Blame for the credit crunch

Some of you have rightly argued that it was not just or mainly the Bank of England to blame for the crash  of 2008-9. Under the tripartite Labour scheme of regulation the main blame rested with the government as the convenor of the tripartite system and the most powerful of the three parts. The government was removed from office by the voters, mainly for their economic and banking failings.

 

The FSA was also to blame. It has been the subject of review and agreed it made important mistakes in the way it regulated banks. The purpose of these blogs is to do the same for the Bank which so far has escaped review.

14 Comments

  1. lifelogic
    May 29, 2012

    Yes but the bank could have used it influence rather more.

    “The government was removed from office by the voters, mainly for their economic and banking failings”. Indeed and voters had finally forgotton Major’s economic failings over the ERM after 3 terms. Alas the soft socialist fake green pro EU Cameron did not put a proper Tory vision forwards and lost too. Rather hard to do against Brown but he managed it.

    Since then all has been the wrong way and so it is back to Unison’s puppet very soon.

  2. Demetrius
    May 29, 2012

    Who was it who said that “Gaul is divided into three parts”? What then happened to Gaul? What later happened to the man who said it?

  3. Conrad Jones (Cheam)
    May 29, 2012

    This highlights the fact that Mervyn King is still in charge and no one is able to boot him out of office as he is unelected. Since Labour were booted out and they picked him, shouldn’t Mervyn King have been removed at the same time Labour was?

    Why do Central Bankers escape the axe ?

  4. Denis Cooper
    May 29, 2012

    We know that the idea for the tripartite structure came from the EU, but it’s not clear to me whether it was an EU legal requirement or whether Brown voluntarily adopted it to show that he was “a good European”, a bad habit among politicians in this country as in other European countries.

    I thought I might find out more easily and quickly by looking at the position in Ireland, as they’re often less inclined to disguise EU involvement with decisions.

    Reading the appalling story here:

    http://en.wikipedia.org/wiki/Financial_Regulator

    didn’t actually give me the answer I was looking for, but it did show how the introduction of a similar system at about the same time also led to a similar catastrophe.

    I note in particular:

    “Former Taoiseach Bertie Ahern, in a report in the Financial Times said that his decision in 2001 to create a new financial regulator was one of the main reasons for the collapse of the Irish banking sector and “if I had a chance again I wouldn’t do it”. “The banks were irresponsible,” he admitted “But the Central Bank and the Financial Regulator seemed happy. They were never into us saying – ever – ‘Listen, we must put legislation and control on the banks’. That never happened.””

  5. Stewart Knight
    May 29, 2012

    I really don’t see how the FSA, bad as it was, could be blamed at all apart from as a party to the Governments failures.

    The FSA is not a private company looking to make a profit, and nor was or is it partial as such; it works to a quite narrow remit given it by the Government at a specific time. Brown and Labour controlled the FSA with their placemen, and they are to blame.

    You can also say the same for the BofE as they were merely working to a narrow remit.

    Stop being a cissy John, apportion blame where it belongs.

    1. Denis Cooper
      May 30, 2012

      In that Telegraph profile:

      http://www.telegraph.co.uk/finance/financetopics/profiles/8614299/Beekeeper-Sir-Callum-McCarthy-looks-for-a-new-source-of-honey.html

      even the first head of the FSA, SIR CALLUM MCCARTHY, didn’t attempt to say that he and the FSA he ran couldn’t be blamed “at all”, he was just very evasive about the extent to which he should be blamed.

      The plain fact is that while the Bank of England had the responsibility of preventing commercial banks getting over-extended and going bust, and the power to act, we had no run on a retail bank for over fourteen decades, but within less than a decade of the Bank being stripped of that responsibility and power we had queues outside Northern Rock.

  6. Conrad Jones (Cheam)
    May 29, 2012

    Is it possible that the Bank of England did not see the credit crunch despite having all the data at their finger tips?

    The Bank of England is the one institution in the World that could have predicted the crisis. It is located at the heart of the most influential Financial Centre on the Planet yet appears to have done nothing to stop it.

    I’d like to ask a question that I’ve posed before – Is the Bank of England Nationalised in spirit as well as legally and what is the Purpose of it’s Nominee Companies if it is Nationalised? Why would a Public Institution wish to use strategies normally associated with Tax Avoidance? Nominee Companies are used to protect the anonymity of it’s clients. Who exactly is the BOEN protecting?

    If the Public are the owners of the Bank of England then why is this information secret.

    The Bank of England creates notes and coins for the public (debt free). Great! But then allows Banks to create over 97% of the rest of our money supply. The BoE seems to be interested in protecting Private Banking and Corporate Interests under the guise of protecting the Public. Did Mervyn King just ignore all the Warnings given by leading Economists around the World? Did he belive he knew best?
    I cannot believe he is an idiot which suggests that he knew what he was doing. He has a reputation for trampling on dissidents, even if they are right.

