".. agents of the banking elites, in their roles as Obama’s economic advisors. In the UK, Gordon Brown has created a similar circle of advisors." ^x

2. Pan-regulatory failure and fraud

There is a pan-regulatory failure. Any resulting reforms should not be restricted to banks. Credit default swaps discussed below, are a product. What about product regulation? What about conduct of business regulation? The Treasury Select Committee said to Howard Davies

"You failed as a conduct of business regulator, did you not? ... You did not stop them advertising after the court case, did you?" ^x

This failure of conduct of business regulation is like a festering sore that keeps causing problems. Sores can be a symptom of a serious problem which develops into a crisis. They should be treated. Rupert Steiner, Chief City Correspondent, The Daily Mail (27th March, 2008) listed:

"FSA: THE FIVE FLOPS

2001 Equitable Life Collapse
2001 The Split Cap Debacle
2004 Precipice Bonds Mistakes
2005 L & G Fines Botch
2008 Northern Rock Failure" ^x

Since Northern Rock: RBS, HBOS, Icelandic Banks, Bradford & Bingley; have collapsed. ^x What about mortgage endowments? Many people being told that their policy would repay the mortgage when it did not:

"Well information is that 60% of the people interviewed were told that their policy was guaranteed to pay off the mortgage and all the anecdotal evidence that I get from constituencies was that they were told -' oh yes there is no problem it will pay off you mortgage and you will have a very nice sum at the end of it as a nest egg for your retirement'. So we know that nearly 3 million people were clearly mis-sold on that ground alone," ^x

Mortgage endowments were over-rated - like securitised mortgages:

"There is now little doubt that the American sub-prime mortgage debacle was deliberate fraud: mortgage based securities were artificially rated as AAA; the CDSs and and CDOs used to 'disperse risk' were intentionally created to defraud investors." ^x

The US taxpayer has been bailing out a scam at One Curzon Street, ^x which is described as "ground zero" or "the epicentre" of the credit crunch: ^x

"AIG got into the business of insuring much of the world’s financial system against the consequences of a global financial meltdown. It turned out to be incapable of delivering on that insurance — no private company could deliver on it, which is one reason why AIG’s business of selling credit default swaps was a scam." ^x

Perhaps the latest scandal is Madoff feeder funds. ^{x x x}

3. The influence of the industry on government

3.1 "Positions of influence"

The Financial Services and Markets Bill (2000) was "improved" by Lord Burns and Don Cruickshank, before it became an Act.

"The work of Lord Burns and his committee and of Don Cruickshank has also helped to improve the Bill. I am grateful to them for all their hard work" ^x

Lord Burns was a non-executive director of the Legal & General ^x and Don Cruickshank chairman of the London Stock Exchange.

Similarly, the government is being advised on bank bailouts by bankers. Prime Minister Gordon Brown and President Obama seem to be surrounding themselves with bankers. An article in the Times the daring scheme to recapitalise the banks reports:

"The details were developed after a meeting on October 1 in the City office of Peter Sands, chief executive of Standard Chartered, the international bank, The Times has learnt. Mr Sands — an old friend of Lady Vadera — was joined by his finance director, Richard Meddings; Tom Scholar, a senior Treasury official; Robin Budenberg from UBS; and Michael Klein, ^x the former chairman of Citigroup’s investment bank. It was only after a formal presentation to Lady Vadera in No 10 on October 3 that Mr Brown finally decided to sign up." ^x

"UK Financial Investments is the government-owned company set up to hold our shares in the failed banks. The non-executives on its board are ex-investment bankers. Glen Moreno, the acting chairman (who plans to step down due to his involvement with a trust with problems relating to tax avoidance) is ex-Citigroup, and the other non-executives are Peter Gibbs (ex-Merrill Lynch), Lucinda Riches (ex-UBS), Michael Kirkwood (ex-Citigroup), Philip Remnant (senior adviser to Credit Suisse) and Louise Tulett (Treasury)." ^x

A number of the government advisers have been bankers, such as Derek Wanless, chairman of the Risk Committee of Northern Rock. Adair Turner was responsible for the arguably inadequate work on pensions of the Pensions Commission. (This was too enthusiastic about annuities. It did not say whether or not expenses are included in the stakeholder cap on charges.) James Crosby was "an economic adviser to the Government". ^x Mervyn Davies x a former chairman of Standard Chartered is now in the cabinet. ^x

"Mr Davies, who played a key role in the multibillion-pound bank bailout last year, will become a peer and serve as a minister under Lord Mandelson, the Business Secretary." ^x

So of course the bailouts are designed to benefit banks, at the expense of taxpayers.

