Mick McAteer gets up my nose - again.

The lovely MM, darling of the Beeb, ex Which employee. Brilliant self promoting quango parasite posted a piece on ifaonline, which revealed an awful lot about the nationalising ambitions of the regulatory bureaucracy. I have tried my best to fisk it as follows. Any other comments gratefully received.

It will be interesting to watch the ‘ecology’ of the financial advice sector evolve following the Retail Distribution Review (RDR) implementation and I wish I had the time and resources (Wot, instead of living off the fruits of coercion on the rest of us? You’d be daft to give up all those cushy quango seats to take the risk) to set up a mutual advice service (Twat. The only reason you need ‘lots of resources’ to set up what is a fairly simple business is because of all the sclerotic regulations you have agitated for. And note, these organisations already exist – all small businesses are ‘mutual’ since they operate within society and the market) as the time is right for it.

Overall, the RDR reforms (Classic use of a ‘code-word’ designed to imply that the changes were required by some previous failure) will help the investment services market work better for consumers and society. (Nonsense. The market is consumers and society and is working well except for where you and your kind have stuck their fingers in it.)

But the reforms alone will not be enough to meet the core advice needs of financially marginalised consumers. (Lovely language of the third way exponents designed to condition thought, otherwise meaningless.)

It is unfair to expect the for-profit commercial advice sector to meet their needs – this would likely lead to market failure and consumers getting a raw deal. (Speculation. In any event all professions already devote considerable resources voluntarily for less affluent or clients with problems. Note the slipping in of ‘market failure’. This is another third way code-word designed to triangulate the debate and in the case of financial services is just plain wrong since all the current failures can be traced straight back to failed government and failed bureaucrats).

So, we still need to develop alternative models that provide value products and good advice to those households who are not being serviced by the for-profit, commercial advice sector. (No, you do not, at least not as statist monopolistic way, since it has already been provided. Notice also the additional conditioning that somehow profit is bad. This is standard failed Marxist dogma).

At the risk of gross oversimplification, households in lower to medium income brackets have comparatively straightforward core financial advice needs – getting the right mortgage, paying off debts, building up savings and assets, providing for the future and basic insurance. (Yes, it is gross oversimplification. And those households were served very well until the businesses that serviced them were destroyed by interventionists and regulationists like Mick).

Moreover, for many such households the priority is to get urgent advice on how to deal with over-indebtedness or advice on benefits. (True. And whose fault is that? It is the fall out of 13 years of failed socialist government and third way numpties like you Mick).

There are charities providing this type of specific advice. What we lack are the equivalent not-for-profit organisations that can provide advice on the savings and assets side of household balance sheets. (Wot? So we already have ‘not for profit’ charities. So what does Mick have in mind for other ‘not for profit’ organisations? Note also the insidious assault on ‘profit’.)

This is crucial. We need to find ways of helping households deleverage, build self-reliance (Build self-reliance? From a socialist?) and freedom from debt, and then start to think about planning for a secure financial future. (They are in debt because of your failed policies and that of the previous government.)

When I was at Which? (a ‘for profit' business that makes money by criticising other businesses) we campaigned for the creation of a national financial advice network (Aha, we are getting to it now. Mick wants a nationalised advice service staffed by bureaucrats) to complement private sector advice and information provision, so I fully support the work of the Money Advice Service (MAS). (Well, yes you would Mick. You’re a commie. And please show me anywhere that nationalisation has succeeded?).

However, MAS can only take consumers so far. There is a gap for mutual or non-profit advice organisations that can act as trusted intermediaries (There you go again Mick, using distorted language – the existing intermediaries, banks excepted, are trusted. It’s blokes like you and the state that are not trusted) and provide specific recommendations on core financial needs. (Deep sigh – and this is what they are already doing).

Clearly, these organisations would offer limited services and focus on advising on simpler products and advice needs with transparent referral relationships established with providers. Our early thinking is that these organisations would be funded through capped fees and/or external funding (‘External Funding’? Subsidies from taxpayers then?).

