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Regulator’s outgoing boss has revealed a penchant for power without responsibility

I was interested to read the story last week about the BBC’s interview with Hector Sants, outgoing chief executive of the Financial Services Authority, on Mortgage Strategy Online. In particular, I noted Sants’ suggestion that the government and the Bank of England could have avoided a run on Northern Rock if they had taken up his idea to provide a loan to Lloyds TSB to buy the bank.

“I think that would have made a difference,” Sants was quoted as saying.

“It would have avoided the queues at Northern Rock and would have changed the general climate in relation to the old building society sector that had moved into the banking sector.”

I’ll ignore the irony in Sants’ comments on too much responsibility for one man, since he is obviously knowledgeable on that point.

The more interesting point is on the collapse of Northern Rock. It is generally accepted that Northern Rock’s business strategy was high risk and depended on the ready recycling of money in the capital markets, which of course dried up in 2007.

So if I am reading Sants’ comments correctly, he wanted to disguise a high-risk business strategy by underpinning it with money from UK citizens, and also dump a portion of the risk onto Lloyds.

Given the subsequent behaviour of Lloyds in accepting the takeover of HBOS, that latter objective was obviously a reasonable, if arguably immoral, proposition. It doesn’t show much compassion for shareholders but then neither did the Lloyds board.

But in doing so, Sants would have been sheltering the board of Northern Rock from the folly of its own business strategy.

So here we have a clear statement of his philosophy – power without responsibility. The public would have been exposed to the cost of that strategy via the government loan.

Not taking responsibility for one’s actions appears to be a consistent theme running through Sants’ recent business life.

Certainly no individual has carried any responsibility for the numerous high-level and high-cost failings of the FSA.

The current Financial Services Compensation Scheme strategy is again based on ensuring that neither providers, advisers nor consumers carry responsibility for poor decisions made. There are always other fools who can carry that monetary can. Fine the innocent, not the guilty.

The FSA may impose, but will not carry any responsibility for, the costs and administrative mess of the Retail Distribution Review.

The fact that Sants can still bring up a strategy on the rescue of Northern Rock that is morally questionable highlights a personality that is comfortable in its own intellectual world but has few points of contact with reality. He also appears to suggest his strategy would have avoided the subsequent financial collapse in the US. Delusional?

Other than crayons, should this person be in charge of anything?

Glen McKeown

 

Little time left to meet radical changes in demand for housing

Just one in four UK households will have a mortgage by 2025 if the economy continues to stagnate, a report commissioned by the Resolution Foundation and Shelter from Cambridge University has found.

The report examined how the housing market will change if current economic trends continue, including low levels of house building, constrained mortgage finance and low-income growth.

It found that while Britain’s economy remains weak, the proportion of households owning with a mortgage will decrease to around one in four – 27% – by 2025, down from a peak of 43% in the early 1990s.

But how will this be possible, based on affordability?

With reduced incomes in retirement – and we know a greater ratio of the population will be aged 65-plus in 2025 – individuals will be compelled to downsize as the government will be unable to afford to subsidise rents on such a large scale.

We may see a radical change in demand for our housing stock, and there is little time for this to be achieved.

Many are relying on house price inflation to enable them to downsize and redeem their interest-only mortgages, which could push up demand for smaller housing units and lead to falling demand for the higher to middle end of the housing market.

Name and address supplied

 

Risk-averse lenders put entrepreneurs at risk of disappearing

In the present market, we have what I would describe as spontaneous – some might say knee-jerk – regulation, ostensibly to protect a comparatively small number of potential rogues from themselves while the majority can suffer along with them.

Similarly, the lending market is now crying out for products that will allow those who, perhaps through no fault of their own, missed a payment or got themselves into arrears in what has been the worst recession in living memory.

These people may already be getting back on their feet due to their entrepreneurial instincts, but now have a less than spotless credit record. What chance do they have of securing a loan or mortgage finance to fund a new business?

In my view this is the real dilemma, where mainstream lenders have become completely risk-averse. Instead, everyone must opt for vanilla because this is the only flavour allowed.

Positive sentiment needs to be encouraged but unfortunately, with the computer always saying no, is it really a surprise we limped into a double-dip recession?

Those who want to innovate and help grow the economy will not have the chance because the risk involved in helping them has been deemed too great. Entrepreneurs are becoming an endangered species when we need them most.

Simon White Managing director, Boutique Capital

 

Take on regulation problem as a whole, not just FSA’s fees

I want to add my voice in support of Mortgage Strategy’s Bring Down FSA Fees campaign.

I run a small brokerage and we are struggling under the cost of regulation. The fees charged by the FSA against a shrinking number of mortgage advisers are becoming unsustainable.In just a few years, the FSA has regulated broker firms out of existence.

Between FSA fees and levies, and payments to our network for compliance, some 15% of our turnover is going to regulation. Add at least another 10% for our own costs associated with compliance functions and the scale of the problem becomes apparent.

If every industry had a similar set-up, there would be no private industry left in the UK, with mass unemployment administered by a relatively small number of protected public servants, who would make their own rules and be judge and jury for them.

This fight needs to go beyond the simple question of FSA fees and look at the cost and scale of regulation as a whole.

Charles Dunn

 

M&S mortgages will prompt more people to approach brokers

The recent news that Marks & Spencer is set to launch a chain of bank branches elicited both positive and negative comments on Mortgage Strategy Online.

As I like to look on myself as a glass-half-full sort of chap, I would say it’s a positive move because when consumers go to M&S for a mortgage and find themselves in a position where they need to speak with someone who can advise and provide a mortgage based on their needs, they will end up turning to brokers.

This is the case at the moment with direct lenders and that’s despite the fact that brokers are given inferior products in many cases.

The negative way, of course, is to take the view that M&S is just going to take all our business.

But this was exactly what everyone thought when Tesco decided to become an estate agent instead of sticking to selling baked beans and spuds. And what happened? Tesco closed the business down.

Andrew Charles

 

Party politics over housing not helpful to the public at all

Shadow housing minister Jack Dromey last week accused housing minister Grant Shapps of misrepresenting and misusing official figures on housing and homelessness.

The problem with politicians today is that they are more interested in safeguarding their own political careers and point scoring off the opposition party than acting in the best interests of the electorate.

I am sick to death of pendulum politics, whereby the Tories get elected and scrap Labour policies and vice versa. It achieves nothing and it’s the public that loses.

Is it any wonder that public trust in politicians of all political parties is at an all-time low? Let’s face it, you can’t trust any of them or believe a single word they say any more.

Jim Gillespie

 

If recession is over, it’s strange why we are strapped for cash

The National Institute for Economic & Social Research last week reported that the UK economy has exited recession after ceasing to contract.

Its monthly estimates of gross domestic product suggest the UK grew by 0.1% in the three months to the end of May, after shrinking by 0.1% in the three months to the end of April. But does anyone believe the statistics that get rolled out?

As a layman I can see the economy is a lot more than flat. The average Joe has no spare cash and is more concerned about holding on to their job than spending.

Small businesses are suffering due to a lack of liquidity and the squeeze placed on them by large manufacturers and suppliers across many sectors.

I’m waiting to see how the Office for National Statistics dresses up the impending gloom after we have given all our tax money, directly or indirectly, to the Spaniards and Italians.

Andrew Botte Prize may vary from picture

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