Politics, politics........

And so it starts. 

As I write this week, political parties of all colours are launching their manifestoes, blitzing the media, and indulging in the inevitable mudslinging that leaves you under no illusion that a general election has started.

Interestingly, never before have decisions about the future of our industry had so many ramifications for our ability to do just about anything else. Whether defence, health, or education, the financial crisis is now affecting our view of how much or how little we can do with all these important areas of public policy.

The Financial Services industry and the City of London in particular, have become amongst the most important features of the UK economy. But the financial crisis has focused everyone’s critical faculties (some greater than others) on its contribution. Of course, there have been and continue to be considerable benefits for UK plc from our industry, but, as we have now discovered there were also major systemic risks which spilled over into the rest of the economy. It is the job of politicians as policy makers to cut the risks relative to the benefits. But, short of sound bites about bashing bankers, and more regulation, little will be heard about this.

This is a shame because the mortgage market faces decades of instability unless the Government addresses the impending funding gap, which will widen by a further £312bn with the cessation of the Govt special schemes in 2012 and 2014.  


Industry insiders are all concerned by the scale of the problem facing mortgage lenders if wholesale funding continues to be difficult to come by. There is no silver bullet to this funding issue. Retail funding is as vulnerable to market change as any wholesale model, is too small in relation to the overall funding gap and is inherently short-term in nature when what the markets requires is a medium to long-term funding solution. Given, the volumes of maturing debt, as well as the need to continue new lending, there is a case for the Bank of England to extend the SLS, or better still, replace it with a long-term liquidity mechanism and work with the industry to allow securitisation and covered bonds to be seen as attractive and safe instruments for investors again.


Most recent comment by both Mervyn King and Lord Turner give some encouragement in this regard.

Parties will trade blows over cuts, the timing of cuts, and headline giveaways. But my overall impression is that the electorate will remain unaware of the major economic choices and their ramifications. 

Perhaps that suits us, perhaps it does not. I worry that in this election, too many may be fiddling while Rome burns.