I agree with Gareth on this one, really. Farepak shouldn't have existed, really, because as far as I can tell they were offering financial services in a way which was incompatible with FSA regulation.
My problem with the moral hazard argument is that there is no real information available to consumers to distinguish financial institutions. Northern Rock a few weeks ago, for example, issued a statement that they were not exposed to US sub-prime mortgages to any degree. At this time they were already looking for a buyer (had hired Morgan Stanley to find them one) because they knew that the increased cost of inter-bank lending was scuppering their business. I think that the various regulatory agencies have failed, essentially, to make this a decision which can made rationally by any savers or borrowers, so I'm not sure that not guarantee invested sums actually avoids moral hazard.
Despite what we see about gaining bounteous wealth from chasing a 0.1% interest rate difference, banking below say, an annual expenditure's worth, is actually a commodity exercise about keeping possessions safe and conveniently accessible, and I think should probably be regulated as such. I think it makes sense to guarantee savings up to, say, three times the median salary (I've no idea what that value is!), and then down at, say, 50% on the rest?
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Date: 2007-09-19 12:57 pm (UTC)My problem with the moral hazard argument is that there is no real information available to consumers to distinguish financial institutions. Northern Rock a few weeks ago, for example, issued a statement that they were not exposed to US sub-prime mortgages to any degree. At this time they were already looking for a buyer (had hired Morgan Stanley to find them one) because they knew that the increased cost of inter-bank lending was scuppering their business. I think that the various regulatory agencies have failed, essentially, to make this a decision which can made rationally by any savers or borrowers, so I'm not sure that not guarantee invested sums actually avoids moral hazard.
Despite what we see about gaining bounteous wealth from chasing a 0.1% interest rate difference, banking below say, an annual expenditure's worth, is actually a commodity exercise about keeping possessions safe and conveniently accessible, and I think should probably be regulated as such. I think it makes sense to guarantee savings up to, say, three times the median salary (I've no idea what that value is!), and then down at, say, 50% on the rest?