Martin's Mailbox: A new dawn

Martin's Mailbox: A new dawn




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This promises to be a big week for the world’s leading politicians. Across the Atlantic, President Obama faces a tense showdown today (Tuesday) with his Republican challenger and former Governor of Massachusetts, Mitt Romney. The polls tell us the two are neck-and-neck on a national voting preference basis but that Obama has a narrow – and probably decisive – lead in the seven or eight ‘swing’ states that will decide the election.

It’s gladiatorial stuff on an epic scale and makes this the tightest-contested US election for decades. It also offers Americans a clear choice between two very different political ideologies: Obama promises even bigger Government and a further move towards European-style social democracy; while Romney favours a shift back to Eisenhower-era America when the state stayed out of the way of the awesome entrepreneurial machine that has made the US what it is.

Whatever your allegiance… the outcome matters. If America is able to get its economic house back in order quickly we may begin to see a growing confidence among the big financial players. This will filter through to all of us in a variety of ways. If on the other hand the US remains deadlocked on both the political and economic fronts, the tough times of recent years will stay with us for a while longer. This is why I’ll be tuning in tonight to see how the battle unfolds.

Closer to home, Prime Minister David Cameron is due to meet this week with Germany’s own ‘Iron Lady’, Chancellor Angela Merkel. Behind the warm handshakes and beaming smiles the two leaders will be asking some tough questions of each other. Principally, Merkel will demand to know what the hell is going on as regards to Britain’s relationship with the crisis-torn EU. Cameron – still smarting from his humiliation at the hands of 53 rebel Tory MPs and an opportunistic Labour Party – will struggle to play a convincingly robust hand.

Whilst altogether less glamorous than the US election, the outcome of their discussions matter. It could determine our very future in the EU and whether we, the British people, are finally offered an opportunity to express our views. In or out, the consequences will be significant and undoubtedly game-changing for the UK economy.

With such historic events unfolding, it’s easy to forget the bridging sector has recorded its own little bit of history in the past week or so. Yes, the FSA has finally pronounced. With the finished version of MMR 2012 now in the public domain, we know what to expect when the rules are implemented in April 2014.

As expected, the regulator has incorporated bridging into its rulebook and regulatory regime. Many of its conclusions make a degree of sense and can be relatively easily accommodated. I’m thinking in particular of its approach towards loan extensions, affordability tests and credit repair scenarios. Far less certain, however, is what the FSA is seeking to achieve through its capital adequacy requirements.

We know now that one reason for the shocking developments of 2008 was a failure among banks to protect themselves from losses by having sufficient capital reserves. Quite rightly therefore, regulators around the world are insisting that banks are adequately capitalised. But should the same really apply to small-scale short term lenders, many of whom employ just a handful of staff and provide a tiny proportion of national lending? The failure of such lenders hardly threatens to bring the whole global financial edifice to its knees; nor would it seriously damage consumers.

Some wise words have been expressed in response by the likes of Benson Hersch, CEO of the astl, and Ray Cohen of the eponymous and well-respected compliance firm. You can read them here on my host’s website.

Whether anything can be done to moderate the FSA’s view is now doubtful. But I have a real concern that this component of the MMR will have long term consequences for the bridging sector in the form of raised costs and by forcing out some providers. With other lending sectors still moribund, how is this helpful?

A big week indeed and the dawn of a new era for many of us.

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