"No-one speaks for the legions of tax payers with the same ‘voice’, eloquence and powers of persuasion that the City establishment can turn on when it makes its case in the corridors of power." ^x

This is similar to the US:

"This is simply scandalous. To have a group of interested parties get a privileged briefing by government officials on a matter of keen public interest flies in the face of what a democracy is supposed to be about." ^x

"ISDA - the Security Dealers Association - are the largest most well funded lobbyist group in Washington." ^x

In the US, Henry Paulson ^x Secretary to the US Treasury, was chief operating officer of Goldman Sachs. ^{x x} He was part of the revolving door. ^x

"Why do most pundits continue to characterize the billions of dollars that the federal government has loaned to AIG over the past six months as 'the AIG bailout?' ... Shouldn't we be calling this 'the Goldman Sachs bailout?'" ^x

"The gross sum received by Goldman from the US Federal Reserve, via AIG, was $13bn." ^x

"The US government, involved in a firefight against the conflagration in the credit markets, is calling in another crisis-buster from the illustrious investment bank, this time Goldman's most senior banker to finance industry clients, Ken Wilson. .. there will be three Goldman Sachs old boys in major positions of influence in the White House .. 'Over the past few years, people from Goldman Sachs have assumed control over large parts of the federal government,' ^x

"Bailout helps Buffett plenty. He has argued for it and will benefit from it... Wben Buffet speaks people in high places listen." ^x

In conclusion, Prime Minister Gordon Brown's bankers seem to be, or were: Derek Wanless, Paul Myners, Peter Sands, Fred Goodwin, Richard Meddings, Robin Budenberg, Michael Klein, Adair Turner, Mervyn Davies, James Crosby, Glen Moreno, Philip Hampton, Gerry Grimstone, Victor Blank, Shriti Vadera, Win Bischof, Jeremy Heywood, Michael Kirkwood, Lucinda Richas. ^x Mervyn Davies and Paul Myners are unelected ministers (like Peter Mandelson, Malloch Brown, Stephen Carter). Who are President Barack Obama's bankers? They include: Lawrence Summers, ^x Neel Kashkari, Gary Gensler. ^x

3.2 Lobbyists

Concern about political lobbying has led to the formation of the Alliance for Lobbying Transparency ^x and calls for regulation. ^x In the US:

"How did Wall Street manage over the decades to achieve such an across-the-board rollback of existing regulations, suspension of new regulation and abeyance of regulatory enforcement? There were many factors, but surely a leading explanation was the extraordinary amount of money that financial firms invested in political influence purchasing." ^x

"Invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse," ^x

"But then again the rest of the country doesn't have those well-oiled K Street lobbyists pursuing their special interests in Washington. They just vote and pay. ^x

3.3 Regulators

People who are employed as regulators should not have had previous experience working for the industry. They should have had experience as investors. Working for the industry gives people a City/Wall Street mindset. Employing someone from the industry is like poachers turned gamekeepers. But a poacher may be too friendly with other poachers to become a gamekeeper.

3.4 Self-regulation

The industry not only finances the FSA. To a considerable extent it also determines levels of pay. ^{x x} The SEC in the US has been described as "captive to the industry it regulates", ^x which also describes the FSA. It is "the sham resulting from governance being handed to those with a vested interest" - which is a description of the Local Government Ombudsman on one website:

"The LGO is a fraud. In effect another version of the Law Society and the sham resulting from governance being handed to those with a vested interest." ^{x x}

Self-regulation has been a disaster in other areas such as doctors ^x and MPs.^x The unfortunate history of the self-regulation of solicitors by the Law Society ^x led to the Legal Complaints Service. ^x

3.5 The Personal Accounts Delivery Authority ^x

Personal accounts are being "delivered by the private sector" ^x by PADA, who will be "advising ministers":

".. advise Government on proposals about the personal accounts scheme, so that the policy takes full account of operational and commercial considerations." ^x

Will this advice be published? Can anyone join in with advice? Otherwise the advice will come entirely from the industry.

4. Bailouts

Bailouts are intended to prevent "knock-on effects":

"Mr Darling said allowing HBOS to collapse would have had knock-on effects for all of Britain's banks." ^x

Knock-on effects divide into those on: 1) depositors, 2) shareholders, 3) bondholders, 4) customers. ^x Banks are generally bondholders. Bailouts should arguably only protect depositors. The need for a bailout is in a sense a knock-on effect. So that a succession of bailouts implies that knock-on effects have not been prevented.

