Lord Adair Turner, Baron of Ecchinswell, Chair of the Financial Services Authority, Hammer
of the Spivs.
From quiet beginnings, Turner has stolen the limelight, demanding that bankers prove their own worth to society, rather than their corporate superiors. But despite the hard words, much of Turners statements are full of hot air. Launched into obscurity as the collapse of Lehman Brothers took up the column inches during his first week at the FSA, Turner has refused to let the crumbing banks drown out his voice. In March 2009, the FSA published the much admired Turner Review, a 126-page analysis into the financial crisis. The Review won many plaudits, mainly because it came at a time where people where desperately seeking direction.Let us not take anything away from the Review, it remains the best in-depth analysis of the crisis yet published, but there was more to the Review than analysis. Landon Thomas Jr., of the New York Times summarises well, saying that it combined eye-catching charts, intricate economic analysis and an overlay of thinly veiled disgust.This disgust boiled over in a recent interview for the intellectual Prospect Magazine, where Turner stated that parts of the banking system had grown beyond a socially reasonable size. Spivs and Speculators, or those aligned with short-term profits, the products that contributed to the mess, such as some of the more complicated CDOs, and the size of the financial sector, all seem to be at the centre of Turners ire. Many have not taken kindly to such criticism. Boris Johnson, the Mayor of London, called a tax on city profits crackers. Anything that angers the financial industry to such a degree must have an element of truth. However there are two factors that have been overlooked during the exchanges of vitriol between Turner and the financial industry.First, it is unfair to wag a finger at bankers for not thinking about the social implications of their actions. No-one went into the financial industry due to a moral imperative. They did it because they wanted to get rich. Second, by admitting that he doesnt agree that regulators should be saying: product X bad, product good, and by refusing to get drawn to the populist but important debate regarding remuneration, Turner fails address the major problem that occurs during all booms; regulators lack the power or the confidence to stop a boom turning into a bubble. By advocating high capital requirements which create hurdles for new products, Turner is hoping to stop the problem before it has already begun. This is a fanciful notion. Bankers have proved that they will come up with insidious ways of circumnavigating regulation. Look at side-pockets, a method where hedge funds separate illiquid assets from other more liquid investments. These side-pockets were created so the fund managers performance fees were not dragged down by illiquid assets that were hard to value (back to remuneration again), and to give the manager power over the assets, as a investor wishing to make a redemption cannot receive any part of his investment that is in the side pocket account (the principal-agent problem
that plagues finance). Hedge funds are seen as the brightest and the best of the asset management industry, hence their innovation. Turner laments that too many of the brightest and the best graduates go into finance. These bright sparks will be eager to prove themselves to their managers, and what better way to prove yourself than by finding a loophole in the new regulation. Perhaps Turner should make an example in order to be better understood. Banning side-pockets, for example, and not fretting that a portion of the hedge fund industry may move to Guernsey, would be a giant step in showing that regulators are willing to bite as well as bark. Turner has shown himself to be strong enough to stand up to the financial industry, now he needs to take aim at the technicalities, rather than hammering the easy targets.