The General Election
"Captive to Industry"
by
Stephen Wynn

There is a general election on 6th May. Don't vote Labour, Conservative or Liberal Democrat. They are "captive to industry" - at least on any topic which concerns industry. Capture by industry is the cause of the credit crunch/financial crisis. It is associated with "revolving door politics", ^x such as in PFIs. ^x

1. The Labour Party

The Labour government established the FSA which has a revolving door with the financial industry which it regulates. The Conservative Party white paper From Crisis to Confidence says:

There is no consumer representation on the existing FSA Board. Ten of the twelve members are currently, or have previously been employed in the financial services industries. This may have diminished the regulator’s understanding of consumers and willingness to challenge the industry.

James Crosby chief executive of HBoS was both on the board of the FSA and Chairman of the Remuneration Committee from 11 December 2007. ^x Christopher Rodrigues, chief executive of Bradford & Bingley, was also on the board and on the Remuneration Committee. ^x

The FSA has various industry committees and "practitioners on secondment":

The industry needs to be prepared to second, and to make available, its best people. .. They should act as independent individuals, not representatives. ^x

2. The Conservative Party: "the party of choice for rich bankers"

The Conservative Party white paper is regulation from the point of view of an industry that does not want to be regulated. It promotes regulatory capture/self regulation in various ways, especially revolving door politics.

3. The Liberal Democrats

The Liberal Democrats like "light touch" regulation;

Nick Clegg lobbied for lax EU bank laws ^z

"GPlus often practises 'revolving-door' recruitment, taking people straight out of the European institutions to lobby their former colleagues, a practice banned in America. One such recruit was Nick Clegg. Immediately after he left the European Parliament – he was a Lib Dem MEP from 1999 to 2004 – he became one of only five partners in GPlus." ^z

Vice Cable said at a luncheon of the Association of Foreign Banks:

A “lighter touch” would be the best way forward. ^x

4. Combating capture of government by industry

Not voting Labour, Conservative or Liberal Democrat is part of a wider effort to prevent capture of government by industry - such as the publication of responses to government publications. Usually none of them are published. In the case of the Lord Hunt Review only some of them were published, and hardly any from individuals. ^x

5. The deaf state

The MPs' expenses scandal is discussed by Heather Brooke in The Silent State. ^x Governments are often not only silent, but also deaf. In his book about Madoff No one would listen (2010) Harry Markopolos describes the SEC as "captive to the industry it regulates". Up to $65 billion went missing in this disaster.

If you take up any issue with an MP, all you get back is blurb defending government policy. So MPs do not represent their constituents to the government. They represent the government to their constituents.

Government consultations sometimes do not even have a follow-up to the responses. For example, I submitted a response to the consultation of the Treasury Select Committee on the work of the FSA. They published the responses, ^x but no follow-up with an analysis of the responses. The government seems to even respond to its own consultations. ^x

The Personal Accounts Delivery Authority is captive to industry. So its consultations are very one-sided on the side of industry which especially wants to sell annuities. At least it publishes all the responses. which the Treasury Committee usually does not. They are available in the House of Commons Library.

6. Capture by industry in action

I agree with the SEC case against Goldman Sachs. They are a revolving door specialist. ^x They bet that the CDO market would fail using AIG credit default swaps. ^x When it did fail and AIG could not pay, the US government was foolish enough to bail them out. ^x This was of course not surprising because "Over the past few years, people from Goldman Sachs have assumed control over large parts of the federal government". ^x

This is discussed in The Big Short (2010) by Michael Lewis. Another possible title for this book seems to be The Big Bailout Bet. A bailout bet is a bet on a bailout, such as in return for a $1.5 million premium there is a promise to pay $1 billion if a particular event occurs, but the insurer cannot afford to pay, so has to be bailed out by the government.

The personal pensions mis-selling scandal resulted from capture by industry. Howard Davies asked::

How on earth could the new regulators, put into place after the Financial Services Act 1986, have allowed this scandal to occur right under their freshly minted noses?. ^x

Barry Sherlock was chairman of the "new regulator" LAUTRO. He was simultaneously chief executive of Equitable Life, which collapsed because of industry capture of the industry-financed GAD.

Capture by industry results in "light-touch regulation", which results in rampant selling, such as Goldman Pushed Ratings-Agency Laxity Hard: Ex-Moody's Official ,^x HBOS chased sales with little regard for risk, says former exec .^x