In the US bailouts have included investment banks. ^x If the taxpayer purchases the "toxic assets" of banks, at least they receive an asset in exchange. But CDS contracts like those of AIG Financial Products are a liability rather than an asset. AIG is a holding company for insurance companies. It is being bailed out by the Federal Reserve: ^x

"Most Americans believe that the Federal Reserve ^{x x} is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States . There are Class A,B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?" ^x

It is not a "privately held corporation held by stockholders" according to the website of the Federal Reserve:

"The Federal Reserve System is not 'owned' by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects." ^x

"Independent" gives an opportunity for hidden outside influences, which there seem to be, judging from its behaviour in the AIG bailout scandal. ^{x x} It encourages conspiracy theorists. The Federal Reserve has been described as "the shaddow government". ^x A Google search on "Who owns the Fed?", brings up 30,500 references. ^x Legislation is proposed to clarify the situation - the Federal Reserve Transparency Act (HR 1207). ^x "The Federal Reserve System is not 'owned' by anyone." seems surprising because Federal reserves are ballooning, ^x resulting from "the creation of money":

"The creation of money has been 'privatized,' or taken over by a private money cartel." ^x

The AIG bailout is causing a knock-on effect, that is a bonanza for banks. ^x To be added to the TARP bonanza: "Banks Keeping Mum on TARP Bailout Funds". ^x

"Somebody should ask the question why the same people who brought us this financial crisis are now bringing us the 'cure,' and why that cure necessarily involves financing former employers of the people making the decisions." ^x

"It's outrageous. We're turning to the same people who made this mess in the first place." ^x

"But there is a widespread suspicion financial interests have captured the government agencies, legislators and senior officials meant to regulate them." ^x

"Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside." ^x

5. Banks - "can be extremely risky"

When the Chancellor wanted to reform the regulatory system in 1997, he asked the SIB how to do it. They produced a report Reform of the financial regulatory system, of course recommmended increased powers for the SIB, leading to the FSA. This has happened again:

"Lord Turner, chairman of the FSA, was asked by the Chancellor of the Exchequer to review the events that led to the financial crisis and to recommend reforms." ^x

"Implementing the major shift in supervisory approach outlined above requires a significant increase in the resources available to the FSA, its budget and the fees charged to firms."

These days the press is full of stories about AIG Financial Products, bailouts and lack of accountability. But the Turner Review does not mention the words "bailout", "accountability" or "AIG Financial Products". But then these are political topics. The Turner Review is concerned with technical banking issues. But it does make political statements, such as the word "rightly" (which in my opinion should be "wrongly") in:

"Bear Stearns was not involved in any significant way in utility banking activities; but when it was on the verge of failure, the US authorities rightly identified it as systemically important." ^x

"Identified it as systemically important" sounds almost like a euphemism, meaning Bear Stearns was given a bailout, implying that Lord Turner is pro-bailout. Banks should be sufficiently well capitalised so there is not a domino effect when one collapses. The Review discusses:

"the debate about whether regulation should seek a clear distinction between traditional on balance sheet banks and investment banking style trading activities (sometimes labeled ‘utility banking’ and ‘casino banking’)."

Keeping "utility banking" far apart from "casino banking" seems like common sense. A contributor to a blog said:

"It should now ^x be clear that it is suicidal to allow banks backed by the ultimate state guarantee a complete free rein to indulge in any type of financial speculation. Without this backing they would be far more careful with their shareholders' funds, and there could even by little need for the sophistications of Basle Committee capital standards. The LLR guarantee should in future be limited to utility banks, and subject to strict conditions on the activities in which they are allowed to engage." ^x

But according to the Review this separation "can be extremely risky":

"Finally it is important to recognize that ‘narrow banks’ focusing almost entirely on classic commercial and retail banking activities can be extremely risky. Northern Rock, Washington Mutual and IndyMac were all ‘narrow banks’."

