Yesterday the Institute for Economic Affairs gave me a platform at one of their lunches to set out my analysis of the Credit Crunch and my proposals for resolving it. The lunch was unsually well attended. There was little dissent from what I had to say. I set out why I thought the government should be the intelligent bank manager to the banks, not their owner.
Most seemed to agree that the crisis had been brought on by a broken Bank of England, by loose regulation of cash and capital, by an MPC that made the wrong calls, by Competition authorities who allowed over large bank mergers and by banks that did not understand how much excessive risk they were running. Many agreed that nationalisation was an expensive and dangerous option. The audience liked my intelligent bank manager approach, based on rebuilding the Bank of England as a competent Central Bank with the full range of central banking powers and duties. All seemed to agree we need to break up RBS, cutting taxpayer risk and disposing of assets.
The main disagreements centred around why this view did not regularly get represented on the BBC and wider media, and over Glass Steagall.
I am always surprised that people expect to hear intelligent and rational analysis on the BBC from an anti government position. BBC journalists take their lead from government spin doctors. The last thing they want at the moment is any idea that the idiotic “rescue” of the banks last autumn was anything other than inevitable or inspired. Conservative critics either have to be kept off the airwaves, or made to sound out of touch or extreme. Mr Cable is put up as the voice of “opposition” and given soft appearances as well to be made to look good, for he also suppports nationalisation. I have set out this alternative thesis many times, on this blog, in public and private meetings and in the Commons. All these methods are good ways of keeping it secret from the BBC audience.
If I asked the BBC why, they would probably say because the main Establishments do not agree with you so it is not going to happen your way. I think in the end they will even be wrong about that. I suspect any Conservative government would follow a risk reduction strategy on the nationalised banks they inherit, and would say No to any more nationalisation. I suspect even this government will be forced into asset sales and risk reduction, as the magnitude of the sums involved becomes more apparent.
As to Glass Steagall, I do not think in modern banking it is easy to make the distinction between clearing banking and investment banking, and keep them seperate. To cut banking risk you just need a regulator who demands more capital for both activities. Banks would soon work out that low margins on risky large trading books is not such a good way of deploying capital.