Comment: Lessons unlearned as big banks get back to their bad old ways

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THE BIG high street names are domineering bullies, the regulator is too timid, the global supply chain is out of control and consumers are left with the mess that invariably results.

The patterns in the horsemeat scandal are all too familiar. The criticisms aimed at the government and the Food Standards Agency for their handling of it, with both accused by MPs of being caught “flat-footed”, offer a timely reminder that the other FSA – the Financial Services Authority – will be defined by its failure to deal with the financial crisis.

The parallels between the two FSAs are too easy to resist. Even on a basic level we have two markets seemingly populated by products containing unwanted or unknown elements created and supplied by an elaborate chain of agents that has become impossible to trace. Products are diced, sliced and redistributed until no-one knows exactly what’s in them, yet with consumers ultimately paying the price while those at the top profit.

At the top of each market are a handful of corporate giants who have become too powerful, not just with the consent of regulators and government, but with their co-operation too.

When it all blew up, the action of the regulators was akin to trying to close the stable door with the horse long out of sight (if you’ll excuse the pun). They were left impotent in the face of globalisation and rampant free markets. The FSA of the City regulator variety is replaced next month by the Financial Conduct Authority (FCA). It takes over with the threat of another crisis very much alive. Wall Street banks are quietly getting back into the risky areas that corrupted the market in the first place, while the pace of cultural change in the UK is proving glacial.

Do you remember how things were expected to evolve in the wake of the banking crisis? The banks that got us into such a mess would never wield such influence again. We’d move down a scale and go back to basics, in the same way that some believe the problems uncovered in the food market could spark a resurgence in 
locally sourced produce.

Faced with a fundamentally systemic problem, however, we’re getting sticking plaster
solutions. Compared with where we were four years ago it’s business as usual, for all the finger-pointing, commissions, hearings and reforms. The culture is the same, as is the system. We could pay a heavy price for failing to go further and there won’t be much the FCA can do about it.

Today we report on the improvement in mortgage availability for first-time buyers. It shouldn’t be confused with an improved outlook for the wider housing market, however. There’s been much talk of late about the gathering momentum of the recovery, largely on the back of sales increases at the end of last year. In Edinburgh, estate agents tell me demand from buyers is such that there’s now a shortage of homes on the market, with sellers still lacking confidence and waiting for prices to rebound some more.

It could be a long wait, however. Only a shortage of affordable housing will support house prices over the coming years, because the other fundamentals are still lacking. Most obviously there’s the yawning chasm between earnings – which have been stagnant at best for some time – and house prices that are still too high.

Remortgaging is down to its lowest level in 15 years, despite the reduction in mortgage costs since the funding for lending scheme (FLS) launched in August. Lenders have kept their standard variable rates (SVRs) high even as they’ve slashed their fixed-rate deals, but few people seem to be taking advantage of those cheaper fixes. As today’s article points out, that may reflect the disconnect between the attractive rates promoted by lenders and their willingness to actually lend.

The fall in lending in January, reported by the banks earlier this week, may prove a timely reality check after several months of increases. Homeowners should be encouraged by the tentative return of first-time buyers and the belated reduction in mortgage rates for those without large sums to deposit. Yet it seems there’s still a reluctance to put homes on the market, particularly at realistic prices. With lenders and first-time buyers getting reacquainted, now might be a good time to sell before prices fall again – as surely, and necessarily, they will.