Worse Than Worthless

Following on from yesterday's article about the FSA wanting people to be afraid of its powers, it would seem that it has much more work to do if its dream is to ever become reality.

The Times reports that the FSA blocked an attempt last April by institutional investors in Royal Bank of Scotland to vote against Sir Fred Goodwin.

The FSA veto of a proposal to put all RBS directors up for re-election ensured that Sir Fred did not have to stand.

It seems that the FSA was afraid that a mass rebellion against the board would have destabilised the bank.

This raises the question, that has been asked so many times before:

Who exactly does the FSA serve, the shareholders or the banks etc that pay its fees?

On the basis of the above it would seem very clear the FSA is beholden to its paymasters in the City, rather than those it is meant to serve and protect.

Nothing will change until the tripartite system is abandoned and a new regulatory regime created, whereby the FSA is radically restructured or abolished.

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Be Afraid!

I see that Hector Sants, the head of the Financial Services Authority (FSA), is telling the City that people should be "very frightened of the FSA".

That will most certainly be a first!

He has warned that there will be a new, more proactive approach, to regulatory enforcement, which would be far more direct and intrusive. All very well, but this is shutting the stable door after the horse has bolted.

Whether or not the FSA finally develops some cojones is not the issue. The fundamental reason for the failure of financial regulation is the tripartite system created by Brown. As long as that is in place, the regulatory failings of the past will be destined to be repeated in the future.

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Brown's Vanity Project

Despite the fact that the UK is suffering the worst recession in decades, and the government is effectively broke, Gordon Brown is determined to spend money hosting his personal vanity project.

World leaders, 22 are expected, will attend a conference organised by Brown at the ExCel Centre on April 2. The purpose of the conference is to revive the world economy.

All very well, but here is why it is a waste of time and merely a vanity project designed to project Brown as a "leader":

1 It will cost the British taxpayer £50M.

2 The recession has been "in play" for quite some time now. World leaders and their finance ministries ought to have already formulated plans for stimulating the economy.

3 A one day networking event in London will make not the slightest difference.

4 The leaders and their advisers have other opportunities to discuss and brainstorm, eg Davos and via phone and video links.

All in all this event is a waste of time and money, and fools no one.

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The Great Recession

It would appear to be official, the world is in the grip of a "great recession". That at least is the view of the IMF.

Dominique Strauss-Kahn, head of the IMF, said that the global economy could shrink for the first time since the Second World War.

He is quoted in The Times:

"The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes.

Continued deleveraging by world financial institutions, combined with a collapse in consumer and business confidence, is depressing domestic demand across the globe, while world trade is falling at an alarming rate and commodity prices have tumbled."

He drove his points home by using the phrase a "great recession".

Warren Buffett, in the US, piled on the misery by referring to the situation as an "economic Pearl Harbor".

The next couple of years are going to be particularly bloody for many. Governments around the world would be well advised to start thinking outside of the box and coming up with genuine solutions, to help people weather this storm, that can be implemented in the short term without the need for the usual bureaucratic delays.

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Lloyds Bonuses

Lloyds, the bank rescued by the government after taking on the poison chalice of HBOS, has announced that it will be paying around £80M in bonuses.

Needless to say there has been a knee jerk reaction orchestrated by the government manipulated media. The government are keen to whip up a frenzy of anti bank feeling, lest its own role in the financial crisis be subject to excessive scrutiny.

However, before effigies of bankers be burnt in the streets, it is worth noting that the majority of the bonuses are being paid to ordinary members of staff, and that those senior members of staff eligible for bonuses may have to wait up to three years for them.

It should also be remembered that Gordon Brown "brokered" the HBOS deal, ie he twisted arms to save his political skin.

The government are as culpable as the bankers for this mess.

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Where No Man Has Gone Before

The Bank of England had a "Star Trek" moment yesterday, as it lowered interest rates to 0.5% (the lowest in the UK's history) and committed to pump in £75BN into the UK economy over the next 3 months via quantitative easing (printing money).

Quantitative easing has never been attempted in the UK, when the Japanese tried it in the 1990's it had little success.

As to whether these policy measures will work is anyone's guess, we are entering uncharted territory and going where no man (UK central banker) has gone before.

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Interest Rates To Fall

It looks a racing certainty that the Bank of England will announce later today a cut in interest rates from 1% to 0.5%.

Given that this leaves it little manoeuvring room for further cuts, the Bank will also start the process of quantitative easing (ie printing money).

The objective of both of the policy instruments is to ease the credit drought, to try to bring the economy back to life.

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The Contrarian Stance

As the Bank of England gears up for quantitative easing (ie printing money) and a likely further cut in interest rates (decision due tomorrow), Woolwich (the mortgage arm of Barclays) has (as per The Times) increased its fixed and tracker rates by up to 0.3% points. A two year tracker for borrowers with a 40% deposit has increased from 2.74% above base to 2.99% above base. The fee is £995.

Woolwhich justifies this move on an increase in demand for their products and an increase in mortgage funding costs.

Clearly they are expecting a rate reduction announcement tomorrow!

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Northern Rock Mortgage Arrears

The Times reports that Northern Rock (the bank owned by the taxpayers) mortgage arrears have risen by 394% (from 3,492 to 17,264).

Given this situation, and the fact that the housing market has not yet stabilised, how wise is it for the Rock to be offering 90% mortgages?

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HSBC Cash Call Drags Market Down

HSBC's record cash call of £12.5BN, aside from causing the collapse of its own shares by 9% today (down by 46p to 445.25p), also dragged the FTSE down by 3% to a six year low of 3700.

Meanwhile, doing the rounds, is this rather amusing take on the banking bailout:

Bailout

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