Who knows how to run a bank or two?

In the distorted world of Westminster and its client media Mr Brown and Mr Cable are held up as economic and financial experts. After all, we are told, Mr Brown was Chancellor for many years, and Mr Cable was once an energy economist at Shell.

Neither man has ever run a large private sector company – or for that matter a small one. Neither knows what it is like to be responsible for paying the suppliers and the wages, keeping the bank manager happy and trying to make a profit all at the same time. They have no comparable experience to that of trying to run a big bank.

Nor has either any especial expertise at money markets, government bonds markets and how banks work. Neither has held a job which depends on reading and understanding fast moving markets and acting to make a profit in such markets.

Both are intelligent and hard working people. But both are to their very finger tips modern politicians. They live by the soundbite of the day. Their lack of experience in what matters in this crisis has led them both to the misguided view that we need to nationalise the big banks. It leads the government to mumble that having nationalised them they should be left to get on with their own business without undue political interference, as if the owner can ignore its main investment and offer no leadership or even set out consistent and sensible aims for that investment.

Taking on banks with assets – and liabilities – well in excess of £3 trillion when the annual revenues of the state are less than one fifth of that sum is to take far too big a risk. To do so without setting out how you are going to cut the risks and manage the assets sensibly is dangerous.

We need to control the risks, sell the foreign assets, wind up the casino banks within these banks, take the losses and create a more stable and smaller footing from which they can trade sensibly. Doing it Mr Brown’s way means the taxpayer has to foot the bill. What have we done to deserve such brutal treatment?

We need the government to get a grip on these wayward banks. They do indeed need to be “cleaned up” and cleared out”. So why is there no statement of how this will be done, how much it will cost, how long it will take and when it will start? Why can’t public and Parliament see the business plan, as we are paying dearly for it.

RBS and LLoyds now dominate the public finances.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

25 Comments

  1. Blank Xavier
    Posted March 7, 2009 at 11:06 am | Permalink

    I am deeply worried by Government control of major banks.

    The current Government believes bank lending is absolutely vital and is now forcing it upon these banks.

    These banks may or may not agree that bank lending is absolutely vital, but they are *not* lending because in their best estimate of the future (and these are professional bankers, as opposed to professional politicians), they will need that money *to survive*.

    I am concerned that the Eastern European economies are going to start failing (Hungary and Latvia first) and that this whole economic crisis is going to become *much* worse.

    Will these nationalised banks then survive, given how much money they are being forced to lend? if they fail, that will be far worse than if they had not lent this money.

    Right now, in my view, if we get away with what the Government is doing, it will be through blind luck. You do not run a country – with the lives and fortunes of 61 million people – on blind luck. Sooner or later your luck will fail and disaster will be upon you.

  2. Duyfken
    Posted March 7, 2009 at 11:35 am | Permalink

    Mr Redwood, you would be an excellent candidate to fill the position, but of course, as a Tory MP, albeit apparently labelled “a maverick”, you are automatically disqualified. Should not Sir Eddie George be prised away from his retirement and privacy, and be press-ganged into the role?

  3. Posted March 7, 2009 at 11:37 am | Permalink

    Reintroduce the Glass Steagall act or something very much like it until a new international accord on bank regulation can be agreed. It may have been restrictive in its time but it would have the effect of separating the good from the bad in banking. This would make a start in removing the uncertainty in the financial markets that underpins the credit crisis.

  4. Kit
    Posted March 7, 2009 at 12:12 pm | Permalink

    I just want someone to tell me why NR, B&B, HBOS and RBS were to big to fail. It is looking as if they were to big to save.

  5. Posted March 7, 2009 at 12:30 pm | Permalink

    Their plan is to bring in the bankers who failed in the first place. Including Sir Victor Blank. Forgive the pun, this man, Gordon Brown’s very close friend, signed a “blank” cheque for HBOS to save Brown’s face. Paul Myners, (words left out), Sir James Crosby, bailout adviser Klein. The list of cronies who (were involved in the financial system which went wrong -ed) is scary and very undemocratic.

    Yet we are having to watch whilst the arsonists dance around the flames cheered on by Brown and his government. Depression is round the corner, I’m sad to say.

  6. Chrysippus
    Posted March 7, 2009 at 12:55 pm | Permalink

    With all due respect John, at least Vince has a PhD in Economics, so should know what he is talking about.