Northern Rock got into difficulties exactly because its business was not "narrow". It was raising funds by selling securitised mortgages in addition to deposits. Washington Mutual demutualised in 1983 and bought the brokerage firm Murphey Favre followed by further acquisitions. ^x The Dunfermline Building Society is said to have collapsed because of "diversification". ^x

An article in the Times Financial Services Authority 'crackdown' greeted with City relief about the Turner Review commented:

"In unveiling his long-awaited proposals on reform to banking supervision, Lord Turner of Ecchinswell, the chairman of the regulator, rejected calls for a separation of investment banks from commercial banks, played down the need for serious reform of City bonuses and hinted that hedge funds need not be troubled by the regulatory changes." ^x

6. Products

6.1 Regulation - a change of philosophy?

The FSA is abandoning principles-based regulation, ^x and introducing product regulation. The Turner Review says:

"Regulatory philosophy has been that product regulation would stifle innovation, which in a competitive market has beneficial effects, and that the regulator is less well placed than the market to judge whether products deliver customer value. ^x "the FSA has not considered it within its remit to prohibit specific products or product design features."

But now:

"Financial innovations can sometimes achieve economic rent extraction, rather than delivering valuable customer and economic benefits One implication is that regulators may need to regulate products, in both retail and wholesale markets.

It has always been obvious to investors that product innovation is generally not beneficial for them. But it has taken a world financial crisis for the FSA to admit that product innovation "can sometimes" not be beneficial for customers of the industry. There needs to be product regulator in general, but the Review only discusses certain kinds of product. There have been calls for product regulation also in the US:

"And we need strong and uniform supervision for all financial products marketed to consumers and investors, and tough enforcement of the rules to ensure full accountability for those who violate the public trust." ^x

6.2 Credit default swaps

AIG Financial Products took enormous risk on credit default swaps.

"A sort of insurance policy in which a third party assumes the risk of a loan to a customer going bad, and in exchange receives regular payments, rather like policy premiums." ^x

"Whalen views London's light-touch regulatory regime as enabling such ill-conceived shenanigans to run out of control: 'A lot of this kind of structured product came out of London.'" ^x

"The event must create upon the insured a commercial loss or liability, or it must affect a right of the insured which is recognised and protected by the courts." ^<x

"Nor were protection buyers (sans regulation) precluded from buying protection on underlying assets in which they had no direct financial interest (speculation). Some knowledgeable folks have noted how funny things would start to happen if people, in general, were allowed to buy insurance against the possibility of their neighbour’s house burning down." ^x

When there are bailouts CDSs become a gamble on whether or not there is going to be a bailout. You pay £x. Then at a future date you receive £y from the taxpayer where y > x if there is a bailout, otherwise y = 0. They are unwinding: ^{x x}

"It seems possible that AIG, alone, could bring the global economy to something of a standstill." ^x Markets hold breath as $360bn Lehman swaps unwind. ^x "Icelandic banks alone could trigger gross credit default swap payouts estimated at $200bn, though net payouts would be much lower."

AIG Financial Products was issuing CDSs on Lehman Brothers bonds, which were largely bought by other banks. Perhaps, to promote financial stability, banks should not be permitted to buy the bonds of other banks.

The CDS market is apparently regulated to some extent. But is described as "barely-regulated" or "under-regulated". CDSs are not "regulated products". Nor are for example, insurance bonds and precipice bonds:

"Precipice bonds are marketed under a variety of names examples include High Income Bond, Stockmarket Income Bond, Premier Bond, Extra Income & Growth Plan. They can be structured in various ways, commonly as offshore closed-end investment companies or offshore insurance contracts. As such, they are not classified by the Financial Services and Markets Act 2000 as regulated products and not covered by the listing rules that apply to UK investment companies or the UK insurance regulations." ^x

Income drawdown plans are also not a regulated product. They have been described as "a disaster". ^x

The FSA has the statutory duty to "facilitate innovation and competition". This should surely not be the job of the regulator.

7. Diversifying

The FSA encourages individual investors to diversify. It also seems to encourage building societies to diversify:

"The problem is essentially one of poor asset quality attributable to ill-conceived 'diversification' strategies which led these unsophisticated firms into areas such as large-scale commercial lending, residential non-prime and self certified mortgages, and the purchase of mortgage loan books from wholesale lenders. Building societies did not understand the risks, and it is to the eternal discredit of the FSA that they were not stopped." ^x

"By demutualising, the former building societies diversified away from their tradition business model and ended up relying on the wholesale market, which is what has got them into trouble." ^x

Similarly the diversification of savings and loan banks in the US is said to have contributed to their collapse:

"The Garn-St. Germain Depository Institutions Act of 1982. This act allowed savings and loan associations to diversify and invest in other types of loans besides home construction and purchase loans, including commercial loans, state and municipal Securities, and unsecured real estate loans. .. In the 1980s, the savings and loan industry collapsed." ^x

CDSs were intended to "diversify risk". But this was "not actually achieved":

"But when the crisis broke it became apparent that this diversification of risk holding had not actually been achieved. Instead most of the holdings of the securitised credit, and the vast majority of the losses which arose, were not in the books of end investors intending to hold the assets to maturity, but on the books of highly leveraged banks and bank-like institutions." ^x

"Diversification" can be a euphemism to "proliferation". In the Sandler Review "the proliferation of products" is described as "a feature of the industry".

