going to work in such an environment of regulatory flux, as their staff are expensive they are sacking them. In a year or two perhaps they will figure out what to do and hire some back. Those who are left are on salary packages often a quarter of what they once were.

This is going to have a big impact on the UK economy - so big that it will delay any meaningful growth until after 2015. And it didn't need to happen - its the impact of bureaucratic imposition on the regulatory reform process.

Of course, no one will care and I expect many comments saying hooray or so what, because Bankers are not popular. They are very popular in the Treasury though - watch those corporate tax receipts fall and a big drop income taxes as bonus's go.