ECB Banking Review - Moving Deckchairs on the Titanic

More costs borne by shareholders, savers and taxpayers, more jobs for the boys - happy to be an Eurocrat in this age - and still no change to the basic rules of the banking game. Happy New Year 2014!

FATCA - Testimony to EU Incompetence

While no one can blame the US for perpetrating legislative overreach as long as it gets away with it the oppressive FATCA legislation would never have happened if the (unelected) bureaucrats in the EU would have taken sufficient time off dining at taxpayer's expense in the expensive restaurants offered by Brussels. A discreet threat of the imposition of a countervailing duty on the activities of US financial institutions in the EU should have put a stop on this legislation at an early stage. Would the US really have pushed the button and chosen the nuclear option of total financial war with the EU? I doubt it. Unfortunately the senior brass in the financial sector here in Europe has also missed an opportunity to push against this unnecessary regulatory burden which leads to the conclusion that only a reform of democratic structures in the EU and its member countries can lead to a better defence of civil liberties. See www.dirdem.org if you want to support me on this.

EU Bonus Cap - Welfare for all is ultimate destination!

One may agree with this policy (EU casts wider net for Bank Bonuses, CNBC) or not - but there will be many side-effects, intended or not. Staff will migrate to other sectors, in particular private equity and hedge funds, also traditional long-only fund managers. If politicians then want to extend pay caps the next stop for professionals will be the general corporate sector. That would mean that eventually ALL business compensation will have to be controlled - by politicians with only the slightest democratic legitimacy (Has anyone anywhere had a chance to vote for these measures? Does anyone even know his 'representatives' in the national or European Parliaments?). All this and the question of migration to areas outside the control of Eurocracy is completely left open. We might as well hand all our salary to politicians and just receive vouchers for our daily need - Welfare for all is the destination!

Banking Union - not so necessary

Today one of my favourite economic commentators states that "banking union [is] an absolute prerequisite of a properly functioning monetary union. (Jeremy Warner, Daily Telegraph). I beg to disagree. The only reason why weak banks can undermine the solvency of the host states is the lack of a proper regulatory environment in each of the euro-zone member states. As I have pointed out again and again, we are far away from reform measures that would put the banking system on a stable footing. If these measures would be implemented there would never be a requirement to cross guarantee banking systems, nor would there be any requirement  to have a European Banking Authority.

CFTC: Regulator fit for purpose?

The US Commodities and Futures Trading Commission certainly knows how to make a hash of their task. While major regulatory disasters such as MF Global seem to go largely unpunished and the global OTC derivatives monster escapes any noticable oversight the CFTC is busying itself with closing down the tiny betting exchange Intrade. Is it not time that the overbearing bureaucrats in Brussels once and for all tell their US counterparts that extraterritorial jurisdiction is no longer acceptable?

Unexpected consequences of regulation

Forcing ING to sell assets may lead to a reduction in competion in the UK savings market. Well done Brussels! Your bureaucrats never disappoint. (Daily Mail)

Financial Transaction Tax: Ideology wins over Reason

No surprise that the tax-and-spend zealots have won a victory (Reuters) on the issue of the Financial Transaction Tax (FTA). Politics is forever dominated by those who either want to control other people's lives and behaviour (Stalin and Hitler are extreme examples, but history is full of prominent examples, not a few of them have earned themselves the additional title 'Great') or those who want to benefit from the sweat and effort of their fellow human beings (Slavery being the extreme example there). The proponents of the FTA are a confused bunch where the common denominator is (1) a lack (or unwillingness) of understanding of economics and finance, (2) the desire to spend other people's money and (3) the desire to legislate in an arbitrary, discriminatory and undemocratic fashion. The fact that in the case of the FTA a tax is levied on a particular activity puts the intelligence coefficient behind this tax on a par with the medieval window tax. Basically all taxes directed at specific human activities should be kept to an absolute minimum as they are an effort to constrain the free choice of the citizens. This means that any discussion of the FTA's technical merits are an implicit admission that such arbitrary legislation is acceptable. In addition, tax legislation in most (pseudo)democracies following the 'Westminster Model' is undemocratic and not subject to the agreement of the citizens - for a discussion of this aspect readers are referred to have a look at www.dirdem.org. Please get in touch if you are interested to support our campaign for direct democracy. In the meantime we will watch with interest the impact of the FTA and financial markets - who will win, who will lose - and how long the machinations of the Euro-Clique can continue until their whole bureaucratic edifice implodes.