8. Off-balance sheet accounting

Tax havens are used for off balance-sheet accounting:

"In the past decade or so, the big banks have all used their offshore tax havens to set up all manner of off-balance sheet vehicles under a plethora of confusing names to avoid regulation and create almost unlimited credit. In a real sense, this use of tax havens is what turned the sub-prime mess into the great banking crash of 2008, Here's how it works. Take Northern Rock. When the government nationalised the delinquent mortgage bank last year it discovered, to its horror, that the Rock didn't actually own most of its mortgages - it had sold £50 billion of them to a structured investment vehicle (SIV) called Granite, based in Jersey. Granite was registered as benefiting a charity for children with Down's Syndrome in the northeast of England. What generosity! Except that the children never saw a penny - it was all an exercise in financial engineering." ^x

"THE UK banks that will benefit from the publicly-funded bailout have hundreds of subsidiary firms in tax havens such as the Cayman Islands, Jersey and the Bahamas, .. " ^x

The Prime Minister is calling for a "global tax haven crackdown". ^x But he promoted PFI/PPPs: ^x

"PFI contracts are off-balance-sheet, meaning that they do not show up as part of the national debt as measured by government statistics such as the Public Sector Borrowing Requirement (PSBR)" ^x

which sometimes use tax havens. ^x

9. Globalisation

He likes globalisation. ^x The FSA was set up "to meet the challenge of global markets". ^x Globalisation has been described as "sleepwalking into disaster", ^x which has been caused largely by securitised mortgages, such as "covered bonds". ^{x x} The rise of the global CDS market is the responsibility of regulators. Bank deregulation together with globalisation has promoted mergers and acquisitions across borders, ^x such as the disastrous takeover of ABN/AMRO by RBS.

10. Government

10.1 "Authorised" and "regulated"

Under the Financial Services and Markets Act (2000) firms are "authorised", activities are "regulated" - or they may not be. For example, Banque AIG mentioned below was authorised, but its activities were not regulated. Firms generally describe themselves as "authorised and regulated by the FSA". The FSA refers to "regulated firms" on its website. ^x It is possible to check whether a firm is "authorised" on the FSA Register. ^x But how do you find out whether or not it is "regulated"? Some firms are "authorised", but are not described as "regulated", because they are performing unregulated activities.

The distinction between "authorised" and "regulated" seems to be causing a problem. Someone may be under the misapprehension that a firm is "regulated by the FSA" when it is actually only "authorised". These terms apply to "firms", "activities", "products" and "markets", which compounds the confusion. The FSA refers to unit trusts as both "authorised products" and "regulated products". On an EU level:

"A firm is authorised by its home state regulator who are responsible for ensuring the firms basic core competency and capital adequacy. The activities are regulated by the regulator where they are carried out, the 'host state' which can be the same regulator or a different one." ^x

The 2007 European Parliament report on Equitable Life says:

"There was at least one case where a complaint was interpreted by the German regulator as concerning a financial supervision issue, while the UK regulator regarded the same complaint as conduct of business related. The complainant was therefore referred forth and back between home and host regulator." (page 269) ^x

This report is 385 pages, to which the UK government give a one page response after two years. ^x The Prime Minister was not even willing to meet MEPs and the President of the European Parliament, to discuss the report, when he went to Brussels (March 2009). ^x

10.2 Who guards the guards?

After 1st December 2001, the FSA is not covered by the Parliamentary Ombudsman. Who guards the guards? Quis custodiet ipsos custodies? They should be open to public inspection. But the Financial Ombudsman Service does not come under the Freedom f Information Act (2000). ^x The public should be consulted, but there is only a Code of Practice on Consultation rather than compulsory rules. ^x They should be able to inspect inspectors. But they cannot do so in the case of the new inspectorate of the UK Border Agency, which does not have a website or webpages. (The UKBA website did not even say who is the Chief Inspector until I brought this to their attention on 13th May 2008. ^x It does now. ^x )

However the Chief Inspector of the UKBA does accept letters from the public (if you can find out his address). The Consumer Panel of the FSA does not accept letters from the public. "The Panel is unable to deal with individual consumer's concerns." ^x So if someone has a concern about the FSA - which is not a "complaint" - who do they write to? I wrote to my MP, who forwarded my letter to a Treasury minister, and I was fobbed off. The same happened when I wrote to my MP about (I claim) an abuse of immigration regulations. I was also fobbed off by ministers when my MP forwarded my letter to the Department of Health, and BERR.

