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ParticleMan

Peachy Friday

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So, morning news roundup (lets hope these magic numbers in the URI are portable)...

http://news.google.co.uk/news?ned=uk&n...b&scoring=n

Looks like the NuLab machine has met its match. As predicted, inside the m25, those that have a view, have researched it independantly and the "it's all Merv's fault" meme has died stillborne (shh don't tell the shills and sock puppets, it's hilarious watching them flounder with this); you don't get to govern the BOE unless you've got the answers, you're good under stress (watch Merv's body language in the HoC Treasury Committee, it's brilliant) - and Merv's clear he knows where the problems are.

I particularly like this one...

http://business.guardian.co.uk/markets/sto...2174036,00.html

Seems the FSA is going to get asked why they let the Rock continue to operate as a depository institution, when its business model was so fundamentally flawed from the get-go. Should make entertaining reading. But if you're going to new-broom anything, Brown, you need to start with the Treasury. Even if you restructure the FSA, the overwhelming suspicion will remain that it's Treasury bungling that baked this unholy pie; after all, didn't they design this three legged dog? And you'd better hope that no-one asks why the Rock's assets are unsaleable; that might provoke all sorts of awkward questions, about how you've been miraculously front-loading the entire economy with debt.

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It seems the only party interested in Northern Rock assets now are the Treasury.

Nu labour think they can play with the stockmarket the same way that they play with statistics in everything else - immigration, crime, inflation, education, etc etc etc.

They will find that by the end the reputation of their shiny financial sector in London will be in tatters if they go far enough.

Then what Brown?

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They will find that by the end the reputation of their shiny financial sector in London will be in tatters if they go far enough.

From a practical perspective, if the cabinet are unwilling to pull the trigger on a broken Treasury, the job falls to the City to pull the trigger on the cabinet (yes yes, I know your textbooks mumble something about the Queen, and some beast of Mammon called the electorate, but they probably think the Archibishop is a player too). So their silence is equally damning - perhaps the City's reputation is merely trailing indicator of their own decisiveness?

Seems to me that the confusion in the Treasury comes from mistaking the goalie for striker; Merv isn't there to detect newly broken trading models, he's there to clean up the mess once they explode (to prevent the rot from spreading). Next the glare will hit the FSA, equally inappropriately (but far more entertainingly - they've half the wits of the BOE); they're merely the midfield on this pitch.

Ultimately it's the Treasury's job as a political entity to ensure that unsound, unsafe business models are discouraged (through policy punish/ reward frameworks). Where they fail in this, the FSA's early warning signals should detect the drone of the doodlebugs approaching. And where both are broken, such as at present - it falls to the BOE to get the living into air raid shelters while the bombs fall - and never mind the corpses above. The workflows pass from strategic, to tactical, to surgical.

Unfortunately, as we can see in the footage yesterday from the select committee, the Treasury presently feels that it's raison d'etre is to be as ignorant of the world about it as it is professionally possible to be. Lurching in response to socio-political pressure is not team captaincy, and won't score us any goals. So they need to go. Their failing is that the existing reward/ punish framework, set by these same set of clowns, encouraged the damn arms race in the first place. If they're surprised to wake up to corpses in the morning, if this is true ignorance (which I suspect) and not malevolant disingeneousness (I doubt they have the prerequisite intellectual capacity for this) - either way, they're broken, and must go.

Edited by ParticleMan

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The FSA existed to facilitate any economic policy Brown wanted, no matter how comprimised.

When the Housing Market hit levels that meant it went sub prime in 2003 (Without a significant proportion of mortgage borrowing being subprime HPI would have died in 2003) I contacted the FSA and asked that they take action, although at the time I was angered and focussing on the fraudulent mortgage epidemic I am fully aware now that they new exactly what they were doing and just went along with it...

was this all just to get Brown in, we know that HPI was manufactured to use debt to pay the way out of the recession at the start of this mellenium, but was in dragged out to the current horrific levels simply to allow Brown time to slide into number 10...

Someone with low morals and the ability to raise two fingers to the youth of this country would haver allowed inflation to hit 2004 levels, but today's levels can only lead to disaster...

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From a practical perspective, if the cabinet are unwilling to pull the trigger on a broken Treasury, the job falls to the City to pull the trigger on the cabinet (yes yes, I know your textbooks mumble something about the Queen, and some beast of Mammon called the electorate, but they probably think the Archibishop is a player too). So their silence is equally damning - perhaps the City's reputation is merely trailing indicator of their own decisiveness?

Seems to me that the confusion in the Treasury comes from mistaking the goalie for striker; Merv isn't there to detect newly broken trading models, he's there to clean up the mess once they explode (to prevent the rot from spreading). Next the glare will hit the FSA, equally inappropriately (but far more entertainingly - they've half the wits of the BOE); they're merely the midfield on this pitch.

Ultimately it's the Treasury's job as a political entity to ensure that unsound, unsafe business models are discouraged (through policy punish/ reward frameworks). Where they fail in this, the FSA's early warning signals should detect the drone of the doodlebugs approaching. And where both are broken, such as at present - it falls to the BOE to get the living into air raid shelters while the bombs fall - and never mind the corpses above. The workflows pass from strategic, to tactical, to surgical.

Unfortunately, as we can see in the footage yesterday from the select committee, the Treasury presently feels that it's raison d'etre is to be as ignorant of the world about it as it is professionally possible to be. Lurching in response to socio-political pressure is not team captaincy, and won't score us any goals. So they need to go. Their failing is that the existing reward/ punish framework, set by these same set of clowns, encouraged the damn arms race in the first place. If they're surprised to wake up to corpses in the morning, if this is true ignorance (which I suspect) and not malevolant disingeneousness (I doubt they have the prerequisite intellectual capacity for this) - either way, they're broken, and must go.

