Clegg’s banking ignorance

Mr Clegg fibs again today. He tells us he would split investment banking from clearing banking to stop another banking crisis.

Was he asleep during the crisis? Lehmans went bust – that was a pure investment bank. Northern Rock went bust – that was a pure mortgage bank. Alliance and Leicester and Bradford and Bingley got into trouble – both specialist mortgage banks. Fanny and Freddie needed taxpayer subsidy – both mortgage banks. What’s his answer to that?

The truth is the banking regulator didn’t ask for enough cash and capital from any sort of bank. That’s why they got into trouble, when the monetary authorities decided to lurch from super loose to super tight money.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU

21 Comments

  1. Lindsay McDougall
    April 20, 2010

    Yes, but …………………. and the 'but' is about the other factors.

    The fact is that both monetary and fiscal policy were grossly irresponsible in the USA and the UK for a decade. In the USA, the guilty men were Greenspan, Bush and his Finance Minister. in the UK, the guilty men were King, Blair and Brown. Also, we must not forget the ineptitude of the credit rating agencies, who gave an AAA rating to financial products that contained sub-prime mortage debt.

    Underlying the fact that a house price bubble built up was the choice of an inflation measure that excluded asset prices. Mervyn King was aware of the danger of a house price bubble but there is no evidence that he made strong representations to Gordon Brown to change the inflation target measure.

    There is also the point that the behaviour of Sir Freddie Goodwin and his board (judged badly-ed) from 2001 onwards. That is when RBS took NatWest with a leveraged bid, outbidding BOS as it then was, who submitted a sound bid. (Wishs to examine the Board's culpability etc)

    On a brighter note, there has been some recovery in the RBS share price. Are we anywhere near a sell off?

    1. Lindsay McDougall
      April 21, 2010

      Sorry, ed, this won't do. I know that there are libel laws to consider but there should be no objection to asking the question "Was Sir Freddie Goodwin indemnified for (his conduct in any way ed) in his exit agreement?" It is also perfectly reasonable to ask for a yes or no answer to the question. And if his exit agreement is confidential, it ought to be possible under the FoI Act to force its publication.

  2. Michael Lewis
    April 20, 2010

    Funny you should mention this, I sent an email to my MP. St. Vince Cable. Asking if he could explain his boss' comments. I pointed out WaMu and Northern Rock, neither of which were 'casino banks'. I await the response from St. Vince….

  3. Brian Tomkinson
    April 20, 2010

    Clegg is ignorant about all aspects of government except passing more powers over to his pals in Brussels.

  4. Antisthenes
    April 20, 2010

    In this modern world it appears to me that allowing politicians to to run a country is the height of stupidity. Most politicians do not have the qualification, competence, experience or knowledge to run a complex government department. Why do we allow it, it is because of tradition and that is always the way it has been done.

    A serious rethink is needed where governance and politics are divorced. Let us have competent professionals in government and let politicians job to be to guard the countries democracy and hold the executive to account.

    Let us stop steering the ship of state by stargazing lets start using the compass.

  5. Acorn
    April 20, 2010

    You will be aware that the Lib Dems don't do money, they don't understand it. St Vince of Cable does a good job of trying to explain it to their troops but, alas, it falls on stony ground.

    Anyway, you may remember that Vinny scribed a report for Reform last year; it is worth reading the foreword to it. Is he in the correct party?
    http://www.reform.co.uk/Research/ResearchArticles

  6. Mike Stallard
    April 20, 2010

    Are we really that daft, I wonder?

  7. Acorn
    April 20, 2010

    I don't want to worry you but things are actually worse elsewhere. The US public sector is dominated by trade unions. They hold most States to ransom. They finance a lot of elected representatives who become beholden to such unions. The chickens are now coming home to roost in most States and there Counties. Many are facing bankruptcy.

    It is not impossible that a similar situation could happen here. "Winters of discontent" etc. UK local government can't go bankrupt like US Counties. The following link is worth a read and should be noted by our future government. Trade unions are part of the problem, not part of the solution.
    http://globaleconomicanalysis.blogspot.com/2010/0

    1. Citizen Responsible
      April 21, 2010

      I read last month, the US Kansas City school board has decided to close half of its schools. The board said it has to close the schools to keep from going bankrupt.

  8. Simon
    April 20, 2010

    The main reform that is needed is strict mortgage lending criteria, no more than 3x salary, that will sort silly and indeed dangerous house prices out and save the banks from themselves in future.

    It is far easier to buy a house with much cheaper prices, for obvious reasons, also savings go much further as deposits meaning people feel it is actually worth scrimping to save. You are also less exposed to interest rate movements, why the politicians cannot fathom this defeats me.

    1. Andy
      April 21, 2010

      Simon, who are you to suggest a mandatory limit how much someone can borrow for a mortgage?

      Mortgage lending is a commercial transaction between adults and companies. If a company wants to lend me 100% of a mortgage, at 5 times my salary, and they think that I am an acceptable risk, and I am willing to commit to the repayments, then why would you forbid this? If I miss repayments, the house gets repossessed. If too many of the companies customers default on payments, then they should go bust (None of this bailout nonsense)

      1. Simon
        April 22, 2010

        Well it's been proven that the old system didn't work, it required a trillion pound bailout to prevent total financial collapse. People need to be saved from themselves.

