We can all agree that Bank directos and CEOs who presided over too rapid a build up in loans to people and companies who may not be able to repay are to blame if their institutions then fail or need access to public funds. We all agree they should not have advanced so much money, and should have secured longer term credit to finance more of their business. They should have raised more capital from shareholders in the good days to help pay for the expansion. To the extent that this is just a number of banks that have got into trouble we can blame their bosses.
But this is more than that. This was a credit binge aided and encouraged by Central Banks and regulators. Governments often played a leading role in borrowing more and more, and led the innovatory ways of borrowing without showing it on their own balance sheets. The following are also guilty:
1. The Bank of England, the ECB and the Fed all got monetary policy wrong. They set the wrong interest rates, and ignored the warning signs. They allowed a big inflation to take off, busting the targets they had been set.
2. The Bank of England and the ECB are getting the downturn wrong, keeping interest rates far too high and making recession more likely. The Fed has done better into the downswing.
3. The UK government was wrong to change its inflation target as the boom was building up. Their change encouraged the Bank to keep interest rates lower than was wise.
4. The UK government was wrong to take important powers away from the Bank of England in 1997, making it more difficult for the Bank to understand and respond to the monetary crisis it helped trigger in September 2007.
5. The UK government was wrong to go on its own borrowing binge, through PFI, PPP and renationalisation as well as through conventional borrowing, at a time of big credit increases in the private sector and relatively good growth.
6. The Chancellor was wrong to give a lecture on moral hazard and telll us there would be no bail outs just before the run on the Rock.
7. The UK government was wrong to nationalise Northern Rock, removing a big mortgage bank form the mortgage market at a time when the supply of mortgages was falling rapidly anyway.
8. The US authorities were wrong to try to introduce a package that did not have the consent of the American people, and wrong to try to sell it to Congress by painting a very black picture of the situation. That damaged confidence further.
9. The UK authorities were wrong to starve markets of funds on August-September 2007 leading to the run on the Rock.
10. The UK authorities were wrong to think no deal could have been done to save the Rock owing to their interpretation of the Market Abuse Directive.