We also think established non-profit or community organisations such as credit unions or community development finance institutions could play an important role. Moreover, after years of hype, technology has the potential for being a game-changer in terms of improving access and bringing down distribution costs. (Er, 70% of my distribution costs are tax. So Mick, are you recommending tax cuts? First bit of sense in this drivel).

But why do I think it should be non-profit or mutual? The reasons are twofold: the unit cost of delivering advice should be lower (Wild assumption and not borne out by evidence or experience) and the conflicts of interest that exist in the commercial financial industry are much easier to manage. (Again more assumptions and a fundamental misunderstanding of how businesses and markets work. And what about the conflicts of interest that exist in the state bureaucracies and government generally?)

That’s the idea. If we make any progress we will be sure to update you. (Or you could simply eff off. And if you read his Wiki entry http://en.wikipedia.org/wiki/Mick_McAteer you will note that he is an expert at organising his own entitlement funded tax consuming luxury lifestyle. He is paid by coercion on all of us, especially the poorest in society, and is probably making a nice ‘profit’ in the process. Little communist twerp).

[Beyond satire] "We're all in this together"

From the BBC:

Hector Sants, the former chief executive of the Financial Services Authority, is joining Barclays bank.

He has been given a new top job to improve the bank's reputation with governments and regulators internationally. His salary is not being disclosed, as he will not be a board director.

Barclays chief executive Antony Jenkins said Mr Sants would ensure that all staff met the spirit and letter of the law and regulators' expectations.

"Relationships with our regulators and governments around the world are obviously also of critical importance to us," Mr Jenkins said. "With a huge wealth of private and public sector experience, and having most recently led one of the world's pre-eminent regulatory authorities, I can think of no more suitably qualified person than Hector Sants to take on these challenges."

Words fai

Life copies satire

The Onion published the minutes of the Board Meeting of a large US bank back in August 2002:

So we're unanimous on the merger with Chase Manhattan? Excellent. I think we all agree that this merger will benefit both companies tremendously. Nelson, get started on the paperwork for that immediately. I want it on my desk by Friday. Now, on to the next order of business: Our continuing discussion on whether to pre-approve Douglas C. Schwoegler of Arden, CA, for a Visa Gold card...

From the FSA's report on the RBS-ABN Amro merger:

It was well known to investors, regulators and observers at the time that the consortium ‘conducted only a limited due diligence review of ABN AMRO’. As is normal for a contested bid for a publicly owned company, ABN AMRO allowed RBS and its consortium partners only extremely limited access to confidential information...

RBS submitted a detailed information request to ABN AMRO on 26 April [2007]. On 29 April ABN AMRO provided two lever arch folders and one CD ROM of information to the consortium and stated that this was the same information that had been provided to Barclays.

"They own land! Give them money!"

Land owners love to shout "We own land! Give us money!" and now the government has gone into bat on their behalf. From The Daily Mail:

Banks are to be told to rescue middle-class ‘mortgage prisoners’ by loosening lending restrictions. Because they are locked in negative equity, hundreds of thousands of hard-working people are unable to move to a new home. Businesses are struggling to recruit managers from other regions and the housing market is stagnant.

But new mortgage application rules – to be announced next week by the Financial Services Authority – will give banks the green light to approve loans to trapped homeowners. This will apply to those whose loans amount to a very high proportion of their home’s value – and even those in negative equity...

Help Wanted

I am not Mark Wadsworth

There is growing realisation in the UK (and in Italy and Greece) as to just how unaccountable and out of control are the ‘technocrats’ and the bureaucratic quangos in which they serve. These nouveau institutions are beloved by politicians as a method of putting responsibility at arms length, and crucially outside the disciplines of the genuine Civil Service or the rule of law.

These nouveau institutions are the creation – in the main - of socialists (of both the right and left). Their purpose is to proto-nationalise by regulation all types of enterprise. The excuse used is that they are needed to ‘protect the consumer’. This is, of course, nonsense. The ‘consumer’ is best protected by a vibrant and competing business sector without special privileges for any sub sector (banking? Trades Unions?) and the firm application of the principles of ‘buyer beware’ and ‘professional responsibility’. You might also add that Baking must take its role as a fiduciary more seriously. No central planning bureaucracy, especially one without democratic accountability and whose funding is under no democratic or market control is never anything other than self serving.

