regulation

Who is regulating the Regulator?

Interventionist policy can lead to totalitarian rule where the State recognises no limits to its authority and strives to regulate every aspect of public and private life wherever feasible

by

Michael White,

chief

executive, Email

Mortgages

John Maynard Keynes, arguably the

visionary of modern economics, very much advocated interventionist economic policy, by which governments would use fiscal and monetary measures to mitigate the adverse effects of amongst other things, economic recessions. Interestingly, I have read somewhere that economic interventionism is also sometimes practiced by national conservative, fascist, economic nationalist and right-wing parties with the thinking that the free market can damage national traditions, social order, or the authority of the State itself. I’m not sure what Darling and Brown would say to that?

TexT book approach

However, we all know the Government has indeed gone down the text book route of following Keynes’ advice of intervention by attempting to increase the money supply, etc through rapid reduction of interest rates and quantitative easing measures. Again some commentators suggest that the text book outcome of interventionist policy can be that of totalitarian rule

24 moRtgage intRoduceR MAY 2010

where the State recognises no limits to its authority and strives to regulate every aspect of public and private life wherever feasible. I wonder if this sounds familiar to you?

InTervenTIonIsT

I am of course not seriously suggesting Labour has any direct totalitarian plans but I am not so sure about the organisation which dominates our working lives more and more. Yes I am of course referring to our friends at FSA. I make this point as the catalogue of interventionist actions continue and plans are announced for the regulator to ‘get tough’ on the sale of risky financial products to ‘better protect the consumer’. Also, the FSA’s budget for 2010/11 is to rise 18.3% to £491m, up from £415m last year, amid warnings from CEO Hector Sants that a “more intrusive regulator is going to cost more”.

In this context, recently I attended a

forward-thinking conference with the focus on the present funding shortfall for the mortgage industry (Funding the

UK Mortgage Industry – An action plan).

The keynote address was from David Smith, economics editor at The Sunday Times and he, along with many of the subsequent morning speakers, all used the same expression, ‘knee jerk’, to describe how they considered the FSA is currently taking decisions. Decisions

which appear to more reflect the failures of regulation pre-credit crunch and the desire to avoid further ‘embarrassment’ rather then a constructive lateral thinking action plan which assesses the consequence of action in a fragile post- recession environment.

Or as one speaker put it: “Attempting to fight a battle which has already been lost”.

LaIssez-faIre

Lynda Blackwell (FSA mortgage policy manager), also a speaker at the conference, argued very strongly that regulatory ‘inactivity’ by the FSA pre-credit crunch was actually due to adopting a deliberate laissez-faire approach as a consequence of requests from industry lenders and banks at the time. Such comment caused a sharp intake of breath from many and a few sniggers. The main inference from Ms Blackwell being that the FSA had been far too nice in the past and this has now changed with a more ‘intrusive’ strategy of intervention for the ‘benefit’ of the markets. Given the FSA’s actions to date and planned future strategy one might be forgiven for believing the global recession was caused solely by the UK’s seeming lax approach to lending. Notwithstanding the regulatory failings, of which there were many, the simple truth of the matter is the root cause of the problem was US-based Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48