Britannia Radio

There is stirring in financial circles -AT LAST! Even the Lloyds
TSB's HBOS deal comes under pressure as it dawns on some people that
this merger virtually extinguishes the right of the shareholders in a
solvent bank as well as making recovery impossible by preventing
investors from investing by the prohibition of dividends. The
pension fund investors are furious.

xxxxxxxxxxxx cs.
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TELEGRAPH 18.10.08
1.David Cameron should end his silence over Gordon Brown's economy
bail-out
By Iain Martin

When a hysterical and widely held view is proven wrong, what replaces
it is often later found to be equally incorrect. And so, I suspect,
it will prove with the nationalisation of a large chunk of Britain's
banking system.

The idea that Brown's credit bubble would not burst was popular for a
decade and now in its place is a supposed national consensus that
benign big government has somehow done the right thing with its bail-
out.

I recognise that those of us who disagree hold a deeply unfashionable
view, but so be it. Gordon Brown's "rescue" of the banks is a
calamity for this country and it will turn out to have been a piece
of Leftist vandalism and control-freakery which exploited public
concern.

And this from the same politicians who brought us the debt bubble,
inflated by cheap money, and designed a banking regulatory structure
which failed to avert disaster.

If a full-scale rescue was required, there were other forms it could
have taken short of nationalisation. In 1997 the new chancellor wiped
out what he saw as an old-boy City network of regulation centred on
the Bank of England and replaced it with a monster regulator called
the FSA.

Instead, there should have been evolutionary reform. The old system
was not perfect, too oriented to the old school tie, but an informal
set of relationships and understandings which had been built over
generations was destroyed because what Brown does not like he
obliterates.

The FSA then failed to do its only important job of spotting trouble
early in institutions, discreetly demanding action in a way designed
not to spook the markets and engineering rescues which avoid state
ownership.

The more that trickles out about this bail-out - and the behaviour of
ministers, regulators and advisers hired on vast fees from other
banks and City law firms - the worse it smells. Who leaked market
sensitive information for the Government?

Why was a healthy business such as Lloyds TSB persuaded to merge with
HBoS by the PM, and then shot-gunned into part-nationalisation which
destroyed shareholder value? How will pension funds cope without
dividends from banks, a ruling imposed by ministers at the
instigation of Brussels?

Is the rumour true that Barclays wanted to do the deal to buy Lehman
Brothers on that fateful Sunday evening a month ago and it was then
blocked by the FSA? Lehman's was the first domino which began the
global collapse and how ironic if Brown's regulator tipped it over.

It is extraordinary that so few questions are being asked, in
Parliament and beyond. Perhaps the Government will say it had no
option to behave otherwise, although the country will only find out
whether this is true if there is now calm, rational, inquiry.

Here the Conservative Party has failed so far. I can accept it had to
pursue a bipartisan approach in the earliest days of the crisis, with
David Cameron identifying that the biggest risk was of a silly remark
rebounding. Then the cross-party approach stuck for too long,
angering his party and puzzling the country.

A senior Tory explained what Cameron had done in military terms,
comparing him to a commander in the field saying hold fire to
maximise the impact when his guns finally open up on an enemy
charging towards his line. Well, perhaps.

On Friday, the Tory leader did open fire on "Brown's bust" with a
robust speech in the City in defence of "responsible" capitalism and
free markets. Combined with his excellent offering to his party's
conference it represents a start, but what comes next? A number of
lessons are apparent and they divide into the following areas.

1) As the adrenalin-rush of recent weeks abates, the Tories should
ask more searching questions of the bail-out on behalf of oppressed
taxpayers. It is what the opposition in parliament should be for.

2) Tory thinking on the economy has been too timid and generated by a
small a group of individuals close to the shadow chancellor. That
state of affairs now constitutes an emergency. In the last fortnight
the Cameroons have discovered the weakness of relying on a tactical
approach rather than having a strategy geared to delivering a low
tax, high growth, sensibly regulated enterprise economy. Urgently,
the Tory economic team needs to let fresh thinking into the room.
Cameron should force Osborne to do this or take charge.

3) The election will be won by whoever has the best plan for
recovery. Conservative values need to inspire the generation of fresh
free-market thinking and practical ideas for a shrinking economy in
which government spends too much of the national resource inefficiently.

4) These developments require more aggressive communication by
Cameron and a wider range of Tory voices. A speech delivered does not
automatically mean a message has been received by the public and good
phrases need hammering relentlessly. Only Osborne's "fixing the roof
while the sun shines" has worked.

Brown is having a bounce and it will get bigger until the carnage in
the real economy halts it. But the Tories had best get a move on.
"Giving that order to fire," said a shadow cabinet member, "is all
about timing." The Tories must hope Cameron has not left it too late.
===========================
2. Clear out the Financial Services Authority, along with Alistair
Darling and Mervyn King (Leader)

So now we know. The reason why the Financial Services Authority
failed to regulate the banking system properly over many years is
because its senior executives were not paid enough.