I have quite a bit of experience of one set of these outfits, those that regulate financial services. There is a trio of these; the Failed Financial Services Authority, The Financial Ombudsman’s’ Service, and the Financial Services Compensation Scheme. They were all introduced under the now entirely discredited FSMA 2000. Brown’s, at the time much lauded, ‘tripartite regulatory system’, but now revealed as a ramshackle construct designed purely to proto-nationalise all financial services by sclerotic, inept, overweening tick box reg-yew-lay-shun and, by destroying all the existing checks and balances and entirely eliminating the necessary separation of powers and making every one of the new quangos utterly unaccountable, ensured that he, Brown, could do just what he liked with our wealth, the end game of which we saw in banking failures in 2008.

The Failed FSA is set to be replaced by the Financial Conduct Authority (FCA) in 2012/2014 and there is a special Commons committee looking into how the FCA should be best organised. You will not be surprised to learn that the Failed FSA’s submission is that the FCA, in order to function effectively, must be subject to less accountability and should not in any way be subject to sanction by the Courts. It should be entirely outside the common law legal system of the UK. Considering that the regulatory and financial failures are entirely due to the predictable failure of technocrats (aka capricious bureaucrats with a self over-estimation of their skills and IQ) one might think that the Failed FSA evidence would be given very short shrift by the Committee. But, no, they are taking the Failed FSA seriously.

Whether or not you agree with me about financial services being full of a lot of good blokes, as well as not a few rotten ones (as it true of pretty well all trades and professions) you ought to take seriously this further erosion of freedom and the usurpation of power by capricious and unaccountable functionaries. This is the same mindset that puts approved European unelected Technocrats in charge of Greece and Italy.

It is not just me that thinks like this. You will see above a scanned image of the leader from one of the trade magazines.

In any event if any of you want to have your say and to halt the march of the bureaucratic state you can make your point to the Committee at:

http://www.parliament.uk/business/committees/committees-a-z/joint-select/draft-financial-services-bill/contact-us/

As they say in the charity ads on TV, please help, every contribution however small will help some disadvantaged native. The native in this case being your neighbour.

Ponzi Scheme Fun

Somebody from Castle Trust left a comment on a post from yesterday and an email exchange ensued. I asked whether I could publish their response on my blog and they agreed.

They said: "Castle Trust uses the returns from Partnership Mortgages to pay HouSA investors returns greater than the Halifax House Price Index" [Their website states: "Income HouSAs provide a fixed quarterly income as well as giving you full access to house price returns" which I think is pretty crystal clear]

I responded: "I'm now even more puzzled - your website says that the borrower doesn't pay anything until the house is sold or 25 years later, so how will you pay a fixed quarterly income to investors? Where does this money come from? New investors?"

They responded: "Castle Trust will keep 20% of all investments through HouSAs in cash to meet our shorter term obligations and use the balance of 80% to lend as Partnership Mortgages. Castle Trust will then use the proceeds from Partnership Mortgages as they are redeemed to fund the returns due on HouSA investments."

Ahem. From Wiki:

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.

Ah well. I suppose the fact that "Its seven part-time directors include... former Financial Services Authority chairman Sir Callum McCarthy" means they won't have too many problems getting this scheme authorised.
---------------------------------
UPDATE, Jack C at HPC recommends the following further reading:

Mortgage Strategy: Is Castle Trust shared equity deal too good to be true?

Money Marketing: Four major lenders will not lend to Castle Trust borrowers

Newspeak or Weasel Words

There are phrases and words used by the financial services regulatory bureaucrats which infuriate me.

'Mis-selling' for example. This is nonsense as no-one can be forced to buy anything. Buying is voluntary therefore nothing can be 'mis-sold'. Especially if one of the cornerstones of English law is adhered to - caveat emptor.

The FSA et al have some other dillies:

'Consumer detriment' - eh? Product A costs more than Product B which you failed to buy, so you've suffered detriment even if no-one was aware that product B existed.

'Treating Customers Fairly' - Here 'fairly' is used to replace 'equitably' - as in fair and just.

'Retail distribution review'. Distribution of what? Review of what?