    1. Denis Cooper
      May 30, 2012

      The nature and purpose of BOEN was explained by the Bank two years ago, in this reply to a FOI request:

      http://www.whatdotheyknow.com/request/28738/response/74019/attach/2/D.pdf

      “BOEN acts as a nominee company to hold securities on behalf of certain customers. It is a private limited company, incorporated in England and Wales in 1977, and is a wholly-owned subsidiary of the Bank. The shareholders are the Bank and John Footman, who holds his share as nominee on behalf of the Bank.”

      NB that BOEN “is a wholly-owned subsidiary of the Bank”, not the other way round.

      I realise that despite this very clear statement some people will persist in the false belief that nonetheless somehow, secretly, mysteriously, the Bank must really be owned by BOEN and in its turn BOEN must be owned by X, Y or Z, because people will often insist on believing what they want to believe even in the face of the evidence.

      BOEN is now dormant, as explained last April in Written Answers to Lord Myners at Columns WA11 and WA12 here:

      http://www.publications.parliament.uk/pa/ld201011/ldhansrd/text/110426w0001.htm#1104267001464

      Finally, as I’ve mentioned before, I have here a letter from the Office of the Treasury Solicitor confirming that he still holds all of the shares in the Bank of England on behalf of the Treasury.

      1. Conrad Jones (Cheam)
        May 30, 2012

        I’m not talking about conspiracy theories.

        “Nominee Company is formed in a high-tax area and acts on behalf of an Offshore Company. The Offshore Company is the Principal in all transactions and the Nominee Company contracts for business and acts on the Offshore Company’s behalf as an Agent. All the advertising, marketing and promotion is done by the Onshore Nominee Company. Transactions are invoiced by it in its own name and the amounts received pass straight to the Offshore Company. The ultimate client is only aware of dealing with an ordinary company in a mainstream onshore jurisdiction. There is no necessity to declare the relationship between the Nominee Company and the offshore principal. The only income the Nominee Company has is a fee for the provision of its services. The audit of the Nominee Company shows only its fee income and its expenses. The trading income does not generally form part of the accounts as this is only handled on behalf of the principal. However, the management fee paid by the offshore company needs to be chosen carefully. A rough idea would be 5% to 10% of the gross turnover. Expenses of the Nominee Company are set against this and tax will be paid in the onshore jurisdiction on the resulting profit. The tax authorities then see a resident company with a resident bank account which is paying tax. This is much less likely to attract their interest than a zero-tax company! If questions are asked by the tax authorities about the structure, the Nominee Agreement between the Nominee Company and the Offshore Company provides sufficient protection. Both Companies (Onshore & Offshore) may NOT trade in their countries of incorporation and the Onshore Nominee Company can REGISTER for VAT.”

  7. Atlas
    May 29, 2012

    Point taken John. However any structure in the UK would have likely been overwhelmed by the power of the extra-territorial driving forces.

  8. Mark
    May 29, 2012

    The key decisions were taken by the MPC. Their voting record is available here:

    http://www.bankofengland.co.uk/monetarypolicy/Documents/mpcvoting.xls

    The obvious doves and hawks are easy to identify. More fun is looking back at some of the speeches they gave. Here’s a gem from Stephen Nickell on house prices and household debt in 2004 for example:

    http://www.bankofengland.co.uk/publications/Documents/speeches/2004/speech227.pdf

    Since 1998, the proportion of their post-tax income consumed by households has remained stable. This despite the fact that mortgage equity withdrawal plus unsecured credit growth has risen over the same period from 2% of post-tax income to nearly 10% of post-tax income. These apparently inconsistent facts may be reconciled by the fact that since 1998, the increasing rate of debt accumulation by households has been closely matched by their increasing rate of financial asset accumulation. As a consequence, there is no significant relationship between aggregate consumption growth and aggregate debt accumulation.

    Translation: we have a property bubble, and I’m going to ignore it. What could possibly go wrong?

  9. Lindsay McDougall
    May 31, 2012

    Do we need the FSA at all?

  10. Bazman
    June 1, 2012

    How about bankers being to blame for the credit crunch? A bit off beam I know, but the small detail of them being paid millions to manage the banks should not be overlooked, especially when questioned about their competence to to this always knew best. They are now sitting in the drawing rooms of their mansions tapping their pencils wisely telling us where it all went wrong. Is someone like myself supposed to respect them? Ram it.

  11. David Langley
    June 1, 2012

    A fortune has been spent on Basel regulations and all the risk software and external consultants and internal employees measuring risk and applying internal rules designed to prevent overheating of the balance sheet, particularly lending and capital requirements. What happened to all that, we are now looking at Basel 3!

Comments are closed.