It's a bunch of brokers and investment bankers quaffing champagne and slapping each other on the back. I regularly went to these events when I covered banking for Reuters in London.
It's the last place you'd find someone who sympathised with anything in the 'Occupy' movement or anyone suggesting banks and brokers be controlled or reformed.
Smith unleashed with a call to ban securitisation and break up the banks on both sides of the Atlantic. To be fair, he was also against a Tobin Tax and regulation of banker pay, but he makes some strong points.
Here's the speech (which is well worth a read in full) and a sample:
On breaking up the banks:
"What is needed is the full separation of retail and investment banking. The Volcker rule is bogged down in the minutiae of the definition of proprietary trading and Vickers is so far off from implementation of even ring fencing that it will have no impact at least for many years. What I would suggest is just simply undo the repeal of Glass-Steagall and introduce the same restrictions on this side of the Atlantic."
And on securitisation:
"The severance of the link between lender and borrower which existed when I was in banking led to a mispricing of risk with catastrophic consequences. Historically, lenders exercised caution because eventual repayment depended upon the viability of the borrower. Securitisation not only broke this all-important link. Now, lenders could issue mortgages in the comforting knowledge that, if the borrower failed to meet his commitments, someone else would bear the loss."
"This distortion of the relationship between lender and borrower led not just to the mispricing but to the reverse pricing of risk, such that lending to the riskiest borrowers became a high-returns process because risk could be unloaded. This process ran its wholly predictable course in the subprime disaster. Securitization should be banned. People should have to hold assets they are responsible for until maturity."
I wonder what he thinks of covered bonds. They're not quite full securitisation, but they still break that link...
He also calls for the reversal of the 'Big Bang' reforms in the City of London from the mid-1980s:
It may seem inconceivable that any of the Big Bang reforms will ever be repealed but until they are I think we will be condemned to suffer the sort of mistakes, malpractice and calamities which helped to cause the current financial crisis.
You may ask the question: what does this mean for New Zealand?
Not much immediately, is the answer. Our banks are simple things that haven't polluted their balance sheets with dodgy gambling on markets or securitisation.
But, indirectly, it's worth watching what happens in London because it remains the centre of much of the world's financial markets, which we rely on to fund our unsupportable lifestyles.