'Retail Mediation Activity Monitoring' - well, we do that but what it is that we do we don't know as none of the questions are answerable. I am sure that there are more.

Do you know any? And are they 'weasel words' or are they 'Newspeak'?

Grant Shapps on top form

From The Independent:

Grant Shapps... pointed out that thousands of potential buyers would be able to afford to become owner occupiers if the new [stricter lending] regime led to steeper house price falls.

David Cameron would like to underpin house prices at five times earnings

Via Jack C at HPC, from Money Marketing:

He says: "In a way the pendulum has now swung too far the other way. If you are a single person, you are earning a decent salary. You go to the bank or building society, you are actually quite a good risk - they won’t give you 80 per cent of the value, they won’t give you four times your salary. You need a housing market where people are able to sell and move. The housing market has become very stuck and we’ve got to get it moving again."

Ahem. If your mortgage is four times your salary and 80% of the purchase price, that means you are paying five times your salary for the house, which is far above the long term average.

Apparently, the FSA consider a mortgage to be 'unaffordable' if the repayments are more than 35% of your after tax income. Let's assume that our "single person on a decent salary" earns £30,000, which is £22,624 after PAYE per annum. Times that by 35% = £7,918.40 per annum.

So this mortgage might just about be affordable if interest rates stay low and you get a really good introductory deal, but if interest rates were to rise above 4.3%, this mortgage is then unaffordable (in Excel: =PMT(0.043,25,120000). Halifax' current standard variable rate appears to be 3.99%, so that's not an unlikely scenario. The break-even interest rate for higher earners is even lower than that, of course, as their net income is a smaller proportion of their gross income.

And Another Thing....

Read this'n....

Exactly as predicted by me.

When it became obvious as the banking system imploded (sort of) and that the the FSA had failed, my instant reponse was that in the next few years the FSA would start to metaphorically shoot people. This is the standard operating procedure of failed bureaucracies.

It all goes tits up.
Blame the public.
Shoot them.

Ths Stasi did it. Why shouldn't the FSA?

"Acronyms not in battle over non-publication of non-existent report"

From the BBC:

A row has not broken out over why the Financial Banking Authority (FBA) has not published a non-existent report into what did not go wrong at Royal Services of Scotland (RSS).

Lord Turner, chairman of the government's banking supervision quango the FSB said that the government-controlled bank SSAP had refused to give the regulator permission to release a non-existent study. However, SAP disputed this, saying that it would "engage constructively to facilitate production of the report".

The FRC ruled on 2 December that the RSPCA had made some decisions, or possibly not, but cleared it of any wrongdoing when judged subjectively by those neither capable of making those judgements nor with any interest in finding those conclusions to have been wrong. Lord Adair made his comments in an unpublished open letter on Wednesday to Treasury Committee chair Andrew Tyrie.

He said the FPA is only legally able to make a unilateral decision to publish the details of its whitewash if consent can be obtained from his fellow government employees with whom he regularly plays golf. And this is not the case with RoSPA.

In its response, an RMT spokesperson explained that the institution - whose legal status was unclear - would help to facilitate the re-write of the KGB's adolescent scribblings "when they have has actually bothered to compile the confidential material they wish to release publicly. In which case it wouldn't be confidential, would it? So we'd be back to square one."

"Failed FSA bosses could have pay clawed back"

From the BBC:

The bosses of failed regulators could face having two years' pay clawed back from them, the chairman of the Financial Services Authority (FSA) has said.

Lord Turner told the BBC's business editor, Robert Peston, that he was attracted to imposing such a sanction on himself. He said the rule - which is already in place in the US - would discourage regulators from allowing banks from taking excessive risks.

His comments come after Vince Cable scored some cheap political points by attacking the FSA for not releasing its report on Royal Bank of Scotland (RBS). Mr Cable has written to Lord Turner to demand details of the investigation into how everything went according to plan at RBS, which the government bailed out in October 2008, even there was no good economic reason to do so. The government underwrote 80% of the losses in the lender purely to try and keep the land price and credit bubbles inflated.

Lord Turner told our business editor that he was open to the idea of publishing such reports in the future, but that its study on RBS was difficult to publish it didn't actually exist.

