Gordon Brown: I made a big mistake on banks

grimsalve

pqrdef wrote: »

But who knew what the risks were? Who knew the business models were unsustainable? Anybody who took a correct view of the future direction of economies abnd markets. But that's not a regulator's job. Any two economists will have three different crystal balls.

easy to do, you just ask "what if?"

pqrdef wrote: »

How does that work? We've lost a pile of money. Never mind, we've still got what Uncle Fred left us, we stuffed it in the mattress, it's not in the books, we'll get it out now and add it to the balance sheet and then we'll be straight again?

Basically yes. Only "Uncle Fred" would be a ringfenced resource that would cover any shortfall or unrecoverable debt - a bit like an insurance policy.

pqrdef wrote: »

The way for a bank to stay out of trouble is to operate well within the regulatory limits. But you can't enforce that by regulation.

:huh: run that by me again

The two problems that caused this were the FSA regulations being relaxed, and the FSA turning a blind eye when specific risks were highlighted.

http://www.fsa.gov.uk/pages/Library/Communication/PR/2008/028.shtml

Specifically...

1. A lack of sufficient supervisory engagement with the firm, in particular the failure of the supervisory team to follow up rigorously with the management of the firm on the business model vulnerability arising from changing market conditions.
2. A lack of adequate oversight and review by FSA line management of the quality, intensity and rigour of the firm's supervision.
3. Inadequate specific resource directly supervising the firm.
4. A lack of intensity by the FSA in ensuring that all available risk information was properly utilised to inform its supervisory actions.

(this is the FSAs own report)

pqrdef wrote: »

Putting it another way, tighter regulation is like planting a minefield along a cliff edge to stop you going over the cliff. It doesn't keep a bank further away from going bust, it just redefines the point where the bank is obliged to declare itself bust.

The FSA regulations should have been there to put up a big fence to prevent anyone going near the cliff in the first place.