Excellent post, you make lots of good points. I like the doodlebug metaphor.

I can't help wondering whether the treasury have anyone inside capable of understanding modern banking methods. For example securitisation is a great wheeze, but its only really been adopted to help overcome rules on capital adequacy (I know officially it is to do with spreading and quantifying risk). The banks pay vast salaries to bright people to come up with these ideas. The models of risk are heavily based on statistics and stochastic modelling, and so it probably goes over the heads of the treasury folk, and certainly is well beyond the politicians. The message probably gets translated into - "trust us, we've made bumper profits over the last n years, and we believe it is all okay, so you, the politicians and treasury, should trust us." Anyone (treasury or politicians) who starts to ask questions probably finds themselves sitting in a meeting being force fed Ito calculus until their brains start to fry.

A symptom of this appeared at the questioning of Mervyn King by the Treasury Select Committee. Instead of discussing the issues the politicians had to move into "trains running into buffers". These are the best informed MPs in Westminster on finance...

Can the city pull the trigger on the treasury? I don't think there is any collective viewpoint. I think of it more as a shoal of piranhas (if piranhas shoal that is?), so if the treasury, Bank of England or government is wounded, and leave themselves exposed they will be gone. It all depends on whether the recent actions by the government or Bank of England leave an arbitrage opportunity open by their actions in which their actions and announcements put them on the losing end.

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A symptom of this appeared at the questioning of Mervyn King by the Treasury Select Committee. Instead of discussing the issues the politicians had to move into "trains running into buffers". These are the best informed MPs in Westminster on finance...

Yes - it's deliciously frightening in a film noir (or perhaps, film snuff) kind of way; I was half-expecting someone to bring out a Thomas the Tank Engine analogy once that thread openned...

Can the city pull the trigger on the treasury? I don't think there is any collective viewpoint. I think of it more as a shoal of piranhas (if piranhas shoal that is?)

Most certainly can. Yes, each fishtank is filled with piranha; but ask yourself who owns the store, what they do with their day, and whether or not they meet the others for a pint from time to time. Two phonecalls was being generous; I don't think it'd take one, in reality.

Kings have been removed for less than what this lot are getting away with...

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For example securitisation is a great wheeze, but its only really been adopted to help overcome rules on capital adequacy (I know officially it is to do with spreading and quantifying risk). The banks pay vast salaries to bright people to come up with these ideas.

This one's worth it's own reply - mind if I run with it a little? Fiscal "innovation" - securitisation, derivatives trading, the head spinning calculus you refer to - this is what happens when on the one hand the "punish" part of the framework is throttling manufacturing, agriculture, academia, parenthood - everything tangible, everything to do with survival, to do with making better and more with less; and on the other (the "reward" part) is boosting the appearance of sound financial practice, and that mostly in isolation.

Like a child squeezing an inflated balloon, we should be unsurprised, entertained even at the contortion that results. If Cabinet, if the Treasury cannot couple cause and effect here, if they are surprised, astonished, caught unawares... per term, they are redundant, and ill-suited to lead us into the next phase, the great unwinding of it all. I would as soon entrust the keys to each prisoner, as allow the same dozy guards to attend to the looming riot. If, as you say, and as I think, the Treasury is incapable of this (readily accessible) realisation, when it is unfolding before them - they certainly should not be asked to remain a moment longer.

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This one's worth it's own reply - mind if I run with it a little? Fiscal "innovation" - securitisation, derivatives trading, the head spinning calculus you refer to - this is what happens when on the one hand the "punish" part of the framework is throttling manufacturing, agriculture, academia, parenthood - everything tangible, everything to do with survival, to do with making better and more with less; and on the other (the "reward" part) is boosting the appearance of sound financial practice, and that mostly in isolation.

Like a child squeezing an inflated balloon, we should be unsurprised, entertained even at the contortion that results. If Cabinet, if the Treasury cannot couple cause and effect here, if they are surprised, astonished, caught unawares... per term, they are redundant, and ill-suited to lead us into the next phase, the great unwinding of it all. I would as soon entrust the keys to each prisoner, as allow the same dozy guards to attend to the looming riot. If, as you say, and as I think, the Treasury is incapable of this (readily accessible) realisation, when it is unfolding before them - they certainly should not be asked to remain a moment longer.

Extending the balloon simile, or at least to extending it to over-pressure, for example in a water cooled nuclear reactor. If the pressure starts to rise too high, then you can let off steam, move control rods, etc (financial equivalent would be to take some heat out of the economy - play around with base rates etc.). But this is only any good providing you keep doing it regularly. If the pressure goes too high (or you play around too much with the safety mechanisms - like preventing banks with unsustainable models to go to the wall), you could end up with a meltdown.

When I started visiting this website I felt that a crash in house prices would occur, and ought to occur to "fix" the economy. I am no longer sure that in the UK, with property prices so high, that there is any option of a price crash without major financial meltdown.

You spoke in your previous post about cleansing the Aegean stables that is the treasury - but actually who would go? As Portillo said yesterday - the whole cabinet are pygmies to Brown. I can't see the city acting in concert to replace a government. More likely that the Government keep playing around with the control room of Chernobyl hoping that it is under control, pushing control rods in and out, and then, back to your child with the balloon, it goes bang and there are tears before bedtime.

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