Monday 6 July 2009

Threesomes are bad for you

I don't want to moralise about people's private lives. I just want to comment on the tripartite system of financial regulation set up by Gordon Brown. The system, with some detailed changes, is to be retained after a review of lessons learned from the collapse of part of our banking system.

The review also follows the G"20" summit in London at the beginning of April, where Brown announced a whole series of international agreements to co-ordinate on economic and regulatory management.

The trouble with the tripartite system was that when things went wrong it wasn't clear who had responsibility. The Financial Services Authority had information, the Bank (of England) had the money to bail out banks and the Treasury had ultimate authority but neither information nor immediate access to money. None of the detailed changes correct this mistake. They do suggest banks should have more capital, which is good, but there is still a gap between the the FSA's detailed supervision and the Bank's management of cash flows and monetary supervision.

The Conservatives have produced an alternative: to convert the FSA into a consumer/conduct of business organisation and to give the Bank responsibility for all capital/financial issues. This removes most of the lack of clarity of responsibility, and also seeks to apply the best aspects of the monetary policy committee's processes to macro-regulation. There are two problems: it means a reorganisation (which inevitably ties people up unproductively) and any system can only be as good as the people who operate it. But its certainly more likely to be successful.

Antoine Kaletsky suggests some other requirements for a new regulatory system, which I think are right. (I disagree with his opening comment, that Darling did good work in saving the system; as I'll say later, everything was too little too late. But the rest of the article is helpful).

The review has not taken into account international co-operation. This is mainly because despite the summit promises there has been none. And in some ways this isn't surprising: individual countries' taxpayers are at the end of the day the only people who can bail out banks, so it is inevitable that individual countries' own political priorities are more important than acting globally.

I've commented before on the issues leading up to the credit crunch. But:

- the tripartite system set up by Brown didn't work because it assumed nothing would go wrong;

- the independence of the Bank of England to set interest rates didn't work because it was told to only focus on price inflation, not on ecenomic stability as well;

- a massive public sector deficit was created as public spending was increased but without productivity improvements;

- nothing was done for ages to resolve uncertainty over bank stability, and that was after too much dithering over Northern Rock;

- despite majority ownership of two major banks, and the implicit guarantees behind others, nothing has been done to increase lending or to create confidence in bank balance sheets on a stand alone basis, or to improve regulation. So we see a shortage of credit persisting, making unemployment worse than it need be, while at the same time margins on bank products increase allowing excessive bonuses to be paid on the back of taxpayer support which is not being properly charged.

In other words: the economic policy hasn't worked and the Government hasn't actually done much to improve stability recently. The proposed changes to regulations won't change much: the Conservative proposals have more chance of shaking things up.

We've been quango'd

The trouble is that the Government has spent the last 12 years ducking responsibility for anything. And it does this by setting up quangos or agencies to manage things which should have been its responsibility. (And to be fair, the Tories spent much of their last time in office doing something similar). This means that when things go wrong it can hide - and usually the quango can as well, as it can say any problem was not directly its responsibility.

No responsibility inevitably leads to bad management and decision making.

It also leads to unecessary costs as the leaders of the quangos queue up to overpay themselves. Forgetting there would be a raft of semi retired experts who would gladly put something back by doing many of these jobs at much less cost. But the main concern is the loss of political ownership of policy.

It was good to see Cameron focus on this key issue today. It was the subject of one of my first blogs, and nothing's changed.

Sunday 5 July 2009

Does the BBC hate itself?

It seems to have a death wish.

I've always thought the BBC was one of the UK's greatest assets. Every radio I have is tuned to Radio 4. The BBC website is a gateway to the world. The World Service provides a window for the world. The Archers is the longest running saga on any media outlet in the world. Many TV programmes inform and entertain.

Yes, it's full of pinkos who want to destroy the fabric of our society...but I'm sure only in a good way. And no more than most media outlets. So I've always been concerned about the political parties that want to take money away from the licence fee by cutting, sharing or eliminating it. The Tories haven't explicitly stated they will do this, but they have certainly implied it.

Yet so often the BBC tries to show it doesn't deserve support. For example:

- Why buy Lonely Planet guide books, creating a conflict of interest and starting to compete in a different sector?

- Why pay so much more for talent than anyone else would? I think of course of Jonathan Ross. But there will be others? But not properly fund journalism?

- Why pay so much to a whole raft of managers - far more than the commercial sector, although the brand means people would do the job for much less?

- Why let a Government spokesman on business host a business programme between now and the next election?

- Why send over 400 people to Glastonbury (after sending more people to the Olympics than the UK sent athletes)?

I've changed my mind. I still think there should be a licence fee. But it should be much less and it should pay for the website, a couple of radio channels, the World service and the journalism that supports the news and perhaps a couple of TV channels. I suspect that's about half the amount, but it would pay for things that the commercial sector cannot provide. It should not duplicate what it can now it has proven it cannot be trusted.

Since writing this, I have read this later post by Iain Dale which emphasises the point.