Lord Turner, the FSA's new chairman, in an interview with the
Financial Times, said the regulator had been supervising large banks
"on the cheap". Too many good employees had been wooed away to more
highly paid posts elsewhere in the City.

Therefore, in order to perform effectively in future, it will have to
pay bigger salaries, thereby increasing the charges that it imposes
on banks for the privilege of being regulated.

Lord Turner said the era of light-touch regulation was over; but who
administered the light touch in the first place?

He said there would be more people asking more questions in future;
yet it was the FSA's failure to ask some pretty basic questions that
should have been apparent even to the lowliest member of staff that
contributed to the near meltdown of the banking system. We looked in
vain to Lord Turner's words for an apology or an admission of failure.

The banks will find his suggestion that they were being regulated on
the cheap laughable. Since 1999, the FSA has grown from 1,362 staff
at a cost of £69.2 million to 2,535 staff costing close to £200 million.

This is because of the expansion of regulation, not its contraction.
Banks all have large compliance departments whose function is to deal
with the myriad rules to which they are subjected. Arguably, it is
not too little regulation that has been the problem, but too much
because it drives some institutions, like hedge-funds, to seek
offshore havens away from its heavy hand.

We have argued before that what is needed is a transparent, straight-
forward and easily understood regulatory framework that focuses on a
very small number of well-defined problems, such as the possible
failure of the banking payments system. Talk of a reign of regulatory
terror may hit the right political buttons but is not the answer.

These are some of the points that should be made by the Opposition.
David Cameron has been slow to denounce Gordon Brown for his role in
the crisis, though he made amends for that yesterday with a few well-
aimed blows. He was right to say that Mr Brown was inviting plaudits
for repairing damage that he had caused himself.

In particular, Mr Cameron described the precipitate decision in 1997
to split the Bank of England from its regulatory function as an
historic mistake, but he did not follow through the logic of this
observation by proposing its reversal under a Tory government.
Mr Cameron, also rightly, denounced the irresponsible borrowing of
the Government over the past 11 years in the false belief that it had
ended "boom and bust".

However, he did not take this idea forward either by proposing big
cuts in wasteful spending. This is something the Tories must confront
soon, especially as pressure grows on Mr Brown from within his own
party for a Keynesian way out of the recession involving even more
expenditure.

The Conservative leader should never have allowed the impression to
develop that he had entered a "truce" with the Government; a
bipartisan approach does not involve waving a white flag.

Even his continued support for the financial bail-out must be
tempered by some fierce questioning on behalf of people who have been
bulldozed by the state juggernaut, including small shareholders in
banks such as Lloyds TSB, who have been treated abominably.

The Tories must be far more forensic in their analysis of the
Treasury's plan; proposing an alternative approach is not
treasonable, but the proper job of opposition.

We also need a clear-out of all those responsible: Alistair Darling,
the Chancellor, Hector Sants at the FSA and Mervyn King, the Governor
of the Bank of England, who has simply disappeared from public view.
All need to be replaced if there is to be any chance of restoring
long-term confidence. [and - but this is perhaps too much to hope for
- the arch villain himself, Gordon Brown ? -cs]
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CONSERVATIVE HOME BLOG - CentreRight 18.10.08

Where is our debate on the banking bail-out?

Probably like you, I found the US Congress debates on the banking
bailout a couple of weeks ago captivating. Yesterday, the German
Bundestag voted for their banking bailout by 476 votes to 99, after a
detailed and vigorous debate, which one Bundestag member called "an
unprecedented tour de force".

Meanwhile, a number of my constituents last week and this have asked
me if Parliament is an exciting place to be at the moment, debating
the banking crisis. The only problem is this: we haven't debated the
banking crisis at all, except for a three hour debate on the fiscal
rules, undertaken during Opposition time, and an hour and a half
topical debate on "financial stability" in Government time. And
definitely no votes on the bailout. Want to find out whether your MP
agrees with the bailout? Tough.

In fact, the House of Commons has been a backwater these last two
weeks, and bear in mind that these two weeks have come after a 75 day
long Recess. There have been only six votes at all - none on the
banking crisis - and no votes at all this past week. On two of the
nine business days, the business has finished early, due to a lack of
contributions. On Thursday, I took a local vicar around Parliament.
Markets around the world were gyrating violently. We sat in the
gallery to watch part of a four-hour debate on primary health care.
There were seven MPs in the Chamber. Rather embarrassed, I pointed
out that all of the seven had to be there - the Deputy Speaker, the
Government minister, the two main opposition party health spokesmen,
one whip for each side, and the minister's PPS.

It seems that no sooner are we back after a 75-day absence, however,
and Parliament has determined the Recess dates for 2009 which include
another 145 non-sitting days. This seems to me to be two weeks longer
than usual. Some of us are fans of Parliaments like Switzerland and
various US state houses where the politicians are part-time, and
gather for a limited period each year to pass a minimal set of laws,
but as we do have full-time MPs, surely we might expect them to
debate the banking bail-out and wider economic crisis?
Posted by Greg Hands MP