        1. Simon
          April 22, 2010

          If too many people miss payments the whole sector gets bailed out and prudent savers pay for it. That's why we need controls.

  9. alan jutson
    April 20, 2010

    John

    Why O Why are your Party not using your skills and knowledge on Finance to batter these false statements into the ground.

    Cameron seems very weak on the economy and finance in particular to me, given his surrender last Thursday to Browns misleading financial statements.

    Osbourne seems to be being hidden away, or at least is not getting into the media fight/discussion, and he is supposed to be our next Chancellor with his hands on the money !.

    For me there can be but one explanation, you would run rings around them all with your arguments and answers and put them in the shade.

    If true, this does not bode well for the Conservatives who are not using the talent that they have, to good effect.

    David Davis also seems to have been sidelined, another big hitter who has made mincemeat of some of the opposition a number of times.

    See Frank Field has also savaged Browns record.

  10. ManicBeancounter
    April 20, 2010

    Until our politicians start understanding what actually happened we cannot have confidence in a proper solution. By mis-diagnosis and heavy-handed ideas of keeping the banks on a short leash and higly taxed, we will ensure that the UK's financial system shrinks whilst in many other areas it emerges from the recession. As we had the world's number one financial centre, this could be a servere handicap the recovery. As all political parties are mostly relying on a strong recovery to reduce the deficit. So bashing the banks is akin to wanting more cuts and tax rises.

  11. Kevin Peat
    April 20, 2010

    Clearly Clegg has the Tories rattled. He's stolen your thunder as the only alternative to Brown.

    Your average voter will not understand much about banking and if you want to win the election you're best not spending all of your time by dwelling on the issue.

    Did you see Panorama about immigration last night ?

    8 new cities the size of Birmingham needed by 2030. Desalination plants in the Thames Estuary. Average age of first time buyers 45 … no idea of where the funding to deal with it all is coming from. Truly frightening and most importantly this doesn't come from the Daily Wail.

    It's the issue everyone's talking about, it's the issue everyone is worried about … The Lib Dems are relaxed about it all.

    Time for the Tories to show us what they're about. To show us if there IS a difference. Time to stand or fall on the truth.

    Frankly I think it's game over for the Tories and Britain, but one can be too defeatist.

    1. simon
      April 22, 2010

      Yep Conservatives need to draw attention to the links between mass immigration , housing shortages and unemployment in such a way that does not victimise the unemployed or immigrants .

      The whole of our consumer society is predicated on year on year growth , including that of population .

      You mention housing , if population returned to 56million house prices would fall significantly which they need to . Imagine a housing surplus !

      It is going to be a heck of a challenge to adapt to energy shortages and negative growth . The construction industry will have to build houses which are more attractive to those which currently exist .

      The status quo , govt , new world order want people to be in debt slavery so growing populations and shortages serve them .

      Think it's about time some protectionist measures were introduced so that housing below a particular price could only be purchased by British citizens . Too much to ask for a Govt to act in the interests of the British people though .

  12. gac
    April 20, 2010

    Mr Clegg depends on Mr Cable for his Economic and Fiscal advice.

    Mr Cable appears to me to depend on the benefit of hindsight.

    Just so long as the rest of us do not have to depend on them!

  13. Mark
    April 21, 2010

    Clegg's father is a banker. But the son hasn't learned much at his father's knee it would seem. Neither has the IMF,which is proposing a "Financial Stability Contribution" tax on banks that would amount to 4% of GDP for the UK on an ongoing basis. It would supposedly be ring-fenced (i.e. not usable for anything other than future bank bailouts), and quite separate from any levy to recoup the historic cost of bailouts. Will they be giving us the loan to pay for it?

    Get regulation right, and there is no need for this kind of interference in markets that simply adds costs. Getting regulation right might include not permitting any cross guarantee or funding from a retail subsidiary or its parents to an investment/merchant subsidiary. The risky subsidiary could thus fail while only affecting the shareholders in the parent. Regulating the retail end would ensure it was far less risky – e.g. limiting the mortgages it could issue, and its degree of reliance on wholesale funding. I bet the regulations would only amount to a quarter of the current box ticking too.

  14. Fractional Reserve
    April 21, 2010

    Fanny and Freddie are a case unique to America, they seem to be a government agency one minute and free agents the next. We don't have anything similar her so Clegg needs no answer to that. What he does need an answer to, as do all the parties, is how to explain to the pubklic that the national debt consists largely of interest to banks for loans that they never actually made as they never had the money to lend – money created from thin air via fractional reserve banking. This is the information age, subterfuge even on so fundamental a level seems unlikely to survive unexamined.

    BB

  15. Richard
    April 28, 2010

    Funny you should mention this, I sent an email to my MP. St. Vince Cable. Asking if he could explain his boss' comments. I pointed out WaMu and Northern Rock, neither of which were 'casino banks'. I await the response from St. Vince….

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