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LQD: Anglo disease goes mainstream

by Frank Schnittger Fri Jul 11th, 2008 at 11:43:10 AM EST

It looks like it's finally dawned on the MSM that Britain is in big trouble.  The piece below the fold is from The Times - but reads as if it could have been penned by our very own Jerôme a Paris.  It argues that the British economy will pay dearly for the weakness of its regulators and that its financial services industry is in jeopardy as a direct consequence.  

Irony of Ironies, it cites Karl Marx and bemoans the fact that "Some economists predict that within five years, sovereign wealth funds may be able to buy a third of all the equities listed on global stock markets"  and that whilst these secretive, though "not necessarily sinister" entities "are interested in capitalist profits, they are ultimately unsympathetic to many of the freedoms that underpin the Anglo-Saxon model of capitalism".

It seems that capitalism is all very well and good so long as Britain ran the colonies, but not such a great idea when the tables are turned.  Now our freedoms are imperiled by their wealth. Funny how their freedoms were never a problem when Britain had the power and wealth.

Pretty soon we might hear City types arguing that maybe the EU isn't such a bad idea after all. Perish the thought!


We are squandering our good financial name

| Camilla Cavendish - Times Online

We are squandering our good financial name

This is more than an economic blip. The weakness of our regulators will hit Britain where it hurts - in the pocket

For the past year London has felt like two worlds. The credit crunch turned bankers in Canary Wharf and the City into Ancient Mariners, prophesying doom more and more urgently to friends in other parts of town who just yawned and turned away from their glittering, self-pitying eyes. Those friends - marketing people, lawyers, headhunters - went on hiring, filling smart restaurants and generally feeling pretty buoyed up by a healthy stock market that seemed as deaf to the Ancient Mariners' message as they were. Until now.

It is as if we have been in a state of suspended animation, like cartoon characters frozen in mid-air after jumping off the cliff. Now gravity is winning. Brits are cancelling foreign holidays. Housebuilders such as Bovis and Barratt are slashing their workforces by up to 40 per cent. Marks & Spencer is suddenly unexpectedly empty. The FTSE 100 is on the slide, despite being buffered by mining and oil stocks, which have rarely had it so good. The credit crunch is hitting home.

A bleak year is ahead. Some of the pain is a necessary correction. House prices had to come down from their fantastical peak. First-time buyers may no longer be able to get on the ladder without a bigger deposit, but at least prices may return to saner levels, if they can find anything for sale.

What is depressing is how the British authorities seem to have compounded the effect of the slowdown. Bankers in many countries played games with what the investor Warren Buffett shrewdly called "weapons of financial mass destruction", lending too much against hopelessly inflated assets.

But the British played some of the wildest games. British banks hold roughly £640 billion more in customer loans than customer deposits. That is more leveraged up, over equity, than any US bank is legally allowed to be.

The regulators who allowed this to happen were once admired for their pragmatism. Now they are derided around the world for their sloppiness. I meet British bankers who say that they are routinely embarrassed, in meetings from Germany to China, by gibes about the uselessness of the London authorities. Hank Paulson, the US Treasury Secretary, brought a stern message to London last week: that the regulators need to get a grip. It is extraordinary that he felt that message was needed, seven months after queues of frightened pensioners brought down Northern Rock.

But it was. On Tuesday Bradford & Bingley executives came close to losing their shirts. (They seem to have discarded their bowler hats three years ago, along with their common sense, when they decided to hand out mortgages without asking borrowers to prove their income). For months, the hapless B&B management had been denying the obvious need for fresh capital. Yet the Financial Services Authority limply failed to get action. The US authorities have quietly ensured that more than 40 banks have recapitalised, to shore up the economy. Their UK equivalents had too little sense of urgency. But time is the enemy of confidence, and confidence is the only currency that matters in a downturn.

Bradford & Bingley will survive. But this is about more than one feckless institution. Financial services are one of Britain's greatest export products. They account for almost a third of the economy, twice as much as manufacturing. Our financial acumen is one of the best hopes we have of being able to keep our footing in a global economy in which power is shifting from West to East. The foolish behaviour of our banks and regulators is actually accelerating that shift. Banks that blew giant holes in their balance sheets out of greed are filling them with international capital, including secretive government funds from the Middle East and Asia. The China Investment Corporation now owns 9.9 per cent of Morgan Stanley. The Abu Dhabi Investment Authority owns 4 per cent of Citigroup. Qatari and Dubai funds own a third of the London Stock Exchange.

These investments are not necessarily sinister. They are in part a reflection of fortuitous timing: as the credit crunch has drained cash from the City and Wall Street, rising oil prices have spawned a geyser of Arab money looking for a profitable home. It's a fair trade: we pay more for our petrol and get investment back into our companies, although that investment should be more transparent. But I meet open-minded, well-travelled financiers who are concerned about the motives of Russian and Chinese investments. They fear that while these countries are interested in capitalist profits, they are ultimately unsympathetic to many of the freedoms that underpin the Anglo-Saxon model of capitalism.

This is an unfashionable view, only whispered in financial circles, because we have benefited so much from global capital markets and because capital is supposed to be non-ideological. But these questions matter, because the scale of the shift will be phenomenal. Some economists predict that within five years, sovereign wealth funds may be able to buy a third of all the equities listed on global stock markets.

It was Karl Marx who suggested that capitalism sows the seeds of its own destruction. He, too, is out of fashion. And he was far too eager to be proved right. But ultimately capitalism does depend on trust.

There is little we can do about the inevitable rise in prices, now that China has come to the end of its deflationary boom. But it is a terrible shame that we are squandering our reputation for competence in the one sector in which we could most easily have been pre-eminent in the new world order.

