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Well, that's a rather different situation. The cause of the underlying collapse in the securitised mortgage market was borrowers being over-rated on credit wor

Well, that's a rather different situation. The cause of the underlying collapse in the securitised mortgage market was borrowers being over-rated on credit worthiness and the securities derived from these mortgages then also subsequently being overrated. Market starts tightening, the underlying value of the overvalued securities starts becoming apparent and you've got a burst bubble and a general market liquidity problem, hence TARP and QE. All of which was sadly predictable - when the nominal lending institution is given a financial incentive to write loans without the balancing disincentive of default to ensure they only write repayable loans, or the equally strong financial incentive to overvalue their securities, why wouldn't they? The US approach to this (all set up by Bush, lest we forget) is what's leading to this round of very reasonable lawsuits about financial fraud. The UK approach you've highlighted was rather different though. Northern Rock was completely sunk through illiquidity and is now wholly owned by the state. RBS was little better (thanks largely to a poor purchase of ABN AMRO) and is heavy majority state owned, Lloyds tried to buy the similarly sunken HBOS at a fire-sale price without doing proper due diligence, got into trouble and is now state owned to a lesser degree. Let's not forget; the names are nothing more than proxies for their collective owners who reaped their profits. There is merit to sueing those who profited from the Fannie Mae / Freddie Mac debacle because the entities still meaningfully exist with continuity of ownership. This isn't true with any of the UK institutions; they made their poor decisions, their companies started foundering and to protect both depositors and the wider economy, the government stepped in, heavily diluted (wiped out with Northern Rock) the share capital of the owners who could no longer support the businesses and put new management in place. They aren't being sued in the way you propose because the responsible parties have already been penalised.

arethuza 15y ago
"The responsible parties have already been penalised" The responsible parties being the shareholders rather than the executives? I know that is correct, and I know some people who lost a lot of money in RBS, but it does seem wrong to me that the executives that led these companies to epic disasters simply walk away keeping the bonuses they accumulated along the way. However, I'm not naive enough to think that any of this will change any time soon.
- eftpotrm 15y ago
  Yes, but that's a separate issue of shareholder governance. At present there isn't a legal power of criminal incompetence in charge of a financial institution to go after Adam Crozier, Fred Goodwin or Victor Blank for setting up businesses no safer for Britain than any number of industrial health and safety violations and personally riding the profits before the inevitable blow-up. Given the British economy is so reliant on financial services this should perhaps be revised; we regulated factories in the past in spite of protestations of its expense and difficulty because we recognised it was in the best interests of society, and we should now be doing the same to finance. Too big to fail is privatising the profits while socialising the losses; it is too big to be private without enormous and mandated operator's liability insurance, funded by the owners.
  - arethuza 15y ago
    Do you think there is any way of developing an objective "too big to fail" test that could be applied to these companies and actually give a realistic answer? [Edit: I just noticed that the former auditor of RBS is now the Chairman of Deloittes!]
    - eftpotrm 15y ago
      There's certainly a lot of the Old Boys Club about auditing and regulation, anecdotally... Too big to fail? The boundary cases will always be the challenge but I suspect we could get started by mandating a limit to percentages of GDP under management, overall, sectorally and regionally. Fundamentally though, the issue is one of liability and should be insured no matter what the size of the business against the cleanup costs. I suspect that would regulate out of existence whole sectors as simply too expensive to insure, but is that really worse than a systemic liability to the taxpayer of several multiples of GDP, as at present?

arethuza 15y ago

"The responsible parties have already been penalised" The responsible parties being the shareholders rather than the executives? I know that is correct, and I know some people who lost a lot of money in RBS, but it does seem wrong to me that the executives that led these companies to epic disasters simply walk away keeping the bonuses they accumulated along the way. However, I'm not naive enough to think that any of this will change any time soon.

eftpotrm 15y ago
Yes, but that's a separate issue of shareholder governance. At present there isn't a legal power of criminal incompetence in charge of a financial institution to go after Adam Crozier, Fred Goodwin or Victor Blank for setting up businesses no safer for Britain than any number of industrial health and safety violations and personally riding the profits before the inevitable blow-up. Given the British economy is so reliant on financial services this should perhaps be revised; we regulated factories in the past in spite of protestations of its expense and difficulty because we recognised it was in the best interests of society, and we should now be doing the same to finance. Too big to fail is privatising the profits while socialising the losses; it is too big to be private without enormous and mandated operator's liability insurance, funded by the owners.
- arethuza 15y ago
  Do you think there is any way of developing an objective "too big to fail" test that could be applied to these companies and actually give a realistic answer? [Edit: I just noticed that the former auditor of RBS is now the Chairman of Deloittes!]
  - eftpotrm 15y ago
    There's certainly a lot of the Old Boys Club about auditing and regulation, anecdotally... Too big to fail? The boundary cases will always be the challenge but I suspect we could get started by mandating a limit to percentages of GDP under management, overall, sectorally and regionally. Fundamentally though, the issue is one of liability and should be insured no matter what the size of the business against the cleanup costs. I suspect that would regulate out of existence whole sectors as simply too expensive to insure, but is that really worse than a systemic liability to the taxpayer of several multiples of GDP, as at present?