Jump to content
House Price Crash Forum
Sign in to follow this  
uncle_monty

John Mcfall Speaks Sense!

Recommended Posts

I suspect Philip Augar generated most of the content. Good ideas, but snowball's chance in hell of seeing the light of day IMO.

Bankers have a death grip / monopoly on the world and would be foolish to relinquish the keys to the cash machine, I'm afraid.

To fix the system we must break up the banks

By Philip Augar and John McFall

Published: September 10 2009 21:56 | Last updated: September 10 2009 21:59

In coming up with solutions that address the immediate crisis but fail to tackle dangerous systemic issues, the Group of 20’s emerging ideas on the banking industry bear a striking resemblance to the Americans’ response to the dotcom crash of 2001-02. Back then, the burst bubble exposed biased research and stock price manipulation on Wall Street and dubious accounting practices in US companies. Out came a new set of rules cleaning up the links between research analysts and investment bankers and laying a heavy hand on corporate chief executives.

These measures extinguished the fire but neglected more fundamental problems. By the time the regulations were in place, the investment banks and elements of the corporate sector were already deeply involved in new and even more dangerous practices. We speak, of course, of the derivatives-based leverage of banks’ balance sheets that brought down a range of previously sound institutions, dragged the global economy into recession and ripped up accepted economic theories.

We see exactly the same mistakes being made this time around. If effectively implemented (not the only possible outcome), the G20 finance ministers’ steer towards more and better capital, constraints on leverage and contingency plans for banking failures would help to avoid a repetition of the current crisis. But they are barely sufficient to give the financial services system the kind of radical overhaul it needs.

That would entail tackling a defective business model. Banks are allowed to mix plain vanilla deposit-taking and lending with high-risk investment banking. They are allowed to act for clients on both sides of a trade and take a proprietary turn out of the middle. In capital markets transactions they are able to act for those seeking capital and those providing it. Conflict of interest is embedded and this is unfair on other market users. It is “heads we win, tails you lose†as the banks make off like bandits in the good times and become pious onlookers as the taxpayer foots the bill when it all goes wrong.

Fixing the system requires this business model to be broken up and we would go beyond conventional Glass-Steagall type solutions. Activities such as corporate finance, providing advice for investors and proprietary trading should be separated from each other as well as being split off from deposit-taking. This would create smaller, less profitable institutions and solve a number of problems, many of which have been caused by financial institutions over-trading. The system we advocate would restore the balance of economic power towards industries other than finance. It would stem the flow of capital that goes into bankers’ bonuses (a problem that the proposals coming out of G20 seem unlikely to solve) and would rid the world of financial institutions that were too big to be allowed to fail.

Many heavyweight thinkers have dismissed narrow banking (a less radical option than the one we advocate) as, to quote Lord Turner, chairman of the UK’s Financial Services Authority, “not feasibleâ€. They point out that although Northern Rock was not an investment bank and Lehman was not a deposit-taking bank, both failed. This is another example of fighting the last war. The real problems are not the specific causes of the crises of 2008 (banks) or 2001 (dotcom) or 1998 (Long-Term Capital Management) or 1989 (US Savings and Loans), but the enduring power of finance to be socially and economically disruptive.

We do not expect politicians and regulators to restructure the global financial services industry at what is still a critical moment for the economy. But it is regrettable that they appear to have shut the door on even having such a conversation. A starting point, as we have argued before, would be to set up a banking commission informed but not dominated by people from outside the industry. Its remit would be to consider structural change and how the financial services industry can serve the wider social and productive needs of the economy.

This crisis has offended people’s basic notions of fairness. The connection between effort and reward must be proportionate and the playing field needs to be level if we are to secure a fully functioning market economy underpinned by political stability. That is why there is no option but to start the discussion we advocate.

John McFall is chairman of the Commons Treasury committee. Philip Augar is a former investment banker and the author of Chasing Alpha

Share this post


Link to post
Share on other sites

If you split them up then a country where they allowed mega banks would just buy up all of the smaller UK banks. The chinese and Indian banks would have a field day.

Too big to fail, but also too big to be bought.

Share this post


Link to post
Share on other sites

Yep, the crisis has already been wasted.

I believe the brain trust behind the Obama White House has made a huge tactical error.

As Rahm Emmanuel likes to say, one should “never waste a crisis†— and the White House has done just that.

There was a narrow window to effect a full regulatory reform of Wall Street, the Banking Industry and other causes of the collapse. Instead, the White House tacked in a different direction, pursuing health care reform.

This was an enormous miscalculation.

I’m not sure who to blame, but the leading suspects (in order) are Larry Summers, Rahm Emmanuel, Tim Geithner, and (perhaps) David Axelrod. Instead of a populist clean up of The Street (ala Eliot Spitzer circa 2,000), Obama advisors allowed a smoldering resentment to take hold and build amongst the electorate. The massive taxpayer wealth transfer to inept, corrupt, incompetent bankers has created huge resentment amongst the populace — regardless of political affiliation.

