Wednesday, Jul 01, 2009
Was banking the ultimate bubble?
Guardian: Banking system like South Sea bubble, says senior Bank of England official
'Banking became the goose laying the golden eggs. There is no period in recent UK financial history which bears comparison,' says executive director for financial stability, Andy Haldane. A senior Bank of England official today compared the banking system over the last 20 years to the South Sea bubble of the early 18th century and said bankers had merely "resorted to the roulette wheel" to keep up with each other. The Bank's executive director for financial stability, Andy Haldane, said in a speech in Chicago that having been stable over much of the 20th century, returns in the banking system relative to the wider stockmarket shot up after 1986 until 2006.
Posted by quiet guy @ 09:24 PM (601 views) Add Comment
4 Comments
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1. icarus said...
Note that yesterday we had the opposite message from the British Bankers Assoc. Don't regulate us, leave it to the boards of the banks to oversee their activities. Let us have more leverage, we're tying up too much capital. Don't restrict our growth etc.
Haldane says that the stability of big banks is crucial to the financial system. But what is the financial system crucial for, apart from its own enrichment?
2. quiet guy said...
Icarus,
Banks tend to reward greedy people more than prudent people. That's life. For what it's worth, I think that attempts to restrain banks by extra scrutiny are futile and will fail to stop the nest bubble/scandal.
Bernie Madoff operated under the supervision of the SEC. Fred Goodwin operated under the supervision of the FSA. Regular readers will be aware of the role of the rating agencies, estate agents and punters who were willing to lie about their income for a mortgage - all of that was (not) 'regulated' during the boom years.
Any regulator attempting to restrain the banks during another bubble will be bypassed or outmanoeuvred by the money machine.
Better to force the banks to structure themselves for the next failure, like Glass-Steagall, I say.
Here's another take on the problem:
http://english.aljazeera.net/focus/2009/06/2009624121059292378.html
3. paul said...
"Quickly shut the barn door, the horse is already over the horizon .. !"
4. icarus said...
quiet guy - it's true that there are always ways around rules, especially if you've got the money to recruit the people who know how to do this (ex-regulators maybe). One of the tricks for expanding leverage was for a bank to lend to its hedge fund offspring, the HF would put up collateral for the loan and the bank would then use that collateral to borrow on its own account...... In any case, if the banks buy the government, as they certainly have in the US, where it counts, it's game, set and match to them anyway. The best way to restrain banks would have been not to bail them out - but if they have the government in their pockets that's not an option.