    I put more faith in him than either Brown or Darling ( ex historian and lawyer respectively!).

  7. chris southern
    Posted March 7, 2009 at 1:22 pm | Permalink

    Proffesional politicians were destined to fail due to lack of real business experience and ego.
    They are ushering in the new feudal system where the tax payer becomes an economic slave providing the needs of the whims for the new oligarchy.

    Browns actions as chancellor and P.M. should be taught in history at high school from now on so that people realy learn from all the mistakes he has (and still is) making.
    that way some good comes of this sorry twelve years.

    I would personaly be getting advice and help from one of the main canadian Bankers, as they haven’t had any problems.
    Instead Mr Brown highers gambling addicts to look after the peoples monetary future, pure incompetence.

  8. Josh
    Posted March 7, 2009 at 2:22 pm | Permalink

    Mr Redwood, I know this is completely off topic, but what do you think about Cleggover’s speech yesterday, blaming Lady Thatcher for this crisis? As somebody said on the Spectator website, do you think the loony left of this country would blame the South Sea Bubble, every penalty missed against Germany and the Charge of the Light Brigade debacle if they could?

    reply: Of course. Mrs T left office 19 years ago. The banks were then prudently run with a regulator, the B of E, who made them keep good levels of cash and capital. It all went wrong under Brown’s more intrusive regulatory regime, where they let them borrow far more.

  9. no one
    Posted March 7, 2009 at 3:42 pm | Permalink

    Well you are making a good point that parliament is not representative
    You are right it does not have a representative sample of business leaders, or even folk who have spent most of their life in private sector organisations
    But it also has too few working class accents
    Too many lawyers
    Too many ex local government staff
    Too many ex teachers
    Too many people from the public sector in general
    This is sadly down to the way the parties select their candidates
    And also for anyone in a fast moving high tech career taking 5 years out to sit in parliament is a much bigger risk than for many, as in 5 years time technology in their chosen career will have moved on so much they will be pretty well unemployable back in their previous job, so the system stacks the odds so that folk with cushy public sector jobs that they can go back to, or in slow moving old fashioned career paths will tend to put themselves forward as candidates more
    And of course we would do better with more mild mannered unassuming folk, the very folk least likely to put their names forward as a candidate
    It not just finance that parliament lacks skills in, there are a whole long list of other subjects they don’t really have a representative balance
    The government does need to get a grip on a whole bunch of issues from our finances, to the health system, to the Afghan campaign, to the education system, to the waste lands of public sector housing perpetuating generation upon generation with no hope, to our lack of competitiveness in the world (devalued currency wont work when the workforce is so badly trained etc)
    sad so sad

    • alan jutson
      Posted March 7, 2009 at 6:28 pm | Permalink

      Exactly
      It often concerns me that we have Ministers who have no real life experience in anything they are in charge of, running a National Department.

      No Accountant/Auditor as Chancellor.
      No Doctor running the Health service
      No Armed Service person running Defence.
      No Architect or City planner running Housing.
      No Teacher/Headmaster running Education.
      No CEO as Prime Minister

      Then every couple of years they play musical chairs and all swap jobs.

      They seem to rely completely on advisors (none of whom have been elected) and as as they have no experience, do not seem to question the information given.
      I am given to understand that Sir Fred Goodwin was still an advisor to Gordon Brown on Banking until January !!!!!

      Combine this with no business experience where their own money has been put at risk, and its no wonder we are failing.

    • mike stallard
      Posted March 8, 2009 at 12:12 am | Permalink

      This is a foul slur on Ruth Kelly. She, and many other colleagues, has been working on her accent for some time now. With, I may say, entirely convincing results.

  10. Posted March 7, 2009 at 4:00 pm | Permalink

    It is not just the banks alone that the government has shackled itself to, it is the whole network of connected financial dealers and movers of money to whom those banks are central. So who is at the wrong end of all this? As well as the taxpayers, there are a very large proportion of the people who live in leasehold properties and whether they like it or not are committed to property management services that have turned themselves into or have become integral to companies that are in essence financial dealers in the middle of the financial mess. The horrors of this are just beginning to emerge, and those who will suffer include hundreds of thousands of the very elderly in sheltered housing.

