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Friday, 18 September 2009

Today's business news from the BBC

There are three stories today that strike me as important, to varying degrees and for different reasons:
1) US gets tough on ratings agencies
2) Lloyds in toxic asset plan talks
3) Bonus claw-back
late addition 4) Support for tax to curb bonuses

1) credit rating agencies were part of the problem in getting us into this mess, where ratings agencies were too quick to give out top marks when they were not merited. There are some theories that corrupt practices were at work, but i can't substantiate it so will only mention in passing. The proposals involve greater regulatory supervision of the ratings agencies, the success of which will depend on their remit and powers.
The agencies will be under greater pressure to make public information about their past decisions, which is a very good thing: "agencies must disclose more information on past ratings to help investors make informed judgements."
this is also important: "The SEC also proposed rules to ban "flash trading" - the process where certain financial institutions gain access to trading information...before it is made public."

2) Lloyds bank is considering removing much that they have invested (or are going to invest) in the government-backed Asset Protection Scheme. Provided this is not done recklessly, it's a good thing all round. The government is liable for less money and less mistakes, the bank has it's money and greater power over itself. Hopefully it can take part in paying back some of the loans it got off the government. The fact that "Lloyds had been told it would need to substantially strengthen its balance sheet if it were to withdraw from the APS" is both good and bad. Good in terms of the long-term sustainability of the banking system, bad in terms of the short-term mountain of debt our economy has been built on. Perhaps that should be sand castle.

3) To me, by far the least important of the three stories is that "EU agrees on bonus claw-back call". The first two are important systemic measures which will have a significant impact on the stability and sustainability of the banking sector. The third, to me, seems like a vague wave in their direction, based more on short-term political motives. If the 'claw back' scheme is a success in bringing about a more sustainable and long-term approach to banking then good, but it's the detail rather than the principle i'm yet to be convinced by.
Gordy says: ""I believe that people have been appalled by the suggestion in some institutions and their practices that they simply want to return to the policies of the past," Mr Brown said."
If these measures deliver the much-needed kick up the back side to bring these practices to an end for the good of wider-society, then i'm in favour.

which brings me rather nicely onto 4) Support for tax to curb bonuses. This is not a new piece like the others, but was listed with them and provides an interesting counter-point with 3. There is also a deeper issue about how the consensus is moving to the left on bankers' pay, the political consensus seems to be drifting to the right with the relative ascendancy of the Tories and demise of Labour.
Interesting times

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