Another whitewash

Damian Reece in the Telegraph this morning gives the thumbs down to the FSA review on the goings on at RBS. He – rightly – excoriates the FSA for its egregious failure to nail anyone. He draws particular attention to the FSA assertion that the RBS debacle was not "a failure of corporate governance". Of course, the contents of the review are confidential so the taxpayer who, in the end, carried the can for all this non-failure is not to be told exactly why everybody concerned is exonerated.

No surprises that a regulator, mired in incompetence, finds itself and everybody else not guilty of anything. I'm only surprised that the FSA didn't lay the blame on "global warming". In other words, the RBS melt-down was an "accident"; one of those things that just happens: you know, like an uninsured drunk driving a car at speed past a stationary police car, skidding on ice and hitting a lamppost: avoidable and regrettable but the Motor Insurers' Bureau pays so nobody's hurt. No need for the driver to lose his licence. He won't do it again obviously.

I have personal knowledge of the gross ignorance of state functionaries which lies at the root of this crapola of a review. Part of my company arranges incorporations and administers companies in the UK for the legal and accountancy professions here and abroad: we rarely deal with the general public. One of those companies was used in an extensive fraud. I was interviewed (not under caution, I might add!) by a lawyer and accountant representing the FSA and the SFO. It soon became apparent that neither had anything except the haziest idea of the mechanisms by which companies incorporated in the UK (let alone abroad) function or are administered.

Accordingly, to explain how someone determined to operate a fraud could do so while ostensibly observing all the rules, I had to talk them through the mechanics of incorporation and other processes which neither they nor their employers had thought necessary to know in any detail. And no this wasn't a Columbo-like attempt at pretend-ignorance by experts to catch a lacuna in my understanding of corporate practice. FFS this stuff – tedious though it might be - is the nuts and bolts of corporate law and practice. It's not brain surgery.

If those organisations given the role of regulating outfits vital to the nation's wealth-creating capabilities as well as investigating corporate fraud have no idea of the basic mechanisms of how companies are formed and function then, without having to allege anything beyond simple incompetence, it's not surprising that the FSA review is rubbish.

Umbongo

More FSA Tomfoolery (just to wind up Lola)

From The Daily Mail, who are dutifully trotting out Home-Owner-Ist propaganda to ensure that interest rates stay low, preferably forever:

Up to three million households are on a financial precipice – and in danger of falling over it if interest rates rise... The former Bank of England expert’s warning about the ‘zombie households’ which could be tipped into financial oblivion when interest rates rise were echoed by a series of finance experts last night...

Even at the current rock-bottom rates, almost 1.3million families are already grappling with mortgage payments that eat up more than 35 per cent of their after-tax income, the level at which the Financial Services Authority classes loans as ‘unaffordable.’

i. The average cost of repaying an average new mortgage of £150,000 is given by the article at about £17,500 over two years, i.e. £8,750 per year.

ii. If your mortgage of £150,000 is a relatively modest (by recent standards) four times your gross income, your gross annual wages are £37,500.

iii. If your gross annual wages are £37,500, your net wages are £27,800 after PAYE.

iv. The annual cost of your mortgage is £8,750 (from step i.), and £8,750 divided by £27,800 = 31%,.

v. So even a loan-to-wages multiple of four is very close to being 'unaffordable'.

Remind, what have the FSA been doing, saying and/or turning a blind eye to for the past ten years?

H/t, Flashman, comment 1 on the relevant thread at HPC.

Nazism and the FSA

I am not Mark Wadsworth.

Some of you may know that my business partner and I run a retail financial advice business. We are directly regulated by the Financial Services Authority. You may also know that I have long held the FSA to be one of the provisional wings of the political class. A latter day Stasi. I hold them in utter contempt.

The FSA's latest 'initiative' - really a simply self justificatory project to cover their epic failure - is called 'Treating Customers Fairly, TCF as it is known by all in financial services. Any of you with a vague understanding of philosophy will see the immediate flaw; what is 'fair' to one person may well be very 'unfair' to someone else. Basically it is utter bollocks.

