Wednesday, February 11, 2009

This just gets worse and worse.
Competitive pressure is what drives any industry, the entire function of the stockmarket is to force companies to compete with each other not just for customers and sales, but also for investors.
If the mood of investors is to see growth in a sector it is very hard for the managers of a company to resist, if they do they are either ousted by more ambitious colleagues or their firms are taken over by more ambitious rivals.
This can lead to occasional dinosaur-evolution behaviour - where a strand of business evolves up a blind alley until it collapses. The original railway boom was a good example; both the 'dotcom' boom and the computer industry also suffered this fate quite recently.
Most of the time these upheavals are disruptive but not earth-shattering but in certain industries they are known to be potentially damaging to the national interest; and the industries are closely regulated as a result. Defence is one example of this, farming and food production another and banking probably the most important of all.
So regulators in these sectors are not just there to protect consumers and ensure fair competition, they are there to sometimes protect the industry from itself, to ensure that the functioning of the sector is not put at risk by excessive competition or buccaneering behaviour by directors.
The FSA has turned out to be wholly inadequate either at regulating financial services properly (as the latest confusion over 'typical' APR rates has proved) and at keeping an proper eye on the industry. It is becoming clearer and clearer that far from protecting us from the buccaneers who invaded the banking industry, the FSA gave them the keys to their door.
Sir James Crosby was in charge of Halifax Bank of Scotland at the time it was being investigated by no less than two firms of accountants, and the FSA, for potentially reckless lending and unsustainable growth plans when he was appointed by Gordon Brown to be deputy head of the FSA itself.
Unsurprisingly Mr Brown is claiming he didn't know and wasn't told that this was the case, but just to compound his mistake he gave this man a knighthood and made him a personal special advisor as well.
So the same man was running one of Britains biggest mortgage lenders and banking groups, advising the PM on banking, housing and lending policy and running the regulator charged with overseeing it all, including investigating his own bank.
This isn't just incompetence, it's Gordon Brown incompetence.

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