Lord Myners: UK does not need to copy Barack Obama banking reforms | Politics | guardian.co.uk .
The Guardian reports:
Lord Myners, the City minister, today played down the idea that Britain might follow Barack Obama's lead in introducing radical banking reforms.
Myners told Reuters the UK had already taken measures to address the problems in its banking industry.
"President Obama came out with a solution to the idiosyncratic problems that he sees in the American banking system, which is around investment banking in particular," Myners said.
Which is an utterly bizarre response.
London has 38% of all proprietary trading in the world according to City data.
Invetsment banking is massive here - and where the issues are.
RBS was one of the top 5 foreign exchange dealers in the world - Barclays is bigger.
We have bigger problems with these issues than the US - but you bet the UK thinks this is a great opportunity for regulatory arbitrage to steal a bit of banking business for London.
Will we / they ever learn?
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From Private Eye this week: an article about Lord Myners, on the first page:
“Myners’ worse might carry more weight if his own record before becoming City minister in October 2008 stood up to better long-term scrutiny. Who was the chairman of the trustees at the Tate when it put a quarter of its investments into risky hedge funds, thus losing the gallery more than £1m last year? Who was the chairman of property firm Land Securities which, five months after he stepped down, had to ask shareholders to fund a £750m rights issue to shore up its ailing finances? And who was chairman of Guardian Media Group when it joined up with private-equity firm Apax to buy magazine firm Emap for £1bn, an investment Apax has since written off? Woe, woe and thrice woe for Lord Myners!
“Will we / they ever learn?”
What can we on the street do to help force their hand? At the moment all we’ve got appears to be, threaten to vote for Cameron! And whoa, that really sucks.
@Strategist
Yep
That really sucks
Critical politics right now. Obama’s action have pinned the Republicans into the corner of having to defend Wall Street – a great move. Whilst Cameron is playing the same trick in the UK. Surely Brown has only one (very ugly) route: overule Myners and line up with the Tories on this…. any better ideas?
Richard,
London has a very large share of global prop trading as you point out.
However, an overwhelming portion of that is conducted by non-British institutions, over which local authorities/regulators have ony limited powers to start with.
There is another, more fundamental reason why London has little ground to follow Obama.
Obama’s “intervention” is meant to avoid the risk of having a deposit-taking institutions needing to be bailed-out by US taxpayers following losses in prop trading activities. (we all know this is bull; the real reason for this is a panic attack at the very real prospect of being incinerated in the November mid-terms).
Since so little of the London-based prop trading is carried out by British institutions, the UK government cannot really make the argument that it would be acting to protect the UK taxpayers’ interests.
Why give ‘average’ finaciers, toadies and lobbyists a knighthood and an unelected post in governement? It’s clear that the current rump of opinion makers and commentators are determined to promote the intellectual fallacy that the way we conduct things is the only way it can be done. Increasingly ordinary people do not listen to them or disbelieve everything they say – it’s going to end in tears.
@JD
Labour still seems to know how to dig holes
Let’s just hope it stops digging
But I fear it won’t
@Edouard (London Expat)
That is a staggeringly inept argument
The reality is we have the external risk and others the private benefit
Which is precisely why we do want to limit the risk we’re exposed to for no benefit
I am afraid your self interest blinds you to logic
Richard,
Could you point out the specific external risks that the UK taxpayer is carrying for the prop trading activities of, say, Goldman or BNP Paribas? Fact is there are none or very little.
In fact, I can see a lot of benefits for the UK taxpayer in having Goldman having a large prop trading desk in London; >$2 billion in corporation tax paid in the UK, and several billion Dollars more in (largely foreign) bankers’ income and indirect taxes.
As with most of your entries you just demonstrate you do not know a thing about investment banking or capital markets.
Edouard: “There is another, more fundamental reason why London has little ground to follow Obama.”….
Edouard is arguing that the British state has the same interests as the international elite of Goldmans etc, namely that London and Her Majesty’s Treasury can both do well by acting as an offshore haven allowing the simultaneous undermining and dodging of the Obama reforms.
The fact that there is a wider British public interest in breaking up the oligopoly is ignored. All those in the economy trying to create value, or do good works, are being hampered by the current financial set up and Goldmans “the vampire squid sucking on the face of humanity”.
To employ the phrase forever ruined by Tony Blair – there is another, even more fundamental reason why London should follow Obama: it is simply the right thing to do.
“As with most of your entries you just demonstrate you do not know a thing about investment banking or capital markets.”
One of the principal causes of the financial crisis was the facr that the investement banking partd of banks like RBS engaged in absurdly risking borrowing, lending and trading activities, one of which was proprietary trading, where the banks used their own money, and hence exposed themseleves to even greater risks than they were already taking, in their desire for ever greater profits.
The cost of all this has now been dumped on society as a whole, and when huge spending cuts to public services begin, we’ll see just how much we all pay for the greed and incompetence of the banking sector.
Richard’s been pointing this out for ages; frankly Edouard, Richard knows a damn sight more about investment banking than you do.
Sicko:
You are just plainly wrong. RBS and most of the other UK banks suffered most (if not all) of their losses in their old-fashioned commercial lending operations; their investment banking operations were always mediocre at best, but they did not sink the boat.
Not only do you demonstrate that you are ignorant about investment banking, but you also show that you are unable to read a newspaper…
Strategit
You are obviously choosing to approach this issue from a far-left ideological angle, rather than on the basis of fact-based analysis.
But even on this basis, I feel it is dangerous to follow the populist initiative of a president who is only driven by political panic ahead of the mid-terms, and whose approval rating is on a one-way trip to the 30’s. As things stand, this legislation has no chance of passing through Congress before November at which point it is increasinglly likely that the Dems will have lost the House.
