(Original article at http://www.financialwire.net/2010/06/21/burrell-6/)
- Special Market Commentary -
(FinancialWire) (Investrend Forums Syndicate) (By Bud Burrell) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries.) -- For our readers with an interest in Great Britain related equities, such as the iShares MSCI United Kingdom Index Fund (NYSE: EWU) and the CurrencyShares British Pound Sterling Trust (NYSE: FXB), here is a post from Bud Burrell regarding recent complete shut-down of the U.K.’s exchange regulating entity:
In a stunning move last week, the United Kingdom liquidated its Financial Services Authority (its analog to the US’ Securities and Exchange Commission) with little notice, and in the move, shifted all of their regulatory functions and authority to the UK Central Bank. The stated reasons for this move were several. First, the Government cited numerous regulatory oversight failures, not the least being their failure to pick up on the monstrous frauds in sub-prime mortgages and CDO’s. Other breaches of their fiduciary duties included failures to properly regulate UK hedge funds, along with the absence of proper oversight of off shore entities involved in manipulation while under Commonwealth legal authority.
The plight of Great Britain, who has been the most steadfast ally of the US in the Middle East crisis, has reached the severest of levels, with their national debt now exceeding 400% of the Gross Domestic Product, currently at 1.5 Trillion GBP. Social welfare and health entitlement programs are all at a crisis tipping point, where it is obvious that such socialist largesse is no longer economically sustainable. Permanent unemployment now hovers at around 25%, and it is hard core and not able or willing to be retrained.
The socialist national health care programs now absorb fully 50% of the national budget of the British Government, providing mediocre care to millions of British citizens with no other alternatives unless they have private wealth. The National Health now employs more than some 1.4 Million people, making it the third largest employer in the World, behind the Chinese People’s Liberation Army, and the Indian National Railway System. Fourth is the US retail chain, Walmart, with 1.3 Million employees.
The British Government converted its national economy to a financial services paradigm beginning during the tenure of Margaret Thatcher. They had many successes early on, as evidenced by the successful banks and brokerage activities centered not only on Britain but also on their adjacent European Markets. Part of the growth of this sector was a Government mandated form of benign neglect of securities regulation, allowing free capital markets to grow internally with very little intrusive control exercised by their FSA. It was a very non-confrontational system, and while it was working, both sides of the political spectrum took credit for it.
Now that the model is imploding, we are seeing a blame game played that is reminiscent of what happened in the US after the start of the Great Depression that began in 1929, bottoming in 1933 with the collapse of the national banking system of the US. This blame game assigns responsibility for the national economic crisis to profiteering bankers and brokers, who were only recently lionized by the British Press and Government for great genius and effective competition from a small country with limited resources.
Does anyone mention those elements of British society that don’t work, or the enormous costs associated with their socialist programs, some implemented during World War II (the 1944 National Health Act)? Not a word. The regulators were always subordinate to the UK Government and its Central Bank, the Bank of England. They had no control over currency printing presses, anymore than they could determine an intelligent way to operate as a regulator without being compromised incestuous relationships with the very financial service units they were responsible for regulating. This should sound familiar to citizens and investors in the United States.
The British legal system has never permitted the abuses we live with here in the US. There is a very weak class action and plaintiff’s bar that exacts breathtaking penalties on those who would even consider trivial litigation. You can know that any lawsuit filed in the UK has legal and evidentiary foundation or it is never filed. I can’t say it works better than our system, but neither can I say it works that much worse.
Socialist bureaucracies have always treated their active members as a class apart, and they have protected themselves better in Britain than in any other European Socialist system. In turn, these bureaucrats have treated their duties with more respect and less corruption that compared with say Italy, or Spain. Like our left here, they survive and thrive by promising and delivering to their under classes benefits that cannot be paid from historic taxation.
About two months ago, the National Inflation Association noted the US had passed a tipping point, one where if we were to tax all income from all sources at 100%, we could no longer cover our regular US Government expenditures. That tipping point was crossed more than two decades ago in Britain.
Banking abuses of currencies, offshore accounts and wealth and more have been legion. Many credit Great Britain with inventing the modern offshore banking model to support the opium trade in the 1700’s. The Seven Tongs of the Triads had proper Englishmen in their now legendary seven “Tai-Pans” (named for the most poisonous family of snakes on the Globe), the merchant bankers of Hong Kong, who fronted for many of the more nefarious activities until relieved of these profitable burdens by modern evolving mechanisms.
It is no secret that the FSA was inspired by the SEC created by Joe Kennedy Sr., certainly the closest thing we will ever have the head of a criminal dynasty in the 20th Century. Joe Sr. made the SEC his tool, and he imbued self-interest in his operations and use of the SEC to achieve is personal goals, including the destruction of both his enemies and competitors. The FSA was a more civilized by a league, in operating with the insulated mutual cooperation of the parties involved in such a way that they protected each other first, and then worried about the public afterwards.
If you have any interest in understanding how closely this mimics the history of our security markets until the SEC’s strangled birth, you can find the living model in the story of the Stutz Bearcat Short Squeeze of the mid-1920’s. When the Stutz specialist caught and trapped manipulative short sellers in his stock, with the threat of forced bankruptcy of these parties, he was literally assaulted socially and personally to relent.
Our SEC faces its own mortality looking at the fate of the FSA. Our Federal Reserve would be the end recipient of the authority and responsibility of our SEC if the British model were followed. I can only hope as one person that this is not allowed to happen. The privately owned Federal Reserve Bank has far too much taint on it for its US currency machinations, and with its global power, it could make a new enterprise with the SEC’s old concessions (and hopefully new personnel) an unmanageable operating enterprise with the power to manipulate the US Government as if it were simply tiny independent pieces on a board of their own design and control, in a game where the only rules are theirs, and they are never shared.
I recite this in hopes that some of you will understand that things could get worse, faster than you expect. Close your eyes and breathe deeply.
Source: Investrend Weblogs (http://www.investrendweblogs.net/bburrell/2010/06/20/fsa-shuttered/).
(Go to http://www.financialwire.net/?s=brrllbby for other recent commentaries by Bud Burrell.)
Bud Burrell’s experience spans a diverse spectrum, including service with the U.S. Military in the Special Forces, as a Finance Officer and as a Project Finance & Accounting Officer. Burrell also pursued studies in fine arts, the Renaissance, Russian history, and Chinese culture. Following years of working on Wall Street, he worked with specialty and derivative money management consulting and research and development in IT and AI. Since then, Burrell has worked globally with major development stage companies from the IT, energy, alternative energy, bio-pharma, and general technology arenas, as well as on counterfeiting and financial fraud scandals.
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