We were recently required to attend a 'TCF Assessment Meeting' with FSA personnel at a football ground in a neighbouring town. An FSA apparatchik would ask us lots of questions to assess whether - in their opinion - we were 'treating our clients 'fairly'. After the opening niceties and a statement by the FSA appatachik as to how he was going to do his bit he started the questioning like this:

FSA. "I would like you tell me what you think we mean by 'treating customers fairly'?
Lola. Would you like to define what you mean by 'fairness'?
FSA, "We ask the questions!"

Yes, truly. He said "Ve ask zer qvestions". I stared at him and contemplated leaping to my feet with a Nazi salute and saying 'Jawohl. Herr Sturmbannfuhrer', but, to my lasting regret, I didn't.

What went rapidly through my mind was the consequences to my business partner and my clients if they were left in the hands of the Fascist shits when they proceeded to shut us down for the temerity of treating them like the total Hoons they are.

The meeting then proceeded, at the cost of a whole mornings work for both my business partner and myself.

Letters are going to go to my MP and various others. We shall see what happens. I will keep you posted.

(I couldn't post this until I had calmed down).

Lola

Lord Turner is half right

From the BBC:

Bank bonuses contributed to the financial crisis but were not its main cause, head of the Financial Services Authority Lord Turner has said. The chairman of the City watchdog said there was a need to "move beyond the demonisation of overpaid traders". Instead he said "ill-designed policy" had been "a more powerful force for harm than individual greed or error"...

Lord Turner welcomed Basel III rules agreed earlier this month which force banks to increase the amount of capital they hold - including raising the core capital ratio to 7%. The rules have been designed to try to prevent a repeat of the heady credit-fuelled boom seen in the last decade.

Agreed that excessive bonuses are primarily the shareholders' problem.

But he's half wrong, of course - these ridiculously low capital ratios were a symptom of and not the cause of the 'financial crisis'.

The real cause was nothing more complicated that the fact that vast numbers of people have been tricked into believing that buying land or housing and watching its potential selling price increase could make them wealthier. Of course it is possible for small numbers of people to win out from Ponzi schemes like this, but overall we always end up worse off when the bubble bursts.

But it appears that the banks (and their bondholders) bought into the dream that the land price bubble represented real wealth and were prepared to lend ever higher amounts of money secured on it. So it's not so much that they didn't have enough 'core capital', what they had was too many liabilities ('non core capital' i.e. bonds).

In any event, the fact that banks had very low capital ratios in the past can easily be fixed retrospectively by allowing normal market forces and insolvency rules to take over, which ultimately lead to some form of debt-for-equity swap. We're not talking huge amounts either - to get from a core capital ratio of 3% to 7%, all the bank has to do is convert just over 4% of its liabilities into equity.

Does anybody have any suggestions on how we could tweak the tax system to encourage the real economy and dampen house price bubbles?

Skullduggery Of The Week

Rumours now abound that Lloyds Banking Group failed the FSA stress test*:

Some commentators suggest the bank failed in its efforts to withdraw from the [Government's asset protection] scheme following its inability, allegedly, to raise sufficient capital to meet the Financial Services Authority capital adequacy requirements...

Press reports indicate the FSA rejected [Lloyds'] proposal, citing a stress test failure and reminded the bank of its obligation to meet lending targets detailed within the insurance scheme agreement made earlier in 2009.

The government currently owns 43% of LYG stock.

OK. There are several vested interests here; the government; the FSA (a vast bureaucracy imposed on the banking system by, and controlled by, the government); and Lloyds Banking Group (which is said to be 43% owned by the government, which is highly misleading** but let's assume it's correct). The Labour Party is currently in government, but the Tory party is likely to win the election next year and has already indicated that it would scrap the FSA.

