They've known it all along!.....The end of civilisation as we know it

This documents conclusively how we are being dragged into the abyss 
because we are hamstrung and prevented from taking the necessary 
steps to try and avert disaster by our membership of the EU.

I would add a caveat to the legalistic position; namely , the 
situation is so serious that we should have unilaterally adopted 
these measures and not waited for the elephantine processes of the 
EU.  The EU could hardly have objected to a premature adoption of 
their own proposals!

But that would have required guts and the ability to speak for 
Britain.  That - it seemsd - is too much to ask of any British 
politician.

And if the EU members of the G7 had urged that action on the G7 the 
EU would have had to agree.  But they’re spineless too.

The origins of the crisis are much closer to home than the EU 
shackles which stop us doing what has to be done.

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EUREFERENDUM Blog   12.10.08
They've known it all along!

As previewed last night, we have discovered cast-iron evidence that 
the EU commission has known for at least a year that there have been 
disastrous "shortcomings" in its system of financial regulation. This 
system includes the measures for the application of the "mark to 
market" rules which lie at the heart of the current banking crisis.

The commission has also known that changes to the system were 
urgently needed to prevent a repeat of the "market turmoil" of the 
summer of 2007. Yet, despite a massive effort, it has only just been 
able to deliver drafts of these vitally needed changes.

What is particularly damning though is that the commission is 
actively hiding its part in what amounts, probably, to the most 
serious regulatory failure in the history of mankind – certainly the 
most expensive.

To avoid having to admit openly that its own regulatory system is at 
fault, it sneaked out its changes to the legislation earlier this 
month. Amid a barrage of deliberately misleading press coverage, it 
sought to camouflage the amending laws by blending them in with a 
raft of long-planned and well-signposted additional laws.

The changes the commission is proposing directly address – in its own 
words - the "shortcomings" in the law officially known as Directive 
2006/49/EC – the "Capital Adequacy Directive". It is this that we 
pinpointed as the major cause of the current meltdown in the 
financial services industry.

To confuse matters though – we think intentionally – the commission 
has since unofficially relabelled this law and its partner in crime, 
Directive 2006/48/EC, collectively as the "Capital Requirements 
Directive" (singular). This means, amongst other things, when you 
google the official title, this one does not show up.

The commission proposals are included in a 45-page draft EU 
parliament and Council amending directive. This aims, inter alia, to 
correct and improve the rules on the crucial area of "crisis 
management market value" – at the heart of the current crisis.

This document is accompanied by two other highly technical 
"Commission Directives", one 14 pages and the other 7 pages, plus a 
148-page impact assessment document.

Had the commission openly admitted its "shortcomings", there is an 
outside chance that the media would have picked up the story and made 
an issue of it. And, in this febrile climate, with the hunt for 
scapegoats in full cry, this could have been highly damaging to the EU.

Thus, in what has all the hallmarks of a carefully orchestrated 
deception plan, the documents were slipped out into the public 
domain, the clear intention being that they should not be noticed.

This sleight of hand took place on 1 October, three days after David 
Cameron had given his unscheduled speech to the Conservative Party 
conference in Birmingham, calling for the changes which the 
commission is now addressing.

In what was clearly part of the deception – effectively a variation 
of "hiding in plain sight" the publication of the new commission 
proposals was announced at a press conference in Brussels on the 
afternoon of 1 October.

Fronting the deception was financial services commissioner Charlie 
McCreevy. Using the newly-minted and misleading "Capital Requirements 
Directive" title, he launched into a dense, highly technical speech. 
It was entirely misleading in its content and bore no relation at all 
to the nature of and primary reasons for the changes. It succeeded in 
throwing the bored journalists off the scent.

To accompany the speech, the commission had to produce a press 
release. This is routine and not to do so might have aroused 
suspicions. Thus, the convention was followed and, in due course, one 
appeared on the commission "rapid" press website.

This was slightly more revealing, but so densely worded that it was 
(and is) easy to miss the crucial detail. We looked at it on the day, 
and several times afterwards, and missed its significance – as was no 
doubt intended.

