Witch hunting was always an unpleasant and overrated pastime. It is popular today. Many people have been out to hunt down the criminals, the fools and the incompetents who they think caused the Credit Crunch.
Who was to blame? Apart from the bankers and other financial experts who lent too much, the regulators failed to stop them. The whole Tripartite system of regulation was tried and found wanting by events of the last decade. Not one single senior person in any of the 3 supervisory institutions of Treasury, Bank and FSA thought the banks were lending too much. Not one tried to blow the whistle on the most extraordinary credit binge any of us have seen. They did not lack powers to stop it if they wished. They did not lack information. You could see it by reading the balance sheets of the top four banks in the country, something you would expect the senior people in all 3 institutions to do as a matter of course. You not only had to read them, but to show some judgement. You needed to understand that the new rules allowing such excess were foolish.
The important issue is not which individual or which individual institution was more to blame. Itās water under the bridge now. The big issue is why are we still operating with the same system? What have regulators learnt from this dreadful experience? How can we be sure someone next time round will have a clear understanding of what needs to be done? We need them to answer the following questions:
What are the regulatorsā views on the degree of bank support? When will they force the stateās clients banks to cut costs, improve their business, and sell off assets to repay the money they have received? Isnāt it time the taxpayer got some money back from those banks? Isnāt it time they cut the top pay and the excesses , to try to make a profit for taxpayers?
Do the regulators agree the banks in the UK are too big to bail and too big to fail? When will they start splitting them up to create a more competitive and more manageable sector? Surely they could separate out the profitable foreign banks from RBS and sell them? Couldnāt they close down or sort out the large investment bank within RBS and pass that on, so taxpayers do not have to take all those risks?
Do they agree that appointing more and more regulators, and ticking more and more boxes failed to create orderly markets and successful regulation? Do they understand that having one or two senior people with judgement would have transformed the situation, as it needed someone to see the overall problem?
Why do they think they now need more people and better paid people? Why canāt some of the people we have already make the big judgements you need to make to regulate successfully?
Why is the Monetary Policy Committee of the Bank of England happy with the current level of government deficit? Does it not foresee funding problems ahead? Why doesnāt it raise interest rates a little, to offer some return to savers, and to bring its rate more into line with reality?
How does the MPC think it can get the UK off quantitative easing? What is its current view of our inflation prospects, given last yearās devaluation and this yearās commodity price rises?
Is any regulator concerned about a bond bubble?
It is my view ā and has been throughout the last fifteen years ā that the Bank of England is the best body to undertake the related tasks of supervising the banks, managing the money markets and setting interest rates. The Bank did not distinguish itself in the last decade, so I am not proposing powers for them based on any witch hunt against the FSA. It just makes sense to look at money markets, credit creation and the price of money together. You still need to find good people to do it, but it makes their task simpler if they control all the relevant levers and have full responsibility under the Chancellor for the results. If you did that well you would need a big army of box tickers, looking the other way on the things that matter. If the Bank coulld smooth and control the money markets properly, we would not have such violent swings. We could start to dampen boom and bust.
June 25, 2009
Today we mock those Soviet planners that thought they could decide the price of bread. How we laughed at the empty shelves, the queues or the mountains of unwanted loaves. And yet we still believe a committee room of planners , the Bank of England, can choose the right price of money.
The financial system is too complex for even our most talented to control by pulling a few crude “levers”. Even Gordon Brown failed and, as we were repeatedly told, he was our greatest Chancellor š
June 25, 2009
Of course in a democracy one expects the government to answer properly legitimate questions. However the limits of parliament to require proper answers are all to obvious, but perhaps not to all the electorate.
What should the speaker of the house do? or the house do to remedy this issue in the future? Is this a constitutional issue?
June 28, 2009
I am confused by your question “Is any regulator worried about a bond bubble”? The prospect of raging inflation and credit weakness both of corporates and governments (particularly in the Euro area where the Italians no longer have the option of devaluing) are going to prevent any irrational exuberance in the bond market.
As for regulators worrying about this, it seems to me that regulators were largely to blame for the bubble in sub-prime lending. You didn’t see many unregulated hedge funds loading up on SIVs and CDOs; in fact their shorting of the equity in banks that were eventually punctured the bubble. Predictably enough the EU seeks to hobble these very hedge funds by increasing regulation of them.
July 3, 2009
Well, boom and bust is simple to erase. All that needs be done is for the government to issue its own currency. Private banks issuing currency for bonds along with money creation through credit is basically a Ponzi scheme thereby doomed to repeat boom and bust forever so drawing ever more wealth out of the population. A bad arrangement for the populations served so badly, but wonderful for the dynastic bankers tha reap rich rewards up and down the cycle.
Douglas Alexander did a talk at the RIIA; last year I think it was: I have it archived. In this talk he mentions that there had occurred a contraction of the money supply to the tune of Ā£30 billion. A contraction that could only have happened through the design and action of central banks, likely in concert with the world bank and BIS. This sum is equal to a full half of the GDP of the entire world. Here is your financial crisis. Created quite deliberately by the banking elites.
We are witnessing the same events as occurred in America in 1833. (I have deleted a long historical example, based on allegations about a named bank which could cause offence -ed)
Reply: Ā£30 billion is far smaller than half the world’s GDP. I do agree that Central banks lurched from easy money to money which was too tight, which is why we are in the mess we are in.