The question is, seeing as it must have been pretty clear for years that UK banks were racking up huge losses via their reckless lending policies (duly encouraged by the government), I wonder, which of the following explanations is most likely:

1. The government (via its agency the FSA) wants to show that Lloyds is not 'strong' enough to be freed from government control. This enables the government to force it to continue lending into a falling housing market in yet another desperate attempt to reflate the housing bubble (which appears to be the only economic variable that voters care about). The excerpt above hints at this: "... the FSA ... reminded the bank of its obligation to meet lending targets detailed within the insurance scheme agreement"

2. The FSA has to try and justify its continuing existence in the face of a Tory threat to disband it. The Tories can easily point to the FSA's total and abject failure to deal with the credit bubble over a period of years as a reason for doing so (not that the Tories would have done things any differently, as it is the Blue Wing of The Home-owners' party, but hey). So now the FSA are trying to show the world how tough they really can be.

3. Other banks may be very happy with this outcome, as it keeps one of the competition on the government leash. These other banks can encourage riskier borrowers to re-mortgage with Lloyds and clean up their own balance sheets.

4. Employees at the FSA department concerned are trying to wangle jobs at banks other than Lloyds, see point 3, who will look kindly on the FSA staff concerned when it comes to future recruitment (there is a revolving door policy as between banks and the FSA, even though on the surface they are supposed to hate each other as institutions).

5. It is quite possible that Lloyds failed the test deliberately. At present, they have a cushy existence as they can rely on the government to prop them up ad infinitum (using taxpayers' money, of course) even if they make idiotic lending decisions. The bankers can continue paying themselves handsome bonuses and live out their lives as overpaid quasi civil servants.

6. Thinking that last one through, it is possible that the employees at the FSA department concerned are trying to wangle jobs at Lloyds.

If anybody can think up any other permutations, please leave a comment.

* Via Lola. I believe that this is the stress test they carried out over three months ago, so they are not exactly fast.

** The government's economic interest may be vastly higher than that because it is insuring Lloyds' assets; or it may be lower as Lloyds is largely funded by bonds, not share capital, and the government only owns 43% of its share capital and not 43% of its bonds as well).

Another day, another desperate throw of the dice (10)

From an article in The Times, uncovered by Drewster and Sold Out over at HPC:

The Financial Services Authority said yesterday that more than half a million Halifax customers on tracker mortgages should benefit from further interest rate cuts even though the small print on their loans supposedly prevents them from doing so...

Jon Pain, the FSA's retail market manager, said yesterday that this 3 per cent threshold, or “collar”, could be unenforceable. He said collars should be included in a lender's key facts illustration (KFI) - the mortgage documents given to every borrower. Halifax removed the details of its collar from its key facts in 2005.

That would be bad enough ... but what's this?

It emerged yesterday that the removal of details of the tracker loan collar from the Halifax mortgage key facts in 2005 was the result of concerns that the FSA raised over the complexity of the Halifax's mortgage documentation. The regulator was worried that the 11-page key facts statement was overblown for a document designed to highlight the key elements of the loan, and asked for it to be trimmed back. The collar detail was one of the items removed and relegated into the smaller print of the larger mortgage document.

Banking supervision for beginners

As I have said time and again, you can't have an asset price bubble without a credit bubble; they are two sides of the same coin. When one goes pop then so does the other*.

I have enthused at length about the merits of a tax on the speculative element of property values to keep property prices low and stable - especially as this would enable us to get rid of existing UK property taxes, that are a repulsive mixture of Poll Taxes and jealousy surcharges. But for a change, let's have a quick look at the other side of the equation, the credit bubble. I do not believe in regulation; it is usually unenforceable, counter-productive and/or circumventable**. However a bit of sensible banking supervision won't do any harm.

I discovered this delightful document on UK Mortgage Margins, published by the Bank of England back in 1997. The authors, Niall Gallagher and Alistair Milne, conclude very sensibly that "...concern could still arise over individual institutions ... who pursue a strategy of aggressive wholesale funded expansion".

A bit like Northern Rock, then? Whose share of net mortgage lending of 8.4% and total assets of £57 bn in in mid-2004 had miraculously increased to 18.9% and £119 bn by mid-2007? I won't bore you with stat's on the extent to which it depended on wholesale funding.

* When history has been re-written, the Yanks will no doubt say that the slide in house prices, which had already fallen by 6% in the year to October 2007 led to the sub-prime crisis; the Brits will say that we were doing fine until the sub-prime crisis in mid/late 2007 triggered a house price crash in the UK. Such is life.

** If that's a word.