The latest news is more than a grim blip in the economic cycle. It heralds a fundamental shift in economic power that has been hastened by idiots. "I will tell you how to become rich," Mr Buffett once said. "Be fearful when others are greedy." We were all greedy together. We were complacent. Now it hurts.

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Am I the only one who wonders:

  1. If the bankers are like the Ancient Mariner, what does that make Jerome and the rest of the ET crew?

  2. If the epicentre of banking can move so quickly from "here" to "there" how much of it is about "financial acumen" and how much just historical access to funding sources. The banking is moving to the SWF countries because that's where the money is, not because they have overnight built huge banking companies full of "financial acumen."

  3. Most of "The City" is composed of US firms... just what's all this about "our export industry" again?

  4. Why is it the regulators fault that "our repositories of financial acumen" turned out to have less acumen than the average ET commenter?

I guess I just don't understand enough yet.
by Metatone (metatone [a|t] gmail (dot) com) on Fri Jul 11th, 2008 at 02:58:33 PM EST
When your making pots of money you're always right.  When you lose money, your wrong.  Is there any other "moral compass" or yardstick you can use in the "non-ideological" world of capitalism?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 11th, 2008 at 06:51:22 PM EST
[ Parent ]

Hank Paulson, the US Treasury Secretary, brought a stern message to London last week: that the regulators need to get a grip. It is extraordinary that he felt that message was needed, seven months after queues of frightened pensioners brought down Northern Rock.

As if Paulson has played such a stand up role in the USA in urging better regulation by the Fed and the SEC for the last year!  Embarrassing and appalling!  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 11th, 2008 at 03:40:12 PM EST

The regulators who allowed this to happen were once admired for their pragmatism. Now they are derided around the world for their sloppiness.

It is pragmatic for the watchman to hold the door for bank robbers who else would likely shoot him and then keep quiet lest they come after his family.  It is a felony when the theft is discovered. Here reduced to sloppiness, as all understand his dilemma.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 11th, 2008 at 03:47:31 PM EST
She does know the meaning of these words, right?

I will eat one (1) bowler hat for every page of Marx she has ever read. And it doesn't have to be Das Kapital. "The 19th Brumaire" will do just fine.

by PIGL (stevec@boreal.gmail@com) on Fri Jul 11th, 2008 at 05:06:02 PM EST
The triumph of an ideology is measured by how much it can be made appear to be just "the natural order of things".

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 11th, 2008 at 06:53:22 PM EST
[ Parent ]
Is it fair use to lazily quote the entire piece?

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri Jul 11th, 2008 at 06:01:52 PM EST
Fair comment - not sure - but it seemed worthy of be quoted in full.  There are quite a lot of gems in it.  I take the view that it is the attribution which is important, but I don't know what the legal position is.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 11th, 2008 at 06:55:26 PM EST
[ Parent ]
I too have had this problem.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jul 11th, 2008 at 09:50:01 PM EST
[ Parent ]
Surely not every paragraph is a gem - or you could insert short notes telling us why they are...

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Sat Jul 12th, 2008 at 03:00:39 AM EST
[ Parent ]
ok, ok - it is a Lazy quote diary - but perhaps I should have inserted more commentary.  Sometimes a piece is best left to speak for itself and I thought this one was quite well put together as an expression of a particular point of view which demonstrates quite a paradigmatic shift from an MSM point of view - even if it does contain a few howlers from an ET perspective - as others here have pointed out quite ably.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Jul 12th, 2008 at 09:20:30 AM EST
[ Parent ]
What she doesn't understand is that it's the very weakness of UK regulations and the "sloppiness" of its regulators that brought all the business to London and made the success of the City,  not the competence of the UK financial sector...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Fri Jul 11th, 2008 at 06:23:43 PM EST
No, no, no.

Not "sloppiness".

"Light Touch".....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Jul 11th, 2008 at 06:32:42 PM EST
[ Parent ]
Light touch as in a tap on the shoulder at the Club - "now look here old chap - this lending against hugely inflated assets to people who can't pay the interest isn't quite cricket is it?"

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Jul 12th, 2008 at 09:23:00 AM EST
[ Parent ]
yup, sure sounds like a synopsis of ET diaries and comments these last years.

quit lurking, Camilla!

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Sat Jul 12th, 2008 at 08:38:02 AM EST
I beg to disagree: Camilla is not on the same page as ET members. She doesn't criticizes the Anglo disease. She finds the overblown financial sector a good thing:
Financial services are one of Britain's greatest export products. They account for almost a third of the economy, twice as much as manufacturing. Our financial acumen is one of the best hopes we have of being able to keep our footing in a global economy in which power is shifting from West to East.

She even regrets that the UK can't become the capital of the new financial Empire:

But it is a terrible shame that we are squandering our reputation for competence in the one sector in which we could most easily have been pre-eminent in the new world order.

Rule, Britannia ! Britannia, rule the markets...

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Sat Jul 12th, 2008 at 09:58:51 AM EST
[ Parent ]
Perhaps someone, (I plead poverty,) should send her copies of some of Marx's writings, starting with "18 Brumaire of Louis Bonepart" but including Das Capital, in translation.  Then she would have an excuse for the possession of such "suspect" works.  She might be so beguiled by "18 Brumaire.." that she would read more.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jul 12th, 2008 at 10:27:39 AM EST
[ Parent ]
good point, tho' mind you we have hosted some commenters who may have!

"We can all be prosperous but we can't all be rich." Ian Welsh
by melo (melometa4(at)gmail.com) on Sat Jul 12th, 2008 at 05:14:53 PM EST
[ Parent ]


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