The latest Idiocy from Brussels (via Paris)

Control freaks in Brussels and various capitals in 'democratic' Europe are having a field day planning ever-more convoluted regulations. The latest example are the "Guidelines on sound remuneration policies under the AIFMD" that have just been released for 'consultation' by the Paris-based ESMA. The perfect antidote for those suffering from sleepless nights. I did not expect much before opening the document but 104 (!!) pages surpassed my expectations by a wide margin. Anyone wants to comment? Does the political class really push Europe down to second-class economic status?

While Rome burns the EU's Almunia plays in his little Sandbox

One could not make this up, but while the EU's house is on the edge of a major conflagration the useless Nannycrat Joaquin Almunia, in his role as the EU's competition commissioner, continues his fight to destabilise Germany's banking system by imposing untimely conditions for the 'restructuring' of Bayerische Landesbank. At a time when it should be 'all hands on deck' to get the economies going and allow banks to lend money this career politicians picks senseless fights at the ultimate expense of the citizens - who had no say in his selection for office. Careful perusal of his CV left me with the impression that he has not done a single day's work outside the sheltered realm of politics.

EBA: Euro-Stalinism outside democratic control?

The latest construct created by unelected bureaucrats, the European Banking Authority (EBA) is blatantly neglecting due legal and democratic process. As reported in Handelsblatt it creates its own definition of risk capital and anticipates the new Basel III regulations. In addition it uses its own assumptions about the valuation of government bonds - in contrast to the declared intentions of its political paymasters. As usual the citizens and the businesses subject to its diktats are left without any possibility to challenge the decisions of  the EBA in the courts or any democratic forum.

No amount of Bank Capital is ever enough in a Panic

The European Banking Authority (EBA) will publish new information about the capital requirements of European Banks this Friday. But unless there is a drastic hike in capital ratios or - what we recommend for a long time - a move towards limited liability banking (and capital requirements on all OTC transactions) this new information will be as useless as the previous exercises in 'fessing up' by the banking system.

Never underestimate intelligence of Brussels bureaucrats

When the Kommissar for Financial Affairs suggests that it should be possible to sue rating agencies for 'wrong' ratings he demonstrates the low competence of the bureaucracy that is trying to run our lives. We are often critical of rating agencies but to make it possible to sue because a rating is supposedly wrong opens a can of worms. Ratings - like any investment opinion - are by necessity subjective opinions that may be correct or wrong. There is no 'right' or 'wrong' rating opinion and therefore it should be left to the users of rating services to form their own judgement on the correctness of an individual rating opinion. Would it not be much more useful to allow citizens to sue bureaucrats for their mistakes?

Fireproof the British Banking System

'The remorseless logic of the monetary union is starting to bite' (Financial Times). The curse of the bad Deed (Goethe, Faust) haunts us - first the undemocratic introduction of the Euro, now the undemocratic decision of letting Greece off to the tune of Euro 10,000 and more per man, woman and child in that county. Mismanagement on that scale can, will and should only lead to disaster. Big challenge for Britain: how to make its financial system 'fireproof' against any fallout from Euro land. Are regulators making sure that the banking system disentangles itself from any exposure to Euro land? (esp on the asset side of the balance sheet). Other countries that are not part of the Eurozone are well advised to take action as well before it is too late. The same can be said of all companies, institutions and individual investors and savers.

Advice to the City of London: stop the bureaucratic control freaks before it is too late

Reading Monsieur Barnier's latest utterings (pity he has no pregnant young wife, maybe that would put a stop to his unnecessary activities) makes one wonder what the reaction of the representatives of British interests - be it the cacophony of associations pretending to speak for the 'City' or the arms of Government (FSA, Bank of England, Treasury) will be. Pious talk will get them nowhere against the hunger of the typical continental bureaucrat (statist control freaks) for ever more power. As an Austrian who works in the City for 30+ years I am allowed to say that. Call their bluff or face certain defeat, the choice is there.