  11. Paul from MK
    Posted March 7, 2009 at 5:51 pm | Permalink

    If anybody is puzzled over how America with its “free markets” can possilbly be the cause of all our woes, there is a very good explanation on this link, which first saw on The Bishop Hill Blog.
    http://www.aynrand.org/site/PageServer?pagename=reg_ls_financial_crisis

  12. Posted March 7, 2009 at 6:15 pm | Permalink

    Mr Redwood, who owns the Bank of England?

    and

    what is BANK OF ENGLAND NOMINEES LIMITED, (BOEN)?
    private limited company, no: 1307478

    Surely in adopting Gordon Browns moral banking system and in the interests of transparent banking, we should know.

    I only ask…as it looks like the ‘conservertive party’ may be asked to form the next Government.

    Reply The Treasury owns the shares in the B of E on behalf of taxpayers.

  13. Posted March 7, 2009 at 6:22 pm | Permalink

    oops…….. I should have mentioned Blackstone and his “Commentaries on the Laws of England”.

    He explained the separation of legislative and executive functions

    The LEGISLATURE consists of the King, Lords and Commons and the EXECUTIVE of the King alone.

  14. John Moss
    Posted March 7, 2009 at 8:55 pm | Permalink

    We have this ridiculous situation where we own th ebanks, but don’t exercise control. Why?

    JR makes several sensible suggestions. Selling foreign assets, running down the “casino” acitivities etc. Why doesn’t the Government tell the banks to do this?

    After all, we own a majority of the shares and it is “the right thing to doo! (you have to have the accent!)

  15. Vaughan
    Posted March 7, 2009 at 9:33 pm | Permalink

    John,
    the Maggie message is a powerful one for Labour as I found today.The miners strike programmes on tv this week still hit a chord(part of the propoganda process?). I was told in a lively discussion that the current maliase is Maggie’s fault for liberalising the financial sector!
    Labour seen as the working class party!If there has been one enemy of the white working class over the last 10 years it has been ZNLAB. This can be easily demonstrated and needs to be clearly explained.Let them know how they have been conned.
    There also needs to be some effort to explain how broken Britain can be repaired. Former mining communities stiffed on heroin is an apalling tragedy.Can we mine coal again?This would be an uplifting message and a unifying national . Are we stuffed by green/Europe etc?What is in the national interest?

  16. Denis Cooper
    Posted March 7, 2009 at 9:49 pm | Permalink

    Surely all these banks are plc’s, Public Limited Companies?.

    Therefore in the event of failure the liability of the owners, the shareholders, is limited to whatever capital they have put into the company.

    (Plus whatever they have previously promised to put into the company, if there are part-paid shares).

    That would continue to apply even if the UK government acquired all the shares of one of the banks, which would be the mechanism for its nationalisation, unless the government made a separate promise to meet all the existing liabilities of that bank.

    There would be no reason for the government to make such a promise. All the bank’s creditors knew that they were dealing with a plc, whose shareholders had limited liability, and they couldn’t claim that the UK government had accepted unlimited liability by acquiring the shares.

    There are certainly some cases where investors (knowingly or not) accept unlimited liability for losses – the one that springs to mind being the fools who thought it was the height of fashion to become a “name” at Lloyds in the late 1980’s – but this would not be such a case.

    However … Alistair Darling has already made a promise, not to accept all the liabilities of these banks, but to recompense them for their past stupidity if it turns out that the dodgy assets they’ve put in his Asset Protection Scheme are worth less than his guesstimates.

    If he’s got the valuations about right, there’ll be no great problem; but if it turns out that they’re really worth a lot less than his valuation, then he’ll be handing over tens, possibly hundreds, of billions of pounds.

    And that would be a gift from the taxpayer to each bank, not a loan to be repaid with interest over a period of years once the bank was back on its feet.

  17. Posted March 7, 2009 at 11:33 pm | Permalink

    “Reply: The Treasury owns the shares in the B of E on behalf of taxpayers”

    Hmmm…. but as a subject of the crown, I am not legally bound to this unlawful levying of money by the Crown without the consent of parliament.

