Actually, it was an intervention by Ann Winterton in a topical debate today on "financial stability". Addressing Mark Hoban, Conservative shadow financial secretary to the treasury, Ann asked:Friday, October 10, 2008
Follow me!
The FTSE was down ten percent in the first ten minutes of trading, dropping below the 4,000 mark. The Times is calling it a "bloodbath" – although it has now stabilised with "only" a six percent drop.
Japan's Nikkei index has also taken a dive of ten percent and its economy is catching the insolvency bug as the insurance company Yamato Life collapsed with debts of $2.7 billion.
The IMF has made available a $200 billion war chest for "needy governments" (the first time I have ever heard that phrase - "can you spare a billion, buddy!") as G7 government representatives, including Alistair Darling, gather in Washington to swap horror stories.
Interestingly, India's central bank has reacted to growing pressure on the country's currency by slashing the proportion of cash banks are required to keep in reserve from 9 percent to 7.5 percent, which will release about £6 billion into the banking system.
Our requirement is to maintain 8 percent. Prof. Tim Congdon has been suggesting for some time that we should drop it to six percent. But we can't do that – our friend the Capital Adequacy Directive again. This may be why Bloomberg is exuding confidence in the EU (not). "It took the European Union almost three decades to agree on what could legitimately be called chocolate," it observes. "That doesn't bode well for its handling of the worst financial crisis in its history."
Meanwhile, Tony McNulty, the employment minister, admitted that Britain was heading for a recession. Ministers said contingency plans were being drawn up to cope with large-scale unemployment, including more "rapid response" teams to be sent to the worst hit areas.
Commentators are saying the world is "on a knife-edge". And Gordon Brown says the rest of the world should follow "his" example. Funnily enough ... immediately after its headline report on the financial situation, the BBC Radio 4 Today programme ran a feature on "Dr Death" who is in London to promote his do-it-yourself suicide kit.
Is this what Brown means?
COMMENT THREADHic sunt dracones
This is not good. In fact, it is double-plus ungood. The situation is seriously unravelling. Little Gordie's EU-approved rescue plan is about to come unstuck.
This might explain why he has written to "EU leaders" to urge them to follow Britain in guaranteeing inter-bank loans, proposing a "European-wide funding plan" to help ease the financial crisis.
The chances are, he knows that the situation is deteriorating rapidly and even if he threw the whole of the UK's GDP at the problem, that would not be enough to hold the line.
Things don't look too happy across the pond either. According to The Independent, New York stocks crashed in their worst dive for 21 years. The Standard & Poor's 500 stock index was down nearly 7.6 percent and the Dow Jones industrial average was down 678.91 points, or about 7.3 percent. The Nasdaq composite was down 5.4 percent.
The White House announced yesterday afternoon that Bush would speak on Friday at 10 am in an attempt to reassure people on the economy. "Americans should be confident that every effort is being taken to stabilise our markets," said Dana Perino, the president's chief spokeswoman.
Perversely, yesterday's stock market decline came after the Treasury Department had signalled that it would move quickly to inject money directly into big financial firms in addition to buying up to $700 billion in troubled loans and securities from the companies.
All of a sudden, we look to be in completely uncharted waters. Hic sunt dracones, as they used to say.
COMMENT THREADChildren at play
A day after the government announced its bank rescue plan, the Taxpayers' Alliance (TPA) has come up with a report, trailed on its website, telling it what it should have done.
Rightly – although a bit late coming after the event – the Alliance suggests as its very first item that the government should consider, "Suspending mark to market rules that cannot function effectively in the absence of a liquid market for many key assets." Helpfully, it also supports its argument by telling us that had these rules been in place during the 1980s, all ten of the largest US banks would have become insolvent.
So far so good, but you have to get to page six of the eight-page report before you find an acknowledgement that:Mark to market regulation has been enacted in the UK through EU regulations. This may mean that it will be difficult to quickly suspend mark to market. The EU institutions will need to move more quickly than they do in other areas to avoid being a liability in attempts to get out of the credit crunch.
