tony curzon price's Library tagged subprime →  View Popular

Investors need to be given a sense of what action is being taken to correct the situation. Financial services and banking should set the very highest standards for ethical behaviour. Ethics is not only a question of acting correctly. It is a matter of not trying to avoid regulation even if one thinks one can get away with it.

This must be taught at a very early stage and demonstrated in the way a firm is managed. I passionately believe that this is something that has deteriorated in the past few years.

We now know that things that aren’t called banks can nonetheless generate banking crises, and that the Fed needs to carry out bank-type rescues on their behalf. It follows that hedge funds, special investment vehicles and so on need bank-type regulation. In particular, they need to be required to have adequate capital.

But while our out-of-control financial system has been bad for the country, it has been very good for wheeler-dealers, who collect huge fees when things seem to be going well, then get to walk away unscathed — indeed, often with large severance packages — when things go wrong. They don’t want regulations that would stabilize the economy but cramp their style.

The official headline for U.S. Q1 GDP growth says a positive 0.6% growth but the details are ugly and confirm that we are in a recession.

The world’s leading banks on Wednesday publicly accepted much of the blame for the credit crisis in an attempt to stave off calls for more regulation, even as the International Monetary Fund slashed its estimates for global growth and warned that the US would suffer a recession.

The Institute of International Finance, representing more than 375 of the world’s largest financial companies, acknowledged “major points of weaknesses in business practices”, including bankers’ pay and the management of risk.

But it said it would be “completely wrong” for the authorities to impose much greater regulation on the industry.

One of the world’s leading international economists explains how the euro could surpass the dollar as the premier international currency and examines the geopolitical implications of such a shift.

Separately, bankers’ remuneration could become a target for regulatory moves in the UK and the US. Although it is difficult to see how governments could get involved in the intricacies of tying reward to risk, that does not make it impossible in a heavily regulated industry dependent on government goodwill in countless ways.

Spectacles such as that of Stan O’Neal, former Merrill Lynch chief executive, at a hearing in Congress in March excusing his $161m retirement package as “deferred compensation, stock and options that I earned during the years prior to 2007” provide politicians with ammunition.

Consider the press conference held on June 3, 2003 — just about the time subprime lending was starting to go wild — to announce a new initiative aimed at reducing the regulatory burden on banks. Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw.

I believe that banking institutions are more dangerous to
our liberties than standing armies.  Already they have raised up
a monied aristocracy that has set the Government at
defiance.  The issuing power should be taken from the banks and
restored to the people to whom it properly belongs.

Thomas Jefferson

Until the control of the issue of currency and credit is
restored to government and recognized as its most
conspicuous and sacred responsibility, all talk of
sovereignty of Parliament and of democracy is idle and
futile... Once a nation parts with control of its credit, it
matters not who makes the nation's laws... Usury once in control
will wreck any nation.

William Lyon Mackenzie King

Banking was conceived in iniquity and born in sin...
Bankers own the earth.  Take it away from them but leave them the
power to create money, and, with a flick of the pen, they
will create enough money to buy it back again... Take this great
power away from them and all the great fortunes like mine will
disappear and they ought to disappear, for then this
would be a better and happier world to live in... But, if you
want to be the slaves of the bankers and pay the cost of your own
slavery, then let bankers continue to create money and
control credit.

Sir Josiah Stamp

(Governor of the Bank of England in the 1920s)

Secret negotiations by the Bank and London financiers led to the creation of an £18m rescue fund in November 1890, before the extent of Barings' losses became publicly known.

The point is not that the Fed should turn its back when financial markets are on the verge of replicating the Great Crash. The point is that the Fed has become the chief enabler of a dangerously speculative economy. It is simply not possible to get the right balance of financial prudence and financial liquidity using monetary policy alone. That's why we once had a more carefully regulated economy.