    No parliamentary consent has been given for these bailouts or for that matter the levying of BoE funds through quantative easing

  18. bill
    Posted March 8, 2009 at 12:13 am | Permalink

    Make you wonder why we have 640 plus MP’s

    It seems alarming that so many of these decisions of great magnitude are taken without the sort of debate in parliament that you would expect.

    There is a better debate on the web than in Hansard.

    Added to this the reductions in base rate aren’t explained very well by Mr King, he doesn’t instil confidence. At 0.5% he’s got the rudder hard over and has gone almost as far as he can go.

    Yet everyone knows that the effect of a change in rate takes a few months at least to kick in.

    Mr Brown says little about those people who have saved and now are being penalised for their thrift, forced to endure council tax rises, yet their investment income is drastically reduced.

    I for one don’t feel that the executive are given the level of scrutiny that there should be.

    Think back to the big “Set piece” interviews of Robin Day and Brian Walden where the PM had to endure an hour or so of questioning, there was time to pursue the integrity of the answers in a way that there isn’t today.

    • alan jutson
      Posted March 8, 2009 at 10:23 am | Permalink

      Do you really think Brown et al would allow themselves to be interviewed for an hour, even if we still had such well informed and formidable interviewers.

  19. mike stallard
    Posted March 8, 2009 at 12:23 am | Permalink

    I have been reading the posts and the blog for some time now.
    I have watched the mood turn from incredulity and concern to frustration and anger.
    I now sense a new mood emerging.
    It is determination to do something and to fight off despair.
    The problem is this: this blog seems t me to be the only place where sensible, constructive criticism exists!
    Labour List (just changed the editor) is hopeless. I tried Liberal Voice then banned it. Conservative Home is better.
    But I still am not hearing a cohesive critique from the conservatives.
    I was thrilled to see that our host is going to address the Bruges Group and hope there will be a webcast to follow there. But there isn’t much else.
    There seem to be two things which the Conservatives must address if they are to reflect this new mood:
    1. The reform of parliament.
    2. The economic crisis – yes, crisis – which has been entirely brought about by New Labour.

    • alan jutson
      Posted March 8, 2009 at 10:25 am | Permalink

      Mike

      Agree the Conservative Party have to show some real backbone, leadership, and yes start to get angry (in a controlled manner), its their Country too.

  20. Ian Jones
    Posted March 8, 2009 at 2:41 am | Permalink

    Simple requirement, Gordon needs banks to restart lending to companies (to reduce the unemployment issue) and mortgages (to reduce the negative equity issue). Therefore he takes over the banks and LEGALLY forces them to lend.

    This is entirely political with the need to be re-elected in 14 months time.

    Until people realise this then they will not understand Brown’s actions!!!

    I finding it truly frightening that one man can have so much power, even the President of the US cannot do this alone.

  21. Denis Cooper
    Posted March 8, 2009 at 8:10 am | Permalink

    Correct.

    This particular scheme for “quantitative easing” has been designed primarily to ease the government’s political pain, rather than to help the economy.

    The government funds its budget deficit mainly by selling gilts, but as it needs to sell more and more gilts demand wll start to dry up.

    Therefore the cunning plan is that while one arm, the Treasury’s Debt Management Office, will continue to offer new gilts for sale as before, another arm, the Bank of England, will use newly created money to buy up existing gilts, so ensuring that there’ll always be sufficient demand for the new gilts.

    The net effect will be that much (about two thirds) of the new money created by the Bank of England will quickly find its way into the government’s coffers, enabling it to maintain or increase public expenditure at a time of falling tax revenues.

    To clarify: the Bank of England creates £150 billion out of thin air, and spends £100 billion of that to mop up surplus gilts from the secondary market, and even create a shortage, so making it much easier for the Debt Management Office to sell £100 billion of new gilts to investors, and the money received from those sales is deposited in the government’s account.

    That’s an account held at the Bank of England, as I understand, so wouldn’t it be more straightforward if the Bank of England just credited an extra £100 billion to the government’s account?

    Incidentally, the answer to the question “But will this extra money injected into the economy be spent, or saved?” is that once Alistair Darling has got his hands on it then he will definitely spend it, and no doubt we’ll find out more about the intended beneficiaries in the Budget.

    I’ll leave it to others to speculate about the possible electoral implications of this.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

    Promoted by David Edmonds on behalf of John Redwood both of 30 Rose Street Wokingham RG40 1XU

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page