There's no such thing as a free regulator, and already Sir Howard wants more
CHRISTOPHER FILDES
Guess what Sir Howard Davies wants for Christmas. That's right: regulators. Already his dockside tower is home to 2,000 of them, but now that they are a law unto themselves, he wants more. This week the Financial Services Authority (Sir Howard is its first chairman) formally acquired powers which transcend the Bill of Rights. It is accountable to no one and has its own exemption from judicial review. Indeed, it has its own judicial system, tastefully accommodated in Lady Ottoline Morrell's old town house. To think that all this began with Professor Jim Gower, who said that there was too much regulation already and saw no case for protecting fools from their own folly. All that regulation should do was to try to stop people being made fools of. He put up a scheme for this. Now, two Acts of Parliament later, schemes and regulators and their acronyms have come and gone — Fimbra, I suggested, was a condition of terminal darkness, from the Latin finis, an end, and umbra, a shade — and each one has made the next inevitable. There will be an outcry for a new Act and even wider powers, though the nimble Sir Howard will have moved on by then. Buyers of financial services will demand compensation when something goes wrong, as it always will. They have been led to believe that regulation has been thrown in at no cost to them, for their benefit. If it is free, they will want more of it and expect more from it, just as they would from a National Financial Health Service. We have seen what happens to expectations like these.
Holding our hands
REGULATION, in fact, is no more free than lunch is. Its direct costs are obvious — all those mouths to feed in Docklands. all those returns to fill in — but it has other costs which may be heavier. Products and services are standardised and innovation discouraged. Do we have to incur all these costs? Do we need our hands held so tightly when we buy financial services? We buy other services all by ourselves. We rely on our judgment or on a good brand or a good shop. If we can cope with plumbers and builders, we can cope with people who sell us financial services. Banks and building societies, unlike plumbers and builders, are likely to be here today and here tomorrow. They have reputations on the line and capi tal behind them. There are plenty of them, so we can shop around and compare notes. We just need to keep our defence mechanisms switched on, as we do when the plumber calls. Switching them off is another of the regulators' disservices.
Martyr or loser
ENRON had a fan club to which I never belonged. So I missed out on its days of glory or notoriety and can catch up with it just in time for its collapse. This is or was a Texasbased power company with global ambitions — Wessex Water was one of its trophies — and when the new markets sprang up and allowed electricity to be traded, Enron took to them and dominated them. It was accused of oppressing the suffering peasants of California by making them pay the going rate for power or sit in the dark — one up, so the fan club thought, for market economics. It took swashbuckling positions, but they buckled when they should have swashed, and now its banks and its counter-parties are nursing sore heads. Enron thought this was novel, but it is one of the oldest traps of all. Companies are always tempted to make extra money by playing the markets they trade in, like the cocoa market, in which Rowntree lost a fortune. Fancy accounting concealed Enron's losses but in the end the cash ran out, as it does. Irwin Stelzer, whose claim to be read is that he is thought to be one of Rupert Murdoch's vice-gerents on earth, now puts Enron forward for canonisation as a martyred pioneer of free markets. It would be truer to say that those who live by the markets may perish by them.
Out with the tide
TO find the dear old Abbey National caught by Enron for 195 million came as a shock, even though, for a mortgage bank, the Abbey has always liked chancing its arm. Barclays is in, too, though the New York banks are hardest hit. There must be plenty more collapses and reconstructions to come, judging by the share prices of major companies which have lost nine-tenths or more of their value. We shall see whether the banks have learned their lessons from last time, or whether they thought that the banking cycle had been abolished in their favour. Such illusions charm us all. In the prosperous 1990s it was tempting to think that the rising tide would always float us off the rocks and that the greatest risk was to bail out. We shall now be reminded that risk and reward go together and that life is not a Caucus race, in which everybody has won and all shall have prizes. Sir Howard Davies might usefully say so.
Rich man's toy
THE railways need £158 billion of investment, so £2,200,000 would be a start, and we are all invited to subscribe for shares in the Flying Scotsman. Still busy hauling superior trains at superior prices, the locomotive has been incorporated and comes to the Ofex market next month. Tony Marchington, who owns it, sees it as a brand name for clothing and luggage and as the star attraction in a Flying Scotsman Village. So far it has proved an expensive investment. Alan Pegler, who rescued it from British Rail and from the breakers' yard, took it to the west coast of America and then ran out of money. Sir William McAlpine, patron of steam, brought it home, and it rested and rusted at Southall. Dr Marchington bought it five years ago and put it back on its wheels, but its last accounts show an operating loss which exceeded its revenues. This must have become less affordable when Oydord Molecular, the medical software company which he founded and brought to the stock market, ran off the rails and was sent to the breakers' yard. Better luck this time.
Puffing shares
MY railway correspondent, LK. Gricer, writes: Shares in steam traction, or rather in the numerous railways that preserve it and rely on it, do come on offer from time to time. Buy them, if you want to, for fun or free tickets or Christmas, but not to make money.
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