Barnier on Rating Agencies: Shoot the Messenger!

If banning ratings that do not suit the political establishment is all that the career bureaucrat Barnier can come up with, it is back to the dark ages of absolutism - as the Philosopher Sloterdijk said in a recent interview our political system is basically the old authoritarian monarchical regime that has been usurped by an equally undemocratic political/party/lobby mafia. The only sensible reform of the rating system would be the elimination of all references to ratings in regulations and the prohibition of ratings that are paid for the entities being rated. None of these two obvious reforms have been brought forward yet.

FATCA - the true tragedy

The absurd legislation making its way through the US government machine is a sad indictment for the inability of the European 'elites' to make a clear and determined stand in defending the interests of their citizens and the financial industry in the Continent. A simple threat to retaliate tit for tat and subject the US institutions to the same treatment would have stopped the whole nonsense right in its tracks. After all, if the US is so keen to catch potential tax cheats it could impose stringent controls on its own citizens, control all movements of money in and out of the country and in the process make a laughing stock of the expression 'land of the free'.

CDS - Why not prohibit states issuing debt?

When a professional party politician like the MEP Markus Ferber (he is a charge on Europe's citizens since the tender age of 29!) states that prohibiting uncovered CDSs on government bonds is under serious consideration we see that one thing is certainly represented in the useless European Parliament: ignorance about financial markets! I am critical of Credit Derivatives for a number of reasons as this blog documents but prohibition by the EU and/or its member states would simply drive the business to friendlier shores. The flood of government paper in itself is a sort of uncovered short sale that can only be described as a Ponzi scheme. As the debt level inexorably rises towards a tipping point - close to or above 100 percent of GDP - the political class that is addicted to buy votes by spending other people's money becomes increasingly desperate in the search for ways to extend its spending spree a little further - at least beyond the next election.

Who is Steven Maijoor?

The regulatory vampire squid that is being created by an EU officialdom that is several stages removed from any democratic control is likely to nominate a professor with only the scantiest first-hand experience in the financial markets to be the head of the European Securities and Markets Authority. Bureaucracies such as the one created to 'regulate' the financial system in the EU have as their primary aim the expansion of their own powers and the creation of jobs for those working for them. If the EU and its member governments would really have wanted to improve the functioning of the financial system they would have had ample time to design a better legal framework during the past two years. Are we on an inevitable path towards a situation where there will be more regulators and compliance officers working in finance than wealth-producing professionals? In that case, we should have a good look at the banking and insurance system as it was during the good old days of the Soviet Union in order to prepare ourselves.

Joaquin Almunia - what does he know about banking?

The current EU commissioner in charge of competition policy, Joaquin Almunia, is just another typical example of the career politician who more and more dominates the life of ordinary citizens in our 'democracies'. He never earned his living outside the sheltered confines of government bureaucracies and owes his whole existence to the party hierarchy in Spain. How someone with his skill-set can be expected to be in charge of a department that requires at least some basic understanding and real-life experience of business and banking is beyond me. Admittedly, things are not much better in other parts of the world but that is little consolation for Europeans who have to live with the consequences of misguided policies that ultimately threaten the viability of their economies.

Should Malta and Latvia merge?

The way legislation (if you want to call it that) goes in the EU, the merger of Malta and Latvia may not be so nonsensical as it may sound at first. We got the idea from Damian Reece who writes for the Daily Telegraph. In a recent article he said that Malta and Latvia have more control over the future of the financial services industry in the United Kingdom as the British government or its citizens. Cementing this relationship would in our opinion be a sensible step to establish a new - transnational - financial powerhouse in Europe. Assuming that more and more professionals would leave the field to the EU bureaucrats and civil servants who more and more run European banks they might find easy pickings. If the two countries manage to keep their two votes in the EU institutions it should be easy to build (bribe?) a coalition that gives them free reign.