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. It’s 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 regulators’ views on the degree of bank support? When will they force the state’s clients banks to cut costs, improve their business, and sell off assets to repay the money they have received? Isn’t it time the taxpayer got some money back from those banks? Isn’t 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? Couldn’t 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 can’t 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 doesn’t 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 year’s devaluation and this year’s commodity price rises?
Is any regulator concerned about a bond bubble?
It is my view – and has been throughout the last fifteen years – 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.