There was widespread popular support for a full reform of finance. What the White House should have pursued was: 1) Reinstatement of Glass Steagall; 2) Repeal the Commodity Futures Modernization Act; 3) Overturning SEC Bear Stearn exemption allowing 5 biggest firms to leverage up far beyond 12 to one; 4) Regulating the non bank sub-prime lenders; 5) Continuing high risk trades to be compensated regardless of profitibility; 6) Mandating (and enforcing) lending standards, etc.

All of this could have been accomplished in the first 6 months of the Obama administration. The consumer protection stuff could have been tossed in as well, though it was not the cause of the collapse.

What we got instead, was the usual lobbying efforts by the finance industry. They own Congress, lock stock and barrel, and they throttled Financial Reform. It did not help that the Obama economic team is filled with defenders of the Status Quo — primarily Summers, but it appears Geithner also — the dynamic duo that fiddled while the economy burned.

Such dithering can be fatal to an administration.

This was a colossal blunder. Passing reform legislation successfully would have fulfilled the campaign promise of “Change;†it would have created legislative momentum. It could have provided a healthy outlet for the Tea Party anger and the raucous Town Hall meetings. It might have even led to a “throw the Bums out†attitude in the mid-term elections, forcing the most radical de-regulators from office.

Also wasted: The enormous anti-Bush attitude throughout the country that swept team Obama into office. He should have been “Hooverized,†and O should have tapped into that same wave to force the greatest set of Wall Street and Banking regulatory reforms seen since the 1930s.

Instead, we have a White House that appears adrift, and the most importantly, may very well have missed the best chance to clean up Wall Street in five generations.

Never waste a crisis, indeed . . .

http://www.ritholtz.com/blog/

Share this post


Link to post
Share on other sites
If you split them up then a country where they allowed mega banks would just buy up all of the smaller UK banks. The chinese and Indian banks would have a field day.

Too big to fail, but also too big to be bought.

Simple solution. Just apply the same set of takeover rules to the Chinese and Indians as they apply to us when our banks try to buy theirs. Problem solved. ;)

Share this post


Link to post
Share on other sites
Simple solution. Just apply the same set of takeover rules to the Chinese and Indians as they apply to us when our banks try to buy theirs. Problem solved. ;)

That is far to sensible for the Indigenous population hating polititians we have in power at the moment.

Share this post


Link to post
Share on other sites

I am disgusted at the governments weakness with regards to the banks (more than anything else they have done).

Darling saying that scrapping bonuses is unenforcable. What BS!! He says they will just pay themselevs more. Well tax them 99% on anything above 200 grand then!

Effsing SIMPLES!!!!!!!!!!!!!!!!!!!

Share this post


Link to post
Share on other sites

Is this the same John McFall who presided over that embarrassing sham that was making the banksters sit on the naughty chair for 2 hours instead of putting them in prison?

Perhaps if he had actually prevented his boss from allowing HBOS to be taken over by Lloyds he may have some credibility, but he's just a useless socialist windbag, a placeman, charged with ensuring the taxpayer picks up the banksters tab.

Words are cheap and McFall is full of them. Another useless f*cker.

Share this post


Link to post
Share on other sites
Is this the same John McFall who presided over that embarrassing sham that was making the banksters sit on the naughty chair for 2 hours instead of putting them in prison?

Perhaps if he had actually prevented his boss from allowing HBOS to be taken over by Lloyds he may have some credibility, but he's just a useless socialist windbag, a placeman, charged with ensuring the taxpayer picks up the banksters tab.

Words are cheap and McFall is full of them. Another useless f*cker.

HBOS was teetering. The queues would have eclipsed those outside Northern Rock by a wide margin plus Halifax also did business banking so wages may have gone unpaid. You should be pleased that those suckers at LloydsTSB fell for it.

Share this post


Link to post
Share on other sites

...the answer to "too large" is to downsize as there is too much overlap, staff and too many branches within many of the remaining merged Banks...the first step is to sack the Boards for not taking the necessary action..bring in real Business people and sack the salesmen ....protecting jobs which should not exist is not the way forward.... <_<

Share this post


Link to post
Share on other sites

Banks that are too big to fail can do what they want. They have no fear of losses.

The 'Love of Money' program demonstrated that. When Lehman's were in trouble the Merrill Lynch CEO knew it would be his turn the week after, so contacted Bank of America and persuaded them to merge. No doubt suggesting it would be their turn in a fortnight if they didn't.

Banks rule the world now, the politicians are just their puppets.

Share this post


Link to post
Share on other sites
Simple solution. Just apply the same set of takeover rules to the Chinese and Indians as they apply to us when our banks try to buy theirs. Problem solved. ;)

you mean protectionasim ? What are you, a communist ? ;)

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   285 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.