The Anglo-Saxon Model

In the battle of Hastings in 1066, the French invaded the Britain, and tensions across the Channel have never abated. Indeed, when the European Union was formed in 1991 – an uncomfortable fit that did include the U.K. and France – the Brits did not accept the euro as a replacement for the pound sterling. With over 70% of the major financial traffic on the continent flowing through British bankers, tensions were destined to mount yet again, as the European nations pretty much blamed the Anglo-Saxon financial model as the source of the financial collapse: “After the financial crisis forced the nationalization of some major British banks, the U.K. has been playing defense in European negotiations as continental European opponents of freewheeling, bonus-fueled British and American capitalism have taken every opportunity to cut London down to size.” TheDeal.com (July 30^th).

We’re the bad guys, with the British in lock-step with the financial rules that pointed an accusatory finger at an American financial hegemony being held responsible for all that’s bad… never mind that loads of European banks adopted the same rules and played the game with uncanny zeal. “‘They view the Anglo-Saxon model as the one that's caused all the problems," said Stuart Fraser, policy chairman of the City of London Corporation, the municipal government and political voice of the City of London financial district.

“Swiss banking giant UBS was battered by toxic assets, and several German banks were also laid low by the crisis. The highest-profile victim was bailed-out lender IKB Deutsche ­Industriebank AG, which lost $150 million through exposure to Abacus 2007-AC1, the synthetic collateralized debt portfolio at the center of the Securities and Exchange Commission’s recently settled civil suit against Goldman, Sachs & Co. German politicians have used the episode as a stick to beat not only British and American banks, but also hedge funds, private equity firms and Anglo-Saxon-style investments in general, taking as an article of faith that speculation is bad and can be banned or controlled.

“The French, who had a relatively tame credit crunch -- despite the embarrassing affair of Jérôme Kerviel, the Société Générale trader who cost his bank €5 billion ($6.4 billion) through unauthorized trades -- have not been above making political capital out of London's disarray to build up the prestige of Paris.” TheDeal.com. But the U.K., not subject to the same regulatory schema that impacts countries that adopted the euro, has so far managed to skate under much of the wrath that has been directed at them, in no insignificant part by their French counterparts, and the new equivalent of finance minister for the European Union is… well French. The French seem to be driven to cut England’s gigantic financial market share down to size, and rogue U.K. bankers (OMG, acting like rogue American bankers!) seem to have provided the excuse.

Can jolly old England avoid the master’s lashes and continue its relatively independent ways? The writing on the wall suggests not: “EU regulation of financial services may ultimately prove more of a threat to London than domestic taxation or anything the global regulators can come up with… Already, the EU has agreed on caps on bankers’ bonuses, as part of the new Capital Requirements Directive that will authorize regulators to draw up capital requirements for risky securitizations such as mortgage-backed securities. The U.K.’s FSA [Financial Services Authority – the regulator of all financial services in the U.K.], which has a similar, albeit less draconian, set of bonus guidelines in place, has signaled it will adjust the ceilings accordingly. Regulators will also draw up rules for proprietary trading to ensure banks are proper ly covering risk.

“But there is a tension between advocates of a supranational regulatory system -- both for the euro-zone nations and countries, such as the U.K. or Sweden, that remain outside it -- and those who believe national regulators should have the final say. The need for a single market, preferably with a unified rulebook, is not disputed, even by the U.K. But the U.K. struggles to fight off greater EU control, and it is not at all clear how far London's scope for recovery will be put at risk.” theDeal.com. As the ship sinks, perhaps it doesn’t matter when England sits in that leaky vessel.

I’m Peter Dekom, and right now nobody in the West, except bankruptcy experts, seems to be having a particularly good economic time.