EU intent on destroying the financial services industry
Not content with what it is likely to do to the chemical industry, the Masters of the Universe in St James and Mayfair had best watch out as hedge funds are liable to be up before the beak. The German finance minister thinks that they should be studied to see if they endanger the stability of the economy, and if so how they can be controlled. Trichet, head of the ECB, reckons the regulators are not 'wholly satisfied' with the regulatory regime and seeks a 'global consensus' on them. More here in Libé.
Before ploughing on, note that the UK based hedge funds control more money than either the Frankfurt or Paris exchanges. As I've noted before, financial talent is very mobile, and for all that the SEC, FSA and the rest of them want 'ownership' what will happen in the wake of a clunky new regulatory burden is that the talent and the money will go elsewhere, either to the tax havens or the Far East. Given the ridiculous outbreaks of armchair class warfare from pols and bishops at City bonus time, doubtless the envious will be delighted at squeezing money out of the economy and thus engaging in nose trimming as it serves 'social justice' and 'equality'. Also known as envy and the politics of Procrustes.
Before ploughing on, note that the UK based hedge funds control more money than either the Frankfurt or Paris exchanges. As I've noted before, financial talent is very mobile, and for all that the SEC, FSA and the rest of them want 'ownership' what will happen in the wake of a clunky new regulatory burden is that the talent and the money will go elsewhere, either to the tax havens or the Far East. Given the ridiculous outbreaks of armchair class warfare from pols and bishops at City bonus time, doubtless the envious will be delighted at squeezing money out of the economy and thus engaging in nose trimming as it serves 'social justice' and 'equality'. Also known as envy and the politics of Procrustes.
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Now I have something faintly grown up to say about this. I know little or nothing about Hedge funds but Insurance is the Albatross hanging a bit wiffily around my weary neck. And there is a ghastly story of scandalous EU interference that needs airing. It is in some ways the other side of the coin to C`s tale
The EU are well on there way to destroying the UK domestic Liability market. About four years ago the glorious of liberation of the Freedom of (Provision of Financial) Services allowed Insurers that are licensed anywhere within the EU to offer Insurance anywhere in EUania. The Irish Market previously separate , has always bounced vigorously up and down because entry was very easy and the system is inherently unstable for reasons I won`t bore you with (Think premium and Reserves set of years ..) another pin in C`s Blow up Milton Friedman .( I am going to sneak into his room and wash it tonight ).
Some ten years ago in the ultra hard Irish market their traditional Paddying around with a stupid look and a shovel was hit hard. Contracting is always a high EL risk and PL and a certain Quinn one of the richest men in Europe and owner of Irelands largest , I think , construction concern , decided he might as well be his own insurer.
Given the closed relationship between Quinn and the Irish Government it is not desperately surprising that there as no difficulty obtaining the requisite licences , but forming a captive is a common strategy for really large companies and his approach was nothing new.
Clever bugger that he is however, Quinn, having acquired an Insurance Company , utilised he web technology to cut out Brokers across Ireland offering “non rated” security that Brokers here still vaguely feel may be an E and O exposure to recommend
The competing legal principles of freedom to contract and duty of care were decided in favour of the former and Brokers were forced to offer this new security .
Such shenanigans are not uncommon in the Irish Market but within days of the EU authorising any licensed Insurer to offer Cover anywhere Quinn Direct opened several offices across the UK and are now writing about £150,000,000 of UK Construction Liability including most of the high risk EL in the country. The FSA who are busy loading about £100,000 of costs per broker are obliged , under the EU act, to put them on their web site as “passported” and to the punter we are still in the days when such an atmosphere of Uberrima fides: prevails when in fact Caveat emptor is very much the rule for Insurance purchasers. You don’t know where its been and Quinn are only the most prominent of many.
Remember Employers Liability is not compulsory in Ireland and the framework of Assets required reflects a very different culture. Broadly this is true across Europe where Workers Comp is usual. Naturally loop holes have been quickly discovered. Holland, Greece, Iceland are all back doors and Gibraltar has a special place I will leave.
In other words the EU has imposed a one size fits all law on cultures so vastly different it cannot work and the only gainers are those who find the numerous ways to cheat the system legally. No one doubts that one of the rogues will soon go down it may be Quinn. It may be another, it will certainly be one
Quinn will not allow anyone to look at their asset base on the basis they have passed their test in Dublin. EU law supports them.
I must stress that they and others are acting entirely legally the problem is that purchasers have no idea of the additional risks they now run.
After the disaster everyone will say how was it that we waste millions on the FSA when they have no control on the most important area of Financial services Employers Liability also that area the state might reasonably have a social interest in. They will say why the public weren’t told that they might be buying worthless paper licensed dubiously in, say Dublin , Athens and so on.
C SORRY TO BORE ON YOUR BLOG I `ve been wanting to get this out for ages prepare to be outraged and scandalised when the entirely predictable disaster happens
Fucking hell mania im glad I dont pay your salary ,
Get back to work lad!
Im finished for the year, apart from a big fuck off argument I have stored up with somebody aboard the Hitchens ship who isnt pulling their weight.
I have blogged on Hedge funds myself (luckily, under 100 people read it!). I actually agree that more regulatory oversight is needed.
Despite my conservative free-market thinking to most things, I have to say that the FSA has made some positive benefits (along with many unnecessary burdens too).
The current market for Leveraged Buy Out companies is completely unsustainble. I have heard this personally from senior execs in the industry. They are investing in companies at 10x profits - this leaves no margin for management error or economic downturn. What may happen is that companies then go bust because they can't pay their debts. Then real people will suffer from the game playing of the Mayfair set. Mayfair would also suffer.
How to regulate is extremely complicated and not easy and I agree a light touch is needed. But these companies cannot flee easily as they need the solid financial markets to raise capital. No one lends billions to shell co's in the Virgin Islands except crooks!
Pretty much finished myself . Sorry about that got carried away I would have deleted it if i could ( no bin ?)
I don't think hedge funds like to travel too far from money-centre banks. Just changing banking rules and exposing bank shareholders to Unlimited Liability should help them conform to whatever rules hedge funds and derivative-traders need to observe.
The simplest way is to put some spikes into the yield curve and let the funds ride a roller-coaster.
My old Finance Prof had a nice ride with Long-Term Capital Management
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