However, I am making progress by writing to the Chief Inspector of the UKBA, about an abuse of immigration regulations. There is a drastic difference in response compared with writing the same letter to my MP. Which leads me to think that all departments should have inspectorates. ^x So should Parliament judging from the current goings-on with expenses. They should be genuinely independent - unlike apparently the local authority ombudsman. ^{x x}

If you make a complaint to the Financial Ombudsman Service and this is not dealt with properly you can appeal to the Independent Assessor. The submission of Mr Grenet to the Lord Hunt Review ^x said:

"The Independent Assessor cannot be regarded as independent in any real sense of the word and his terms of reference are so weak that he can have little real effect on how the FOS operates. His office is located at a PO Box. His real address, telephone number, fax and email are deliberately kept secret."

There are arguably too many Ombudsmen/ Complaints Commissioners. ^x The FSA has a Complaints Commissioner ^x with chairman appointed by the FSA. ^x The Local Government Ombudsman has been severely criticised, for example:

"My experience with the LGO, in a planning case I later discovered was based on fraud and endemic corruption, is that they are put in to deflect complainants from proper justice" ^{x x}

"We are completely independent of the Government, councils, and the people who complain to us.

Untrue. The Local Government Ombudsman is directly funded by the government. All three Local Government Ombudsmen for England are former chief executives of local councils. A representative of the Local Government Association sits on the selection panel for LGO appointments.

Like judges, we are impartial.

Untrue. The claim the Local Government Ombudsman is impartial is a sham. The vast majority of LGO senior staff and its investigators are ex-council employees." ^x

The Financial Services Ombudsman should not be appointed by the FSA. There seems to be a need for a Complaints Commissioner to deal with complaints for different organisations - like the Information Commissioner. For a start, it could take over the work the Independent Assessor of the FOS and Complaints Commissioner of the FSA.

11. Recommendations

Governments should not rely on advice from bankers how to reform banks, or on regulators how to reform regulation.

Once someone has worked for the financial industry at a senior level, this should debar them from working as a regulator, or government adviser on any topic relating to personal saving.

Anything that is authorised by the regulators, should also be regulated.

Separate utility banking and investment banking. ^x

Reduce the number of Complaints Commissioners.

Make the EU Commission subject to Freedom of Information legislation.

Appendix 1
Four Firms

1. AIG Financial Products

AIG is a highly irresponsible company which was involved in an Irish reinsurance scam (like Equitable Life). ^{x x x} It excelled itself with the formation of AIG Financial Products:

"The main reason that AIG is in trouble is that in addition to a lot of very fine insurance operations, it also set up a group called AIG Financial Products. And this group took huge risks. It was operating like a giant hedge fund and was very lightly regulated. " ^x

How Mayfair office brought down AIG. ^x AIG Financial Products is not authorised by the FSA, only Banque AIG. ^x AIG Financial Products is part of Banque AIG, which is a subsidiary of AIG Financial Products Corp, which is a subsidiary of AIG.

"The company's Connecticut parent is regulated by the US Office of Thrift Supervision, a small watchdog that monitors the equivalent of building societies. But that allowed AIG Financial Products to gain regulatory approval from France's Commission Bancaire for a Paris-based banking subsidiary, Banque AIG. That bank was then able to open a London branch under a system that allows companies approved by one EU regulator to open in another member country." ^x

"AIG Financial Products was deemed an 'internal treasury operation' and, like the internal treasury operations of other companies, was not regulated." ^x

A correspondent commented:

"This seems entirely spurious. How do you regulate a bank (say) while excluding its treasury department from the process ? Not possible as far as I can see. It seems they are trying to say that AIG FP (UK) was actually the internal treasury operation of AIG Inc (US) - which was regulated in the US, not here. (This is probably known as 'the BCCI defence!')"

Allowing the financial industry to run the country, enables it to help itself to tax revenue:

"Does this connivance and assisting in window-dressing by the regulators leading to concealment and misrepresentation not raise much more serious questions than just maladministration?" ^x