So we must break from the short termism of the past & the economic instability that has characterised the British economy not just in recent years but for most of the century. That is why I want British economic success to be built on the solid rock of prudent and consistent economic management, not the shifting sands of boom and bust.
Gordon Brown, 6 May 1997
Today, however, Brown’s words ring hollow… …the UK economy is facing what may be the biggest bust in its history, following arguably its largest ever boom and one built on little more than copious credit, clever marketing, an unhealthy obsession with house prices and an awful lot of government spending. Citywire
Hmm. What do you think of this? I’ve been following the blog for a while – the author insists that the only resolution is for governments to force (sorry, FORCE 😉 ) the banks to make a complete and honest declaration of their positions, which so far – amazingly – they’ve avoided.
I think the truth is that Governments are running scared, they don’t want banks to know what there real position is and are too frightened to make them value their ‘assets’ properly. In the UK we have a PM who is clueless. He is a very bright person, but I have seen no evidence ever that he has a clue about how to do either of the two principal jobs he has held. I think we need to do something about how we organise Government as well as something about how we organise banks.
As far as the banks are concerned, I would go for something like this:
1) There are already criminal offences which company directors commit when they continue to trade while knowing their companies are insolvent. I would strengthen these and make it plain to bankers that if they are a director (executive or non-executive) of a bank which becomes insolvent that they will become unlimitedly liable for the debts of the bank and that if they do not inform the FSA immediately they become aware their bank is insolvent that they will a) lose every penny they have b) spend a long time in prison. It should be a duty of all directors of banks to know whether their companies are solvent or not.
2) Change the terms of the FS legislation such that one of the terms of the licence to operate as a bank is that the instant you become insolvent, the shares in the bank are forfeit – in other words instant nationalisation, no redress. The first provision should be set up to make it essential for directors to run to the FS and hand over the running of the bank.
3) Over recent years, banks have been plundered by their senior personnel, at the point where this ceases to be a matter for the banks directors and shareholders alone, it should be automatic that excessive payments to insiders should be recovered and I think that the claiming of bonuses for the short term performance of long term investments is fraud and should be dealt with as such.
4) We need to return the financial markets to being places which serve the interests of investors and businesses, not market players. A good place to start would be to make it extremely unattractive to deal shares and extremely attractive to hold investments for long periods. So I think I would be inclined to set a penal tax rate for share trades where the shares (or interests therein) are held for less than say, a month and provide attractive tax reliefs for shares held for, say, more than a year. This will force people to buy shares they think are good long term investments and make it very unattractive to play the dangerous games we have seen with shorting. If people want to gamble on stocks and shares, then I think we could establish a bookmakers specifically for the job, although I am sure William Hill will be happy to help.
FWIW, what I mean by insolvent is unable to meet your short term liabilities either from cash or from borrowing OTHER THAN STATE BAIL OUTS, and if we were not subbing them then I think the 1) and 2) would mean that pretty much all UK banks would become State owned within weeks.
Some great ideas there Tim, and loads of good common sense. Pity you’re not doing GB’s job! It must be a terrifying position for him to be in right now though, no? I wouldn’t swap with him.
One thing I would like to do is to ask the question :
BUT ISN’T IT ILLEGAL TO TRADE INSOLVENTLY???
repeatedly, all over the place, like grafitti. All over that dispatch box in the Commons. Everywhere.