However, in a "puff" for the report, on the Centre Right blog, TPA policy analyst Matthew Sinclair is slightly more up-front. He states there: "suspending mark to market regulation requires swift action to secure changes at the EU level (easier said than done, of course)." This is, to say the very least, an understatement. In fact, it is not possible and it is there that the report goes dreadfully wrong.
The first problem is that the rules in their entirety are enacted in the UK through EU (commission) regulations and directives the latter having been transposed into UK law – the former having direct effect.
While the commission could repeal its own regulations fairly quickly, it could not deal with the directives with any speed at all. As we have pointed out several times, this process could take months, even years. Thus, at the first hurdle, the TPA falls, calling for something that is not within the gift of the EU to deliver.
However, that would be the case even if the commission was disposed to make changes. But the fact of the matter is that it is not.
Having followed the twists and turns of this saga – which the TPA clearly has not – we picked up at the weekend that Sarkozy's minister for European affairs, Jean-Pierre Jouyet, had told the financial daily Les Echos that European governments "must revisit accounting rules including the mark-to-market procedure …". The rules, therefore, were very much on the agenda for the Paris "summit" that Saturday.
After the event, though, we learnt from the New York Times that the idea of any significant revision had been rejected. That Sarkozy himself had been advocating change came from Accountancy Age which told us: "the weekend saw French president Nicholas Sarkozy host a summit in which he dropped his own preference for suspending fair value" (the alternative name for mark to market).
The NYT itself reported that, "although Mr. Sarkozy said it was time 'literally to rebuild the foundations of the financial systems', the steps announced were more modest." It was then that we got the first hint that the EU was going to consider only a very minor, essentially cosmetic change.
That stance was formalised at the Ecofin meeting last Tuesday which, as we later indicated affirmed that the EU had set its face against any structural reforms of the regulatory system – mark to market rules included.
Coming up now with its "suggestion", therefore, the TPA is so far behind the curve that all it has managed to demonstrate – to those that have followed the issue – its ignorance of events and the way our government in Brussels works.
More importantly, the TPA do not seem to have considered the possibility that the government did consider suspending mark to market, and have already rejected it. Basically, as the Alliance quite rightly argues, this would have been a much better alternative than throwing public money at the problem, which – if current indications are any guide – is unlikely to work.
But, with the EU setting its face against that option, and with the EU then setting the parameters for any rescue plan, which we highlighted in this post and this one, all the evidence points to the singular fact that the government took the action it did because that was the only option which the EU would permit. Any other course of action would have put the government on a collision course with the EU – as would any attempt now to implement the TPA's suggestion.
Why the TPA thinks it is a good idea to suggest something that cannot be done and will not be done, is anyone's guess. But, to convey the situation more realistically would require perhaps a much better grasp of the situation that the researchers are capable of developing, and would also require a recognition of just how powerless this country really is.
That puts us in the territory of the politics of denial which for the TPA seems to be familiar territory.
COMMENT THREADThursday, October 09, 2008
Questions in Parliament
There has been much speculation about the mark-to-market rules, which have played their part in creating this instability. Can my hon. Friend confirm that the implementation of mark-to-market rules is a European Union competency?
Hoban replied:As I understand it, the mark-to-market rules fall within international accounting standards, which are implemented through EU law. The International Accounting Standards Board is looking at how illiquid financial instruments are valued in the absence of financial markets. That work is ongoing, and we need co-operation between the EU and the United States on that issue because there is a risk of divergent standards being used.
He's right on the "law" bit, but not quite there on the detail. But, at least, the "elephant" got a brief outing.
The interesting thing is that, if a junior member of the Conservative shadow team knew that the mark to market rules were implemented by "EU law", and it prepared to admit it in the House of Commons, why didn't his boss do likewise in his speech?
Friday, 10 October 2008
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