Interestingly, this was accompanied by an opaque memorandum, which 
was very obviously part of the plan. This purported to deal with the 
changes the commission wanted to make. It was set out in the form of 
a "frequently asked questions" explanatory note. But it made no 
direct reference to commission's changes. Instead, it told a direct 
lie. "The proposals to change the banking rules," it said:

… may be useful for strengthening market confidence and institutional 
resilience in more stable periods. However, the proposed measures 
will come into effect in about two year's time and will be way too 
late to have any impact on the current meltdown of the financial system.

Only later, on the official "Single Market" website did we finally 
see the commission declaring, with unexpected candour, the real 
nature and reason for the amendments. This was set out a little way 
down the page :

In text, this read: "The Commission has adopted a proposal to amend 
the CRD in certain key areas. These amendments address the 
shortcomings in the current regulatory framework and are a direct 
response to the financial turmoil."

It is the "explanatory memorandum" to the draft Council and 
Parliament directive, however, which completely gives the game away. 
It states: "The revision … has been prompted by the financial market 
turbulence that started in 2007 and is aimed at ensuring adequate 
protection of creditor interests and overall financial stability."

As to the other two draft Commission Directives, "Amending certain 
annexes to directive 2006/49/EC of the European parliament and of the 
Council as regards technical provisions concerning risk management," 
the very titles tell you what is going on. This is what has been the 
problem all along – the "risk management" model associated with "mark 
to market" that artificially under-valued sound assets, drastically 
reducing the liquidity of the banks.

If there could still be any doubt, but one part of the main amending 
directive nails the nature and purpose into place with "point 6.4.5" 
on "Liquidity risk (Annexes V and XI of Directive 2006/48/EC)". It 
tells us that:

The current market turmoil has highlighted the fact that liquidity is 
a key determinant of the soundness of the banking sector. The 
proposed changes implement the work conducted by CEBS and the Basel 
Committee on Banking Supervision to develop sound principles for 
liquidity risk management…

This section, in particular, addresses exactly the current problems 
with "mark to market", not in respect of the actual system of 
calculating "fair value" but in the risk assessment model, and the 
way the accounting system is implemented.

Giving the lie to the claim that "the proposed measures will come 
into effect in about two year's time and will be way too late to have 
any impact on the current meltdown of the financial system," the 
press release itself notes that the proposed amendments are, in part, 
"a response to the recent recommendations of the G-7 Financial 
Stability Forum."

It further notes: "The European Council has expressed a strong sense 
of urgency emphasising that the measures should be adopted by April 
2009."

The amendments have been sent out for consultation with a closing 
date of 15 October – an incredibly short period for such complex 
documents - totalling over 200 pages of highly technical detail and, 
with an adoption set for April 2009, this in EU terms, is moving at 
warp speed. The measure is clearly being fast-tracked through the 
system, to emerge in what is probably the shortest period that it can 
get through the labyrinthine procedures.

All the evidence is, therefore, of an emergency measure being rushed 
through at breakneck speed (in EU terms) to "address the shortcomings 
in the current regulatory framework" in "direct response to the 
financial turmoil."

Finally, the "impact assessment" puts to bed any lingering doubts 
anyone might have about the role of EU law in the implementation of 
the Basel II agreement. The history is all set out:

Financial markets are crucial to the functioning of modern economies. 
Their integration is critical for the efficient allocation of capital 
and for long-term economic performance. Enhancing the single market 
in financial services is a crucial part of the Lisbon Strategy for 
Growth and Jobs and essential for the EU's international 
competitiveness.

The Financial Services Action Plan 1999-2005 (FSAP) aimed at 
reinforcing the foundations for a strong financial market in the EU 
by pursuing three strategic objectives:

ensuring a Single Market for wholesale financial services;

open and secure retail markets and

state-of-the-art prudential rules and supervision.


Together with some other 40+ measures of the plan a review of the 
legislation governing the capital framework for credit institutions 
(banks) and investment firms was undertaken in order to align it with 
market developments and work of the G-10 Basle Committee on Banking 
Supervision (the Basle Committee).

The then existing European legislation, the Consolidated Banking 
Directive 2000/12/EC and the Capital Adequacy Directive 93/6/EEC, was 
based on the Basel I Accord of 1988 and the Basel market risk 
amendment of 1996. To keep up with the developments in the market, 
the latter were updated with final proposals for the Basel II 
Framework in June 2004 and the Trading Book Review in July 2005.

