Morning:
8°c
Just what we need, eh? Another committee. Only please don't call it a committee, it's a financial services global competitiveness group, and the Chancellor has persuaded Sir Win Bischoff, one of the City's real stars, to share the chair with him. The group's mission is to get the Chancellor round the next political corner - but its stated purpose is to try to keep London on top of the international financial services heap during the bleak times ahead. This is a thoroughly laudable aim.
It is clearly designed as a peace offering from the Government to the bankers and brokers of the Square Mile; there are five working groups under the top group, which will have at least 23 members. The chances of such a vast collection of the great and good doing any more than agreeing when to hold the next meeting are small but it would be churlish to call the move a complete waste of executive time, or to complain that a prudent chancellor wouldn't be starting from here. He wouldn't, of course, since a prudent chancellor would not have alienated the foreigners in the City with an illconsidered attack on non-doms' taxation, or wielded the sledgehammer of capital gains tax reform to crack the nut of tax-avoiding private equity.
Both measures have been much watered down since Alistair Darling's disastrous first Budget but the damage remains, not least because any tax change increases uncertainty in the minds of those who must plan ahead. Even favourable tax changes can produce this effect, which is why the working groups shouldn't work too hard to produce recommendations for yet more of them. A general statement in favour of cutting red tape, boosting education and another forlorn plea for Crossrail would give the participants the illusion of doing something useful. They might also call for abolition of stamp duty on share purchases, although they won't get it.
Neither can they do much about the eastward transfer of wealth and power. Oil at its current price lights a flame under Abu Dhabi as a marketplace, and China's vast trade surplus takes capital from consumers and puts it into the hands of producers. Provided the newly emerging centres do nothing foolish, like scaring off foreign nationals, there's only so much we can do to combat this trend.
Where the Bischoff group really can help, however, is with banking regulation in the wake of the Northern Rock disaster. The true failure here was the tripartite system of control over banks, whereby the Financial Services Authority looked after the individual banks, the Bank of England looked after the stability of the banking system and the Treasury got in the way.
The group might do worse than to recommend that the Bank of England should oversee the banks. The FSA was never designed to do so, and its devastating mea culpa over Northern Rock showed that it wasn't quite sure of the difference between a bank and an insurance company. As luck would have it, the FSA has a new chairman, Lord Turner, and he could agree to give up this part of the burden without loss of face.
At the start of the Northern Rock crisis, Mervyn King, the Governor of the Bank of England, found himself tied in knots by European Union rules, which demanded that all price-sensitive information be released to the market immediately. This effectively prevented the behind-the-scenes rescue which had been almost agreed with Lloyds TSB before the run on Northern Rock.
This plethora of new committees provides the necessary cover to avoid being seen to breach a Euro-directive, while giving the Bank of England's governor the power to organise the sort of rescue that the US Federal Reserve pulled off to avert the collapse of Bear Sterns, Wall Street's fifth-largest investment bank, back in March.
In private, the joint chairmen of the new group might at least agree that the present regulatory mess is not the fault of the present Chancellor but of his predecessor. The Prime Minister is also First Lord of the Treasury and the autonomy Gordon Brown enjoyed at No11 is very much the exception to the rule. Nobody doubts that this rule has been reimposed since he moved next door. Darling is only obeying orders, however much he may disagree with them.
Few politicians can ever believe that doing nothing is the best thing they can do, and Brown's record is of interminable tinkering, sometimes even before his last great initiative had come into effect. Darling has had to deal with Brown's biggest fiscal blunder-the scrapping of the 10p tax band, as well as his greatest regulatory disaster, the removal of individual bank supervision from the Bank of England. Both were obvious mistakes even at the time, and both were designed for short-term political gain without thought for any long-term economic advantage.
It's just possible that we might be reaching the end of the first phase of this banking crisis. The proposed takeover of Alliance & Leicester by Santander, owners of Abbey, shows that there is a price too low for a buyer to resist. At the same time, it seems that A&L's balance sheet is quite bad enough to warrant the bank being dubbed A&E.
This marks the start of the second phase of the banking crisis. The writeoffs against the mortgages themselves are only just starting, and are sure to get worse. American trends usually cross the Atlantic after a time-lag, and just now Fannie Mae and Freddie Mac, the twin firms that guarantee half of America's mortgage debt, are teetering on the brink of bankruptcy.
British banks' provisions against bad debts on their mortgage books are just a few per cent, a cushion which looks much too thin should unemployment start to rise and with it repossessions. If the second phase of this crisis is to be less gruesome than the first, the sooner the Bank of England is seen to be in charge, the better. Should Alistair Darling's latest committee get that far, it can adjourn for lunch and feel it has done something useful.
