In which Mr ABS feels vaguely impelled to go and work for the FSA.

The FSA was big news last week. It was rather shocking to see that the head of its retail division, who was also in charge of Northern Rock’s supervision, was rumoured to have left on a £300k-£400k severance package. This seems to stem from the school of thought that says you’re in trouble if you default on a £1m loan, but you’re fine if you default on £100m one.

Such a big severance payoff (loss) should be taken seriously. Citigroup and Merrill have already displayed their mastery at urinating money into the wind with their payoffs to Chuck Prince and Stan O’Neal. However, it’s upsetting to see that the practice extends to public services.

ABS dudes with honourable P&Ls have been thrown onto the street with peanuts and yet this FSA failure is free to walk away with the bonus of a mid-level banker in a good year.

The Sunday Times reported that the FSA needs to hire about 100 smart arses to uncover possible financial issues in banks, but that it would be very hard to hire the right type of people as the FSA is competing with investment banks who pay much more.

Well, I find the FSA severance package speaks to me. In fact it speaks volumes.

There are better interview punch lines than "I want to work for you for the severance package", but if what the FSA really wants to achieve is competent analysis of off-balance sheet exposure, then ABS and CDO people are probably the most qualified there are. And right now, there’s a plentiful supply of them.

If I was not enjoying my current assignment so much I would happily throw in three months of free work for the FSA, provided that they appoint me as the supervisor of my old shop. It is always good to settle old accounts.

In reality I am not so pleased with the coverage of the FSA’s acknowledgement of its deficient supervision. It is beneficial to analyse one of the causes of the Northern Rock crisis, but it should not be used as a distraction from the failure of the BoE to handle the crisis appropriately.

The FSA has the power to prevent, but the BoE was the institution which had the means to resolve the issue. Therefore, I was pleased to see that DeAnne Julius, a former Monetary Policy Committee member, had joined what is now my favourite pastime: Mervin King bashing.

Julius highlighted that it is essential for a central bank to make it clear that it stands behind the stability of the system. This is precisely what Mervin King repeatedly failed to do.

My BarCap friend has suggested that Mervyn should be tied to a lamp post in Soho and left to his fate. This might sound a bit drastic, but after all he has heavily contributed to the UK market going through the equivalent of a night at the Vauxhall Tavern.

If things are still seemingly holding up in the UK it is because large banks are in a position to benefit from the positive actions of overseas central bankers. The BoE PR machine was working at full steam at the beginning of last week, and what a happy coincidence that the FSA should acknowledge its mistakes at around the same time. It is a shame for us and a total disgrace generally that the BoE is incapable of showing any humility whatsoever in this matter.

Last week I met a Bear Stearns banker who had just finished refurbishing a flat he bought a few months ago. Instead of moving in with his family he now has to put it back on the market. I feel for him. If I had any sense left, I would do the same.