The "new" Basel agreement was reflected in the EU as a new capital 
requirements framework that was adopted in June 2006 as the Capital 
Requirements Directive (CRD); this comprises Directives 2006/48/EC 
and 2006/49/EC.

Yet never once has the commission, any commission official, or the 
government of any member state – and especially Gordon Brown and his 
chancellor, Alistair Darling - ever openly admitted the depth of EU 
involvement in our financial regulatory system.

Nor for that matter has leader of the opposition, David Cameron, 
given any clue of the presence of this "elephant in the room", 
despite many references to the Basel agreement, not least this one in 
March, where he correctly identified the problems associated with the 
agreement.

Crucially though, not only has the commission failed openly to 
mention that there were "shortcomings in the current regulatory 
framework", neither has the British government. Nor has it 
acknowledged the rush attempts by the commission to rectify matters. 
It had that opportunity on 8 October, when shadow chancellor George 
Osborne brought up the issue of "mark to market" in Parliament - when 
he was obviously unaware that his concerns were being addressed by 
the commission, albeit with glacial speed.

The point, of course, is that had the original Basel II agreement 
been implemented directly into the British legal code, rather than 
through the medium of EU Directives, the "urgent" changes so vitally 
needed to clear the logjam in the banking system could by now be in 
place in the UK.

But, locked into the EU, we are trapped. Such is the complexity of 
the EU law-making process that, even despite the "strong sense of 
urgency" expressed by the European Council, it will be six months 
before the commission's proposals become EU law. It will then be some 
months more before the results can be transposed into British and 
other member state law.

Furthermore, the process itself, which led to these amendments being 
sneaked out on 1 October this year, was actually set in train on 9 
October last year. It was then that the finance ministers of the 27 
member states met to review the previous summer's market turmoil 
following the US sub-prime mortgage crisis.

The finance ministers then agreed on a "15-month road map" for 
"reviewing the bloc's financial rules" in order to avoid a repeat of 
that "market turmoil", a repeat they have singularly failed to prevent.

That the new proposals have been rushed out, not fifteen but twelve 
months later demonstrates with utmost clarity the desperate urgency 
of the situation, But, from start to finish, it will still have been 
well over 20 months before the vital changes are in place.

The tragedy is that we have suffered an entirely preventable 
financial meltdown, with the current legislation having magnified the 
effects of structural failures in the banking sector, turning a 
serious problem into a disaster.

The very worst of it all, though – apart from the commission's 
refusal to come clean about its own failures – is that, if we still 
had a sovereign government, even at this late state we could take 
corrective action. As it is, we have eight or nine months to wait, by 
which time the additional damage will be incalculable.
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Posted by Richard North

AND A POSTSCRIPT ---->  (the “vitally needed changes”)

The end of civilisation as we know it

This is what is has all come down to:

The text of Article 1(1) of Directive 86/635/EEC shall be replaced by 
the following text:

'1. Articles 2, 3, 4(1), (3) to (5), Articles 6, 7, 13, 14, 15(3) and 
(4), Articles 16 to 21, 29 to 35, 37 to 41, 42 first sentence, 42a to 
42d, 45(1), 46(1) and (2), Articles 48 to 50, 50a, 51(1), 56 to 59, 
61 and 61a of Directive 78/660/EEC shall apply to the institutions 
mentioned in Article 2 of this Directive, except where this Directive 
provides otherwise. However, Articles 35(3), 36, 37 and 39(1) to (4) 
of this Directive shall not apply with respect to assets and 
liabilities that are valued in accordance with Section 7a of 
Directive 78/660/EEC.'
You will be pleased to learn that this comes from  Directive 2001/65/
EC of the European Parliament and of the Council of 27 September 2001 
amending Directives 78/660/EEC, 83/349/EEC and 86/635/EEC as regards 
the valuation rules for the annual and consolidated accounts of 
certain types of companies as well as of banks and other financial 
institutions.

To think that there are people out their expending their life 
energies on writing this stuff, and even more on reading it and 
trying to understand it.

And people complain that the constitutional Lisbon treaty was 
incomprehensible?
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Posted by Richard North