The housing bubble and the FSA

macaque_2

The financial services industry are a pack of dangerous dogs. Despite this, they are also essential to the economy. The benefit they bring can serve the common good providing someone is standing by with a bull whip to keep the dog pack under control. In the absence of proper controls, we suffer problems like pensions miss-selling, endownment miss-selling, the dot com bubble, BCCI, bad debts in South America, countless bungled buyouts, fiddled bank charges etc etc.

One of the most obvious and dangerous risks to the wider economy arises when large institutions start bidding up risk in an effort to grow or protect their market size. Outsiders could see that the millenium property bubble was heading for disaster ten years ago. In the end, the combined influences of home owner greed, obscene bonuses and baying shareholders pushed the economy towards the cliff and then over the edge. If ever there was a time for an independant regulator to step in and crack the whip, that was it. As we now know, our regulators failed abysmally.

In the light of their failure, one would expect this to be 'hair shirt time' at the FSA. Perhaps they might sack a few people and make pay cuts. Is that what they are doing? Not a bit of it. They are too busy paying themselves bigger bonuses.

The FSA is raising staff bonuses from a maximum of 12.5 per cent of pay to 15percent, which would require it to pay out up to £23 million this year. It is also earmarking an extra £10 million to give pay rises to staff whose pay was “out of kilter” with market rates.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5721401.ece

Would you call this sleaze?

Conrad

Why did the FSA fail?
Well, it's the same reason social services allow kids to die on thier watch despite endless enquiries going back to the 1970s that result in us being told 'lessons must be learned that will ensure this never happens again'.

I'd like to write a book on why Government watchdogs fail time and again.
The reason IMO is the same that saw thousands of Tommies die on the Western front.
And the reason is those at the top are not in touch with the coal face.
Indeed, thats why the Banks have failed, as was portented in the 2006 book 'The Puritan Gift', which posits modern managers are in the main promoted from without, in large part because they have an MBA and possess charisma, rather than decades of domaine knowledge within one firm which they know inside out as was the case before the 1970s trend to make business an academic endeavour, in which professors possesed the knowledge and the age old method of promoting from people with decades of experience in one firm was abandoned, afterall, cant these Harvard / Oxford MBS's run anything!

The generals at the FSA are the wrong people. They are not in touch with the front line so they simply don;t have the necessary insights.

EXAMPLE:

My last regulatory visit focused on completely irrelevant items such as my Bird Flu Pandemic disaster plan - I kid you not.