Saturday 27 February 2016

Not Mrs Thatcher's Big Bang


It is assumed by many that the Big Bang in the City of London in 1986 was instigated by Mrs Thatcher and  that it deregulated the banks. Some believe that it led directly to the financial crisis of 2007/8. None of these assumptions is true

It was the Labour government ( that left office in 1979) that referred certain City practices to the Restrictive Practices Court. These practices were

1. Stockbrohers could sell or buy shares and bonds to and from the public but at fixed rates of commission and were not allowed to make markets

2. Stockjobbers could make markets in shares and bonds but were not allowed to deal with the public

3.  Brokers and jobbers were not allowed to take in foreign and other capital

When the Tories came into government in 1979 they could hardly - whatever their view on the substance of the matter - withdraw this case at a time when they were attacking restrictive practices in trade unions.

There was then a period of consultation. This was not just reactionaries resisting change, Many believed that there was a lot to be said for the traditional system, including the Bank of England which had the task of raising large sums for governments and of managing the resulting market in government debt. But eventually the Bank and the other parties agreed.. These practices were abolished and the result was much the same as it would have been if the case had gone to the court and the City had lost. And the changes were not initiated by Mrs Thatcher

Note that although the word " deregulation" was ( and is)  used of this change it was not concerned with the supervision of the behaviour of financial institutions.  The banks were not involved in the practices which were abolished.  Banks were throughout regulated by the Bank of England  until regulation was switched to the Financial Services Authority by Gordon Brown, with unfortunate consequences  in 2007/8 -  see my entry on The Financial Crisis  - Solved  in this blog

Nevertheless, in the government bill which was then brought forward to establish the new systems, there was a certain amount of new regulation, and over Mrs Thatcher's period of office the rules governing the behaviour of financial institutions were vastly increased. These rules - which  were further elaborated later - can now  be regarded as cumbersome and  have by some  been adversely compared with the more gentlemanly policing of the past  (the eyebrows of the Governor of the Bank of England, raised to express doubts).  Now we are ruled by rows of computers containing vast legal documents. But the change was inevitable, first  because of the growth in suspicion of self regulation, and secondly because of the changes in the character of financial institutions after Big Bang.

The removal of the three practices  listed above  led to the creation in London of large general banks providing many services as a result of the acquisition of brokers and jobbers by banks from many countries. These banks enabled London to maintain and improve  its position in the world as a financial centre, paralleled only by New York, and to the great benefit of the United Kingdom.

  
Of course there were other influences aside from Big Bang - globalisation, the IT revolution, the development of complex derivative instruments.   And if the new financial world is less gentlemanly than in the past that is true of many aspects of life today, including the fact that it is probably politically incorrect to say "gentlemanly"


Sunday 7 February 2016

Most politicians are the same - but some are dangerously not

A defector from the Tories to UKIP has said that the voters feel that all the established politicians are the same, and that they do not deliver. He was right, but should have added that they cannot deliver. The problems facing this country - and indeed the world  - are not capable of solutions.......it is only that they have to be managed as efficiently as possible.  As a result the electorate is presented daily with a constant series of difficulties, the impact of which is exacerbated by the media's concentration on bad news, the probing of good news for weaknesses and the over - dramatising of events.

As regards the economy, no one knows what are the solutions to economic problems on a theoretical level to more than a limited extent -  one result of which is that many commentators will select the theories that fit their social preferences. Discussions on this level are therefore a waste of time. But practical experience since the Second War has supplied evidence that certain ways of proceeding work and others to not.This evidence points to the success of careful management of the market economy ( see my entry on The Financial Crisis - Solved) . And  this entails unpopular policies, such as keeping government spending under control

The demands on the National Health Service can never be met, as we get older, and more medicines and techniques are developed. So  there are always complaints, and  any attempt to rationalise the existing set-up is met with foolish accusations that the NHS is under attack

As for the benefits budget, it is in practice certain that much is wasted on claims in marginal cases. But attempts to cut out the waste are met by shouts of horror that the weakest are being attacked. The various charities are disgracefully irresponsible in these discussions, as they always bring forward the most severe cases as being under review. If I were a minister I would ask the main charities and pressure groups to propose cuts in their budgets of 20% - after all they are the experts. If they refused I could conclude that they were not worth listening to

And who can solve the questions of immigration? Hundreds of thousands of non-EU citizens have arrived in this country in recent years and far fewer have left. David Cameron's 20 000 asylum seekers should not be judged without these others. They all have to be fitted in. And millions and millions are out there,  desperate for tragic or for economic reasons to get in. This is another problem that will run for ever.which no one can solve. ( See my entry on A real Pandora's Box)

In such an environment one has to choose politicians who can handle these difficulties and crises best. The relevant  candidates are the traditional parties - Tories, Social Democrats, and New Labour ( which threw over socialism).  But because they cannot deliver there is an attraction in those who claim to be able to provide solutions - such as Mr Corbyn, a throw back to failed philosophies, and relying on  party activists, who from whichever party should never have more than marginal influence. And in the US we can see the same foolishness in the support for Trump.

Join the established parties and ridicule  the deluded followers of Corbyn