And please, neither Goldman Sachs (and not “goldmans”, this sounds provincial) nor any other investment banks is part of a monopoly or oligopoly. The investment banking industry is fiercely competitive, and the weakest member can fail (see Lehman Brothers or Bear Stearns).
@Edouard (London Expat)
Mon cher Edouard,
let’s get this straight, most of RBS’s losses did not come from proprietary trading, but they didn’t come from “traditional banking” either. I suspect that you may not have been around in the City of London to remember what life was like before the days when banks operated as sausage factories packaging every financial asset they could get their hands on into an AIG wrapper.
RBS’ and other bans losses came mostly from assets that they and the rating agencies considered to be virtually equivalent to risk free assets. When the market / agencies changed their position the banks were left holding paper losses (many of the assets are not subject top default but the realisable value is way below the par value) that were once considered to be risk free / off balance sheet / required little capital. Call it what you like, but that was not “traditional banking”.
On the other hand, Richard’s point of Forex trading is completely erroneous (although he has a Tobin tax motive for raising it). Banks do very little proprietary FX trading for the sake of trading. The banks that dominate the FX markets are those that also have a reason to be trading for the sake of providing a service to their customers. If that means that they do 4 times as much trading with other banks just to create a liquid market, well that is just the way that markets work.
Alex
For once you got something right and we agree – I replied to Edouard before reading your comment
But of course you’re wrong on Forex. The markets happily traded not a few eyars ago with tiny volumes compared to now
The excess is not to create liquidity – it is a destructive inter bank came of beggar they neighbour in which we all lose badly to pay bonuses that undermine society
In the meantime the banks capture the income streams of customers to continue to deliver profits
@Edouard (London Expat)
Ad hominem attacks as usual. So
a) Prove the tax paid
b) Prove that value was added by Goldman in generating the related profit
c) Prove the incidence of the charges they made
d) Prove that those working for Goldman could not have generated more value for the rest of the economy if not engaged in a less than zero sum game, as they were (Roger Bootle, not me, as source of that comment)
e) Suggest why securitisation imposed no cost on the tax payer
f) Suggest whey bank lending based on false loss propositions benefited the UK
g) Suggest why we benefited from making housing unaffordable for most in the UK
Full answers please – none of your usual nonsense
Try showing you know something about anything but greed
@Edouard (London Expat)
Edourd
Respectfully, I think you have lost the plot
Of course loss provisioning has caused recorded losses – but only if you ignore the causes of the underlying losses can you reach your conclusions
You may be a good day trader
But you are clearly utterly incapable of understanding economics, the economy, business and more besides
Which probably qualifies you to work in an investment bank
@Edouard (London Expat)
Ah, far left
Seems to me that Strategist is no more radical than the Lib Dems, many Tories, most in labour and a a lot of nationalists.
let’s call them the UK’s democrats.
Where does that leave you?
Edouard, thanks for your comments and please let me make an important correction to my earlier post:
Goldman Sachs – the vampire squid sucking on the face of humanity.
Meanwhile, you say: “The investment banking industry is fiercely competitive, and the weakest member can fail (see Lehman Brothers or Bear Stearns).”
Ergo, you must be in favour of the Obama reforms, which aim to allow investment banks that make bad bets to fail without pulling down the rest of the financial system with them when they do.
@Richard Murphy
But of course you’re wrong on Forex. The markets happily traded not a few eyars ago with tiny volumes compared to now
Not really. I don’t have the latest figures but spot FX trading is now around 70-80% higher than it was 15-20 years ago, and in nominal trades accounts for a smaller proportion of the total currency/swaps market – probably around 20% of the total market rather than the 30-35% of a few years ago.
I agree that the total market for currency related products has increased substantially but that would include just about every exotic swap and option. I would call those exotic derivatives rather than FX.
@Alex
See http://www.bruegel.org/uploads/tx_btbbreugel/external_FTTParliament_110110.pdf
Why shouldn’t derivatives be considered part of the trade?
Are you just dissembling again
They are very different businesses. If you lined them up in order of evolutionary development, you would have the minor currency spot FX trader (trading something like a minor European (non-Euro currency against the dollar) at the lower end followed by the major currency dealers (trading $/Yen, $/Euro, $/£ pairs) followed by plain vanilla cross-currency swaps and options dealers, and last of all the proprietary traders who dream up all manner of exotic derivatives and trades (for more info read Emmanuel Derman: http://ederman.com/new/index.html).
The former deal in plain vanilla instruments and trades, and is driven by “real” customer needs even if the amounts traded interbank exceed the “customer” trades – that is a consequence of trading liquidly. Somewhere in the middle of this is the customer who wants to buy and sell foreign currency related to foreign currency business (e.g. the airline that receives a large part of its income from foreign currency ticket sales but pays its staff in local currency and pays for its plane and furl in dollars.
On Wall Street this sort of business is referred to as flow business. It is low margin business. In the Glass-Steagall era in the US it was considered part of the business of a commercial (i.e. FDIC regulated) bank. To be profitable in this market banks have to trade in big volumes at fine margins. The risk doesn’t lie in taking big positions but in settlement and operations.
The other business where traders make up all sorts of exotic instruments (e.g. a Turkish bond that pays a bonus coupon in zlotys if the price of gold hits $1250/oz while the FTSE is over 5500. – I made that one up but it is in the right ballpark), is driven by geeks with PhDs and too many computers. It just so happens that their trades may involve currencies from time to time, but they could just as easily include any financial instrument or commodity.