The other night I appeared on BBC News 24 Television. I was asked my views on the current banking crisis. Before this year, some of us may have been forgiven for thinking ‘the crunch’ was a type of chocolate bar. Now we are sadly all too familiar with the phrase credit crunch.
Until recently Wall Street and the City of London were regarded as Masters of the Universe. We simply accepted that the system worked and that these high level financiers knew what they were doing. Over the last decade the banks made obscene profits. Now they are making equally obscene loses. The trail of disaster is clear… Bear Stearns, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers. Those disasters dwarfed our Northern Rock, but more recent problems are even greater. AIG were the largest insurance organisation in the world and their tentacles spread all over the globe. They even sponsor the mighty Manchester United Football Club. The US and UK governments had a choice as to which financial companies to save from drowning. The choices were Buyout, Bailout, or Burnout (Bankruptcy). Fannie Mae, Freddie Mac, AIG and Northern Rock had to be saved because of their close proximity to the ordinary consumer and the housing market. Lehman Brothers were investment bankers and more disposable. Now HBOS is about to be taken over by LloydsTSB. This is in breach of the competition rules, but the government has waived the rules because HBOS, as the country’s largest mortgage lender, could not be allowed to go down.
I believe we are not yet out of the stormy weather. The heart of the problem is financial system itself. Banks and other financial institutions need a tighter regulatory system, stating what they can and cannot do. AIG was an insurance company that tried to be a bank, speculating outside its core expertise. The whole finance system needs to be simplified and made more transparent.
Exotic City practises like ‘blind trading’ and ‘backwardisation’ are examples of gobbledegook that the system hid behind. Over the last decade there has been a ‘casino’ culture where finance companies over-borrowed and then used borrowed money to invest in extremely dodgy products. They failed to employ the simple philosophy of Wilkins Micawber, in Dickens’ David Copperfield, “Don’t spend more than your income.”
This is a wake up call for National Governments and financial institutions. It is easier to avoid a storm than get out of it. It is not the fat cat directors of Lehman Brothers and Northern Rock who end up on skid row, but the ordinary folk who entrust hard earned money with them.
I am not sure that this post adds anything to the sum of human knowledge.
What has this got to do with the House of Lords? I thought that Lordsoftheblog was an instrument of outreach – informing the Great British Public of what peers do, who they are and what an essential role the House of Lords plays in the legislature.
Lord Taylor, I’m in part agreement with jezebel above, mainly because it was a bit light on infomation. But you may post anything you want here, it does not have to be Lords all the time.
But please up your font in future, it was a bit tiny.
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I do not agree with your point on the Government having to Bailout anything – those customers who fled Northen Rock were far wiser than the city bankers. The only involvement the Government should have had with NR should have been to break the company up.
If we don’t restrain business during the boom, then we cannot save them during the bust.
Perhaps some kind of ‘Corperate Social Contract’ which commits businesses that sign up to low-debt levels and future security of assets or something of that sort, *then* the Governments of the world have reason to intervene in the event of tits-uppery.
Jezebel: You say:
“I am not sure that this post adds anything to the sum of human knowledge”
It suggests that Lord Taylor may be confused and a tad angry. I say this because neither his blog profile here nor his own web pages boldly state whether he is a political peer or a crossbencher.
I think he may be a Labour peer who like Lord Soley sometimes uses the blog for ‘fishing’ trips. Lord Soley places the same editorial both here and on his own blog: the catch to be hauled, fried and tried? Answers!
What strikes me is that all world democracies have succumbed to what is a tragedy; there is no other way to describe it. The reason is simple, greed, the need to raise taxation revenues whilst turning a blind eye and a deaf ear to common sense when the revenues were rolling in.
Yet these same democracies now talk of laws to constrain commerce. Are thieves being set to catch thieves? It is the lower houses of these democracies that have failed their people. There is nobody to scrutinise finance bills, nobody to countersign lower house cheques raised upon their treasuries, nobody to challenge absolute power.
Absolute power breeds largesse and the pursuit of money is the root of all evil.
The world should not legislate against its financial centres. If they bought securities that had AAA ratings they did so in good faith. They are as much victims as the rest.
It is those who rated and provided such insurances that are largely to blame. The problem now for us all is that the US government is guaranteeing AAA loans and some of these loans are from China and other cash rich nations.
If a government defaults on their loan and the insurance will not cover it what should the provider of the loan do? Send in their troops and walk off with all the debtors’ typewriters?
Bone Appetite!
Senex: Lord Taylor is a Conservative peer (Parliament website) – I’ll see about getting that added to his biog here.
There’s a lengthy piece about him becoming a Lord on his personal website here.
Jezebel – As Troika said the issue of the economy is relevant to the Lord of the Blogs. As Lords we do debate it ourselves.
Troika – I agree that it is the financial system that is faulty and needs fixing. The idea of the ‘Corporate Social Contract’ sounds promising. My query though is how it would be implemented.
Senex – For clarification I am a member of the Conservative Party. For more info please visit my website: http://www.lordtaylor.org/
I agree with you when you say the present financial situation is a tragedy. Many home owners and families throughout the world are having to tighten their belts. The banks and other financial institutions have been greedy. But the government needs to use stronger regulations to control them.
“It is not the fat cat directors of Lehman Brothers and Northern Rock who end up on skid row, but the ordinary folk who entrust hard earned money with them.”
I’m working with this group doing vignettes with Union Rescue Mission which is located on Skid Row in LA (www.urmblog.org/media) and in the process of researching the changing situation for URM I came across an informal interview a blogger had with Andy Bales, the CEO of URM. What struck me was that he said about the changing demographic that they are serving. He said this summer they have been housing ex-full-time students who got stuck with loans they couldn’t pay off in the middle of school, retired and widowed women whose fixed monthly income doesn’t support their rent in this area, and whole families, moms and dad and kids, who lost their houses before they could pack…
The consequences you concluded with are chillingly accurate as far as Southern California is concerned.