Global financial system reform

1.       The ribawi-based financial system, the lubricant of economic growth in the developed world and therefore a major mechanism and tool to prolong their economic and political hegemony is under surveillance.

2.       Britain, the Great prefixing its moniker long gone, is now slowly trying to fulfill a global leadership vacuum it lost painfully when Blair was playing lapdog to Bush Jr, and clearly by playing the moral high ground in climate change and the global financial revamp issues. In climate change, it is trying to be the middleman between Obama’s US insisting on self-regulation and the rest of the world who insists the world’s largest polluter should have to answer to some form of polluting taxation.

3.       Now, Adair Turner is cranking up the pressure on the global financial system, insisting it has grown too big for its good and too complex to be controlled.

4.       He has his own ideas, but perhaps the is not yet a ready admission that the alternative should really an equity-based financial instrument which curbs excessive growth of financial instruments based on underlying asset values, aka Islamic finance. Asset bubbles and systemic shocks are painful manifestations of the interest-based system, and it’s interesting that Turner even raised the issue that taxation is leaning towards interest by taxing profits after interest.

5.       Jewish interest groups make it impossible to change their forte in interest management, obtaining unpronounceable amounts of profits since before the days of Rothschild’s and such. Ford’s Zionist Protocols could have something on this – but as ever, I am cynical of what could come out of this. Until and unless the D-8 of the OIC, the OIC itself, the rest of the developing world acknowledge that they too can partake in global leadership and compete on equal footing with the great powers, I doubt they could transform themselves into paragons of virtue and goodness. Bubbles have come, and they have gone, and it still remains as it were. Interest groups reign supreme, and the shadow players behind the scenes are the supremos.

6.       There is so much to do to bring back justice to the world.

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The agenda for a global finance revamp 06 Nov 2009

By David Wessel - The Wall Street Journal Asia 

Date Published : 06 Nov 2009

The repair of the global financial-regulatory system is too important to future prosperity to be left to technocrats and bankers. But the substance is so arcane and complicated that few politicians or informed citizens can grasp the issues, let alone choose solutions.

That puts a premium on public-spirited insiders who think and speak clearly enough for the rest of us to understand, even if only to disagree with their diagnoses and remedies. It is that talent that makes Adair Turner, chairman of Britain's uber-regulator, the Financial Services Authority, worth listening to.

The U.K. didn't, as Lord Turner puts it, have "a good war." A couple of its big banks and several smaller ones imploded. It had a housing boom and bust. Its people put savings in Icelandic banks that collapsed. Its economic engine, finance, is sputtering. Its recession was deep.

And what had been seen by many in the U.S. as a model -- a central bank that stuck to setting interest rates and a single regulator that oversaw banking, securities markets and insurance -- is discredited. The rising Conservative Party wants to undo the structure built a decade ago by now-Prime Minister Gordon Brown and would fold financial supervision into the Bank of England.

Lord Turner, 54 years old, a Cambridge-educated former Merrill Lynch executive and McKinsey consultant, didn't arrive at the FSA until September 2008, well after FSA mistakes that contributed to the crisis. That liberates him to preach without first confessing sin, and preach he does. In a conversation in the London offices of the Climate Change Commission, which he also chairs, he was animated, even passionate, even though he had flown overnight from Washington. The word, according to Lord Turner:

-- One, finance got too big. "We must be more willing to ask . . . whether the financial system is delivering its vital economic functions as efficiently as possible, or whether parts of it can, and before the crisis did, swell beyond their economically efficient size," he said in a recent speech. He clearly favors the latter view: There was more "clever finance" and more trading than desirable to keep the world economy humming. Hence his willingness to consider a global tax on financial transactions, to the horror of many of his peers and the banking establishment.

-- Two, there was too much debt in the system. "There is a huge bias in the tax system towards debt," he said, largely because companies can deduct interest payments before computing taxable profits. "If we can't change that, then the regulatory approach needs to lean against that." Hence all the talk of reducing the leverage of financial firms. While U.S. and U.K. households and businesses did borrow more during the boom, the big run-up was in borrowing among financial firms matched by a huge increase in trading relative to the value of underlying economic activity, he observes. When bankers bellyache, he refers them to point one above.

-- Three, regulators failed to curb excesses, but politicians hardly encouraged aggressive regulation. The cry for "better regulation" meant less regulation, both in the U.K. and U.S. The diagnosis of Britain's economic woes was that regulation was stifling entrepreneurship, he said. No politician asked the FSA: "Why aren't you doing more to restrain this boom?" Few, if any, politicians can point to a speech made three years ago that asked why regulators weren't restraining lending or regulating with less of a "light touch."

-- Four, erecting a wall between ordinary deposit-taking and lending, on one hand, and trading on the other is impractical and unwise. Economies benefit when banks turn loans into securities or hedge their positions -- to a point. But by forcing banks to hold capital in the trading operations to provide thicker cushions to absorb losses -- he calls it "a bias towards conservatism" in trading beyond what is necessary for ordinary banking -- speculative trading will migrate away from banks toward hedge funds and the like, a change Lord Turner welcomes. That makes banks less risky (with smaller profits in boom times and smaller losses in busts), but he said it requires more oversight of big trading firms which, history proves, can endanger the whole system.

-- Five, for all the angst about the slow pace of postcrisis repair of the financial system, global regulators are making surprising progress toward consensus on a new regulatory regime. "We are attempting in 18 months to do changes far more radical than we did in Basel II that took between 12 and 15 years and dealt with some of the areas which proved to be less important," Lord Turner said, referring to the pact regulators reached in the Basel Committee on Banking Supervision that didn't avoid the crisis. Pushed by the newly empowered Financial Stability Board, the process, he said, "has worked better than I would have expected," he said.

Britain, of course, hasn't the clout to rewrite the rules of banking unilaterally. Lord Turner may not have precisely the same job in a year's time, if the Conservative Party takes power and sticks to its promise to abolish the FSA. But with a trenchant voice, he is helping to set the agenda for the most significant revamp of financial regulation in more than half a century.