:LPE:

After being cited by the IMF and the head of the largest non-bank financial institution in Canada as “something of a joke”, the OSC is mulling over changes to the way it does prosecutions. It’s true, their record is not good of late. The article in today’s Globe was short on detail; hopefully there will be more about the actual process.

There are two main theories floating out there: that increased competition among regulators (and exchanges, which do some regulation through standard setting, rather less through prosecution of abuses) will increase enforcement and tighten laws, because investors will demand better standards or go somewhere else. The other theory is that increased competition among regulators and exhcanges will permit issuers to shop around and use the exchange with the least restrictions, because issuers will demand it. There are all kinds of tweaks to these positions, such as home-country bias, liquidity effects and preferences, etc.

Wall St. has just spent 5 years saying that SarOx and Spitzer put the bar too high, and caused issuers to flee to London. They seem to have forgotten Enron. Bay St. would likely have the same reaction, and both seem to support the second of those theories of securities regulation in a global market for capital. The professionals in both those streets have tended to work for issuers and not investors (though some do for institutional investors, who are, despite Claude Lamoreaux, notoriously passive with respect to securities prosecution).

We’ll see what tack the OSC takes.

The Bank of England is putting together a bailout package for chartered banks that would relieve them of their risky mortgage investments. This is somewhat akin to the US package, where the federal reserve now permits commercial and investment banks to use risky mortgage investments (read: junk) as collateral on loans from the bank at below-market rates.

In addition, although the Fed, BoC and BoE have lowered lending rates to banks, banks on the whole have not lowered lending rates to customers, or only slightly. Prime commercial or personal lending rates are about what they were a year ago, despite massive cuts to interest rates. The commercial banks are pocketing the difference, and the credit squeeze continues in the broader economy.

In short, both quasi-government institutions are providing a massive subsidization of reckless lending behaviour. No other industry would receive this treatment without a significant public debate, and a debate that is separate from more or different or better regulation. This debate should be about whether bailouts and the use of (semi) public money should be allocated this way.

GM has published a position paper prior to bargaining that claims that employees cost $77.75 an hour, $30 an hour more than Japanese manufacturers in the U.S. Interesting comparison: what do GM workers in the U.S. get paid? In addition, pension costs to former workers, now retired, are part of the the $77 figure. If GM is seeking concessions from them now they have retired, they have broken the pension deal. Lastly, the GM pension plan is significantly under-funded as it is: for years they have been promising pension benefits without paying for them.