The way Labour and the BBC framed the debate yesterday about financial regulation was typical of the skewed view of the what is going on that now passes for public debate in this country.
The Labour spokesman on Newsnight tried yet again to blame Margaret Thatcher for the crisis for “deregulating” the banks in 1986. If that policy was so wrong why did they not reverse it in 1997? If it was so bad, why weren”t the banks in financial trouble ten years later on the eve of Labour coming to power? Did they not notice that she kept in place strong regulation of capital and cash by the Bank of England, which worked? No bank over lent and overstretched in the way they have been doing this century because they were not allowed to. As Michael Fallon rightly pointed out, it was Gordon Brown who put in a new system of regulation in 1997. It was that system of regulation which failed to control the over expansion of bank activities with too little cash and capital in some cases to support them.
Even more ridiculous was John Mc Fall’s further attempt to blame the Conservative’s Economic Policy Review for recommending “the deregulation of mortgages”. If he could be bothered to read the Report and be accurate he would have stressed how right we were to tell the government they needed to regulate the capital and cash of the mortgage banks, not the process of granting the mortgages through a useless box ticking procedure which demonstrably did not prevent the disaster which hit the mortgage market. The government designed expensive and complex new mortgage regulation which did not stop a single excessive mortgage being lent to someone who now cannot repay, and did nothing to keep Northern Rock solvent. They destroyed a regualtory system which had kept all main banks solvent for more than 100 years.
The argument should not be about light touch or heavy handed regulation.Lurching from so called light touch to heavy handed will not help. There is no susbtitute for having just a few good regulators who know how to control cash and capital for banks and near banks. The Bank of England used to do that. It is a pity it was stopped from doing so during the period of irresponsibility , 2003-6. This disaster happened in a heavily regulated industry, regulated to Labour’s standards under a new and expensive system designed by Labour in 1997.