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Politics, politics, politics
- Thread starter markysimmo
- Start date
There were quite a few voices in the run-up to 2008 saying how a devastating crash was inevitable, left-wing and right-wing economists. None of them were to be found on the Labour or Tory front benches at the time though. None of those politicians were calling for tighter regulations in the financial sector that I can recall. The Tories in opposition were happy with Labour spending plans and as far as regulations for The City goes, they wanted less, not more. A political failure all round.
Gordon Brown again.
Once upon a time there was a system known as "The Governor's Eyebrow." If a banker wanted to run a new scheme, he or his boss would have a chat with the Governor in an informal manner. If the Governor displayed so much as a mild concern over the scheme, it didn't happen.
The one-eyed pension monster wanted (as is the wont of the Left), to override a perfectly suitable system with bureaucracy. In doing so, he made a list of what bankers musn't do - the logical conclusion of which being that everything else was allowed.
Bundled and aggregated debt was huge in the US, where they also worked on a bureaucratic system. Such schemes would never have flown under the old system in the UK, but by not being on the list of what was forbidden, they were allowed.
End result, I'm currently earning probably half of what I would be and he's stolen a load of my pension.
Parklaner81
Steve Hodge
You really would think that lesson would have been learnt by now, wouldn't you? No danger at all of something similar happening again.
Oh wait, hang on...
You are stretching, if he can be critised it's due to his fear of applying rules and controls on a soaring financial sector and the impact that would have on new Labours business friendly image ...
(not to mention that it was largely a US policy)
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Most accountants, FDs and auditors I know (and I) would disagree.
One of the greatest strengths of the UK system is that it has historically always been based on principles and standards. Those at the top knew what was and wasn't acceptable, and they ensured their employees followed. As is usually the case with the left, Brown believed that government (nanny) knows best and decided to tear up centuries of good practice in order to replace it with a set of rules. If you tell people what you think is wrong, it naturally follows that they will treat everything else as right.
I made mention in my original post that the US was well underway with this system by the point the UK got in on the act, but we would have been far more protected against it and likely would have stopped the behaviour in its tracks.
To try and clarify; do you think the 2008 financial crisis was the fault of too much regulation enacted by Gordon Brown?
I think the extent to which it impacted the UK was heavily down to him.
His refusal to allow banks to fail is precisely what is allowing the same behaviour to continue now.
Down to him because of too much regulation?
Down to him because he replaced a principle system with wholly inadequate rule-based one.
He also spent all the money (and more) during a boom because he thought he'd ended the boom and bust cycle. Which meant we had nothing to ease the pain of the bust
Again, I'm trying to clarify: too much regulation of the financial sector was a principle reason why the 2008 financial crash had a bad impact on the UK economy?
Most accountants, FDs and auditors I know (and I) would disagree.
I imagine most of the people you know are of a similar mindset, this opinion is not the common consensus in fact the opposite is, there was not enough regulation.
I really find it very hard to believe that someone who believes in free markets as much as you do would have endorsed blocking the selling of a product (buyer beware) but I am willing to accept it
There is nothing inherently wrong with securitisation and it offers higher returns with the same risk and at the time we wanted to start were perfectly sound. It's a global market place and the power that the investment banks had at the time means that it would have been almost certain to have been allowed under the old regiment.
The issues arose arose later when those packaging the debt realised that they had no risk of default so became lax (to say the least ) about that risk garbage in .. Garbage out.
Parklaner81
Steve Hodge
Perhaps, but you've already pointed out yourself the enormous issue with it's practical usage...
...which was arguably at the root of the entire problem. Which I would suggest in turn tends to support Scara's point about the application of principles.
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Yes the products are sound and are still being used now the main issue was regulating who can lend and requirements.
Those who were issuing the debt were not the same as those packaging and selling the debt.
(there were also real scumbag bankers packaging cdo's but the real dodgy stuff was happening at the end, proper Cdo's have a place in the market and with the greater regulation not less, they are being issued)
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Parklaner81
Steve Hodge
And yet there was still a clear and dramatic drop in lending quality that ran in lockstep with the explosive use of securitisation.
But where was the problem with too much regulation? Almost everything I have read on the subject states the opposite (that there was infact not enough regulation). And that 2007-08 was a perfect storm created in large part by an erosion of financial regulations over a period of decades, particularly in the USA.
https://www.nytimes.com/2008/10/24/business/economy/24panel.html
WASHINGTON — For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
(further down the article, don't want to paste the whole thing).
...
He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.
But on Thursday, he agreed that the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.
“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”
WASHINGTON — For years, a Congressional hearing with Alan Greenspan was a marquee event. Lawmakers doted on him as an economic sage. Markets jumped up or down depending on what he said. Politicians in both parties wanted the maestro on their side.
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.
(further down the article, don't want to paste the whole thing).
...
He noted that the immense and largely unregulated business of spreading financial risk widely, through the use of exotic financial instruments called derivatives, had gotten out of control and had added to the havoc of today’s crisis. As far back as 1994, Mr. Greenspan staunchly and successfully opposed tougher regulation on derivatives.
But on Thursday, he agreed that the multitrillion-dollar market for credit default swaps, instruments originally created to insure bond investors against the risk of default, needed to be restrained.
“This modern risk-management paradigm held sway for decades,” he said. “The whole intellectual edifice, however, collapsed in the summer of last year.”
Yep and it should have been regulated downstream imo or both but securitisation was not the underlying issue poor lending controls were the issue.
Start with the conclusion it was Gordon browns fault and regulation is bad and build a narrative to reach it.
Noted.