I’m fed to the back teeth with writing this story! indeed I had a go on Tuesday in my “A perceived crisis (+ a long awaited solution but not from the journalist) “
I wrote there “The whole answer to this offending greed is to do what I have urging for a year now - Split banks into retail banking and Investment banking companies. After doing that the much smaller retail banking sector would not earn anything remotely in the area that investment banks can earn on a good day - and lose on a bad one. The retail banks could continue to have the protection of the state being ‘ready with a bailout’. Meanwhile the investment banks must know they are on their own and to go broke if they don’t get it right. At present they appear to take risks but in practice they don’t .
This way the state would be protected AND get its taxes from the investment banks in good measure - like the £2.5 billion Goldman Sachs paid last week but the taxpayer would not be involved in speculatory dealing. The City has enough clever people to keep London at the top. All these politicians do is kill the golden goose for which lunacy we will all pay.”
The blueprint for doing all this is to hand in the now disused American Glass Steagall Act wantonly destroyed by Bill clinton. Just get on with it!
I knew some very distinguished people read what I send out - nice to think that someone is showing it to Mervyn King!!
Christina
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BBC ONLINE 20.9.09
Bank regulation plan 'a delusion'
The Bank of England governor has hinted that plans to reform UK banking through regulation alone may not be enough.
Mervyn King said it was a "delusion" that tightening regulation could stop banks' most risky activities from failing and leading to huge losses.
In his starkest warning yet, he said banks may have to separate their day-to-day business from more speculative practices if they are to get state aid. [As I keep saying this is the obvious answer. They have the blue print so why don’y they just get on with it? -cs]
Mr King also said the UK economy would grow in the second half of the year.
However, he did not commit himself to saying the economy had come out of recession between July and September. Initial data on the economy's performance during that period is due on Friday.
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Never has so much money been owed by so few to so many. And, one might add, so far with little real reform
Mervyn King, Bank of England governor
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And he added that while it should become easier for households and businesses to borrow money, "we should be under no illusion that the path to sustained recovery will be smooth and painless", citing high unemployment and lower industrial output.
"We shall all be paying for the impact of this crisis on the public finances for a generation."
Bank separation
In his speech to Scottish business organisations in Edinburgh, Mr King hinted that G20 plans for tighter regulations may not be enough, because if banks knew they would be bailed out if they hit difficulties, they would continue to take risks.
"The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion," Mr King said.
Banks have been criticised for making risky investments - which in previous years had brought hefty profits and large bonuses for their staff.
However, when these investments went wrong, it contributed to the global economic crisis which saw several banks, including Royal Bank of Scotland and Lloyds, being part-nationalised.
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Mervyn King thinks that with the current approach, we will only have tackled the symptoms of the problem. The ultimate cause will come back to bite us - perhaps rather sooner than we might have thought.
Stephanie Flanders. BBC Economics Editor
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Mr King said "it was hard to see why" taxpayer support could not be limited to retail banking.
"Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are."
'Breathtaking'
Direct or guaranteed investment in banks from the government was close to one trillion pounds, Mr King said.
"The sheer scale of support to the banking sector is breathtaking.
"Never has so much money been owed by so few to so many. And, one might add, so far with little real reform."
But he added: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector.
"Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources and management of risk."
He said that those banks which continued to get public money to prop them up and aid their recovery should not be encouraged to try and earn profits to get out of government support "by resuming the very activities that got them into trouble in the first place".
BBC economics editor Stephanie Flanders said that the governor would not have made his comments lightly, wading into the debate by arguing for "separating out the essential, humdrum utility side of banking from the speculative, more casino side that has got us all into so much trouble."
Many, including the chancellor, oppose this plan, seeing it is unworkable, she added. [Darling is the operator of Gordon Brown’s ‘scorched-earth’ policy and wouldn’t want to make anything better -cs]
"But quite simply, Mervyn King thinks that with the current approach, we will only have tackled the symptoms of the problem. The ultimate cause will come back to bite us - perhaps rather sooner than we might have thought."
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TELEGRAPH 21.10.09
Mervyn King: bail-outs created 'biggest moral hazard in history'
The Governor of the Bank of England on Tuesday night launched his fiercest attack yet on big banking
By Edmund Conway
Mr King indicated that high street banks could and should be separate from their risky investment banking wings and calling for a reconsideration of the financial system's structure.
In comments which will be seen as a clarion call for a potential break-up of Britain's banks, the Bank of England Governor warned that the support handed out by the Government had "created possibly the biggest moral hazard in history". He said that it was insufficient to expect that in the future tighter regulations alone would be enough to prevent banks from generating financial crises.
The warning goes against the grain of efforts by Governments on both sides of the Atlantic, which have tacitly ruled out splitting up the biggest banks and opted instead to scrutinise them more actively. Mr King, who said earlier this year that if banks are "too big to fail, then...they are too big," said that there is a risk the financial crisis comes and goes but the current system, in which big banks enjoy an effective guarantee from the state, remains.
In a speech in Edinburgh, he said "It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities. The case for a serious review of how the banking industry is structured and regulated is strong."
He added: "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion," adding: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector."
Experts have said that one lesson is that banks with large household deposits should not be allowed to practice the risky trading which, ultimately, led to their near-collapse, since this leaves the entire economy at risk. However, neither the Government's White Paper on financial regulation nor the Conservatives' plans proposed breaking up Britain's four big banks into utility style high street outlets and riskier investment banking arms.
Although he stopped short of calling for an immediate break-up, Mr King said: "There are those who claim that such proposals are impractical. It is hard to see why."
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