1. Coalition has some common ground but does not agree in detail so has announced a commission
   1. Media feel this is a cop out
   2. Others are less cynical
2. Lessons for
   1. Governments
      1. Smoothing cycles
         1. States need to operate counter-cyclically but not evident yet
      2. Must not overdo their own borrowing
      3. Be prudent with off balance sheet liabilities
         1. Why do politicians complain about the EU accounts when it is clear that UKPF would not get audited!!
      4. Not make promises that cannot be funded from tax
      5. Be careful about taking on huge private liabilities like banks
      6. Govt in worst troubles those who have been most profligate
      7. Iceland, Ireland Baltics
      8. Uk & med countries now in line
      9. Large deficits do not gurantee swift recovery. Smaller deficits may help business more.
   2. Central banks
      1. Fed & BOE need to be more cautious both loosening and tightening
      2. Both kept rates too low too long then tightened too quickly and too long
      3. Central banks need to rduce the alcohol while the party is in full swing but no-one is yet drunk!!
      4. Also remember that polticians can still intervene powerfully. Eg changing the inflation target and effectively taking over monetary policy later in crisis.
         1. JR does not agree you can have genuinely independent monetary authorities in a democracy.
      5. Central banks are key banker
      6. Lender of last resort but only to solvent banks. Hiding others insolvency is dishonest and a moral hazard risk.
      7. Need to ensure that banks remain solvent as regulator or with regulator. This can be done in private and in confidence.
      8. Sovereign debt also needs shoring up. Banks are hugely exposed to sovereign paper. Current Euro bailout is reasonable idea.
   3. Financial regulators
      1. Pre 97 BOE regulated all the banks, DTI the other financial services industry
      2. BOE concentrated on monitoring cash and capital. A good system since BOE can act in capital markets whereas FSA could not
      3. There is strong case for returning bank regulation to BOE. Big disconnect then between regulator and credit authority.
      4. More regulation should be returned to BOE but if not then cash and capital information should be widely share.
      5. It's not a difficult job. Banking is very concentrated. Doesn't need a huge staff to read a few balance sheets and make a few phone calls.
      6. If it looks like non bank financial institutions are getting heavily borrowed it probably means too much credit in system.
      7. No need for detailed regulation of complex instruments if cash and credit management would suffice.
      8. Could be a Market in regulated and unregulated financial products with warnings appropriate to each.
   4. Bank directors
      1. Not always wise to let a balance sheet get geared to the max. If regulator has the max wrong you could be in trouble.
         1. Indeed the signals from regators can exacerbate problems as banks take it as a signal to expand business.
      2. Lending too much to individuals or companies is a bad idea - they may not be able to pay it back!!
         1. Subprime was driven by well meaning govt intervention.
      3. Mortgage lending needs to take downward house prices into account. Mustn't really use 100%+ mortgage!
      4. Should take into account falls in corporate falls in business
      5. If you don't understand a financial product should it be on your balance sheet.
      6. Do you understand the risks your traders are taking and have controls on them
      7. What if you net off your complex products? How does your balance sheet look.
      8. Don't assume short term money will always be available. Cannot rely on that for liquidity.
         1. Northern Rock was not brought down by securitisation. It was reliance on short term wholesle funds.
3. Conclusions.
   1. Confidence is fragile