In these hard times, there is a lesson from Hard Times for all involved in the disintegration of Britain's finances. Thomas Gradgrind, Dickens' unlovable utilitarian, insists: "Now, what I want is, Facts. Teach these boys and girls nothing but Facts. Facts alone are wanted… Stick to the Facts, sir!" Who remembers Facts? They are what I used to believe were contained in the annual reports of reputable banks. How gullible. For a start, the juxtaposition of "reputable" and "banks" forms a glaring oxymoron. If the credit crunch has taught us nothing else, we now know that the balance sheets of institutions to which we entrust our savings and investments contain precious few Facts. There is, of course, lots of information – yards of it. It takes the form of historical numbers, comparative statistics and, if we are lucky, some qualifying opinion. But all this, it seems, is not the same as Facts. In the Delusion Years, when money for nothing was a hard currency, there blossomed an industry within an industry. As the financial-services sector boomed, so too did corporate governance. Alongside the growth of impossibly complex derivatives came an explosion of disclosure and compliance. Legions of lawyers and accountants were recruited to give the impression that banks and other lenders were open and honest with all their stakeholders: investors, customers and employees. Vast departments dedicated to the pursuit of CSR – corporate and social responsibility – sprung to life. Bloated payrolls of useless do-gooders were masked by eleven-figure profits. The buzzword was "transparency". It sent a comforting message. But, when stress-tested by our nosedive into recession, the edifice of banking clarity turned out to be a hall of mirrors. What we were seeing was not what we were getting. It was the age of Factless prosperity, a triumph of legerdemain. The absence of Facts is not simply a source of shame for bankers who have conned their customers and investors, while bringing the economy to the brink of ruin. It is embarrassing for a Government which has pumped in many tens of billions to the banking system, only to discover that the recipients are still refusing to come clean on toxic assets. For Britain's charlatan financiers, objective reality meant only what they could get away with. How else can we explain the speed with which real cash has vanished? As the true level of impairment becomes clear, the Government's £37 billion bail-out in October looks pitifully inadequate. Some £20 billion of that went to Royal Bank of Scotland, which owns National Westminster, Coutts, Ulster Bank, Direct Line, Churchill, Lombard and a huge banking operation in America. Today, the stock market's valuation of the entire shebang is £5 billion. The share price is indicating that without state largesse, the business would be worth less than nothing. How so? Answer: the markets believe that deep in RBS's vaults there is the financial equivalent of a leaking nuclear reactor: a portfolio of mortgages, business loans and (this is true) commitments to Russian magnates, which, if valued properly, would wipe out all its capital. Deprived of Facts, investors have decided, not unreasonably, to assume the worst. Earlier this week, an exasperated executive from a bank asked me: "What have we got to do to make people believe us?" Too late, old son. Having successfully disguised Flannel as Facts for the best part of a decade, nothing you say has credibility. Shareholders would happily a swap bank boss's promise for a bucket of Zimbabwean dollars. It really is that bad. On Monday, Sir Victor Blank, the chairman of Lloyds Banking Group, which formally absorbed HBOS this week, told me on Sky News: "This bank has come clean… I believe everything is out there as far as HBOS is concerned." There was a time when such an assurance from a respected grandee would have calmed the City's nerves. No more. The next day, Lloyds' shares lost nearly half their value, amid fears that undisclosed horrors inside HBOS will compel the Government to nationalise the merged entity (it already owns 43 per cent). One suspects that Lloyds was bullied by the Prime Minister into rescuing HBOS, without knowing all the Facts. I hope, for Blank's sake, that he is right. For if HBOS is forced to reveal yet more nasties, the only honourable course for him would be resignation. Aside from Jonathan Ross and Russell Brand, it is difficult to think of more unwelcome guests for a Downing Street party than the bank bosses whose maladministration of private assets has helped to wreck Gordon Brown's chances of staying in public office. In trying to save the world, sorry, the banks, he has wiped out what was left of his reputation for competence. When the credit crunch began, Mr Brown repeated robotically that the problem's genesis was in America, inviting us to conclude that it had arrived in Britain on a disease-ridden rat from Wall Street. As the debacle unfolds, however, the home-grown nature of Britain's troubles is becoming inescapably clear. Reckless borrowing, irresponsible lending and a deeply flawed system of regulation (set up by Mr Brown) did the trick. On Tuesday, while the world was glued to Obamarama, I followed the Bank of England's Governor to Nottingham University, where he gave a speech on the subject: What went wrong