What a surprise; more financial failure in the UK. A second property fund has frozen withdrawals, trapping over 129,000 small savers into a rapidly disintegrating investment. Scottish Equitable, one of Britains biggest funds, said it no longer had sufficient cash to meet the demands of panicked investors.
Property fund investors have plenty of reasons to panic. The UK commercial property market is in an unprecedented crisis. Property values, especially in London, are falling rapidly, and investors are desperate to cash out.
As investors are on the verge of losing billions, what is the Financial Services Agency doing? It is "monitoring the situation closely". Monitoring, schmonitoring, that means it is doing nothing.
Like the Northern Rock crisis demonstrated, the FSA have no capacity to monitor, identify and assess financial sector vulnerabilities. When financial panics occur, the FSA are incapable of action. It is an institution hard-wired for failure.
The FSA is a defective, inadequate and malfunctioning institution. It is time that it was wound up, with the Bank of England regaining its traditional responsibilities for supervising the financial system. It is too late to save Northern Rock or the Scottish Equitable property fund, but liquidating the FSA might avoid similar failures in the future.