Margareta Pagano: We need Roubini's brains if we want banking reform
The Government should listen to Dr Doom
Sunday 16 May 2010
With exquisite timing the only man who can truly claim to have forecast the financial crash, Professor Nouriel Roubini, has just published a book in which he warns us about the next.
And, with even better timing, Roubini will be in London this week to promote the book, Crisis Economics: A Crash Course in the Future of Finance, just as our new government has promised an independent commission into the structure of banking, and how to make changes to avert future crises.
So it's just as well that Roubini – Dr Doom to his fans – is meeting Mervyn King, the Governor of the Bank of England, for a chat as they both support finding ways to ring fence retail deposits from the wilder trading side of banking.
Its a pity that he won't have a chance to be questioned by the Chancellor, George Osborne, and the Business Secretary, Vince Cable – chairman and deputy chairman of the new commission. If they can't get seats for his sold-out London School of Economics lecture on Tuesday, I suggest they find a way to bundle him off to the Treasury and keep him there until he's promised to sit on the commission or at least give evidence.
Working out what our bank system should look like, and whether it should be split between narrow and casino banks, is so complex that we need brains like Roubini's to help see more clearly. Reformers will also need to have pretty robust arguments because any attempts here and in the US to break up the banks will bring down the wrath of the most powerful vested interests in the world, who will fight tooth and nail to defend their privileges and their bonuses.
As his book wans, a return to some sort of Glass-Steagall structure doesn't go far enough. He's right when he recommends breaking up the Too Big To Fail banks – Bank of America, UBS, RBS, JP Morgan, Barclays, Goldman Sachs and BNP Paribas for starters – with antitrust laws, just as the US did with the oil titans and AT&T. That's why our new commission must look at whether the big investment banks are an oligopoly. We need to know how the banks make so much money – whether from cartels that set underwriting fees or from colluding on advisory charges. Indeed some critics even ask whether many trading profits are ficticious.
Sceptics are already suggesting the commission is a fudge, a way of kicking the controversy into the future until the fury over bankers' bonuses has died down. Ignore them, they are kill-joys. For once, I believe, there is a genuine will for reform from both Osborne and Cable, and a commission – with a proper research staff – is the appropriate place to thrash this out so that they're ready to fight the Neanderthals who will oppose reform.
While Osborne is right in saying that breaking up the banks will only work if there is global agreement, as John Kay, the champion of narrow banking, says, there are only one and a half countries which matter – the US and the UK. That's why getting Roubini, who has the ear of President Barack Obama, working together with the UK's reformers is vital as the battle ahead is going to be bloody. Roubini and Kay reckon the next crisis will explode in three to five years' time; we have about two years to get this right.
Adam Boulton: Undisputed hero of TV election reporting
His suit may have been getting tighter and his ties more garish by the day, but for me the undisputed hero of last week's TV election reporting was Sky's Adam Boulton. Whatever time of day or night, the Boulton rock couldn't be budged; he was always there: solid, looming, and ever so slightly menacing. I'm not sure how he managed it, but he always seemed to be at the front of the reporting mob or on the top step of the Cabinet Office as the negotiators horse-traded, and his steady supply of adrenalin made sure neither house- nor homework was done in our household during those extraordinary five days. What I liked most, though, was the way he kept pushing his interviewees to answer his questions properly, whether on the constitution or on other historical precedents relevant to today. The more incendiary bust-up with Alastair Campbell, while delicious to watch, was just the icing on an all-round epic performance. Let's hope Boulton stays Unleashed; he's best on the prowl.
EU hedge fund hoo-ha is being whipped up to warn the new Chancellor
You might have expected even a little schadenfreude from the ex-Treasury minister, Lord Myners, on the latest reports that the new Government's request to defer a critical Ecofin meeting next week to vote on the EU's directive on hedge fund regulations had been turned down.
Not a bit of it. In fact, Myners suggested that last week's media hoo-ha suggesting that Britain was still vulnerable to losing much of its hedge fund and private equity industry because of the directive was a storm in a teacup. Most of the really important concessions have already been won from our EU partners after months and months of quiet negotiations led by Myners who ran a hugely successful campaign to water down most of the proposals during the Swedish presidency.
A few minor squabbles remain, mainly over depositaries, but according to Myners the big issues had been resolved and the directive was always going to be voted through this Tuesday in Brussels, and Britain was always going to vote against it. He says categorically that there is absolutely nothing left in the directive which will threaten London's prime position – about 80 per cent of the hedge fund industry is based here – or its long-term viability.
Under the new rules, hedge fund managers and private equity firms will be forced to reduce the amount of leverage they use, to be more transparent and to hold their assets in European banks. While many in the industry accept these changes, for the good, there's still a small lobbying group who see it as a poison pill left by Gordon Brown's government – which persuaded the Spanish presidency to delay a vote until after the election for fear of a backlash.
I suspect the French and German officials – who are determined to blame the hedge funds for much of the crash – are the ones whipping up this storm, just to rattle the Chancellor, George Osborne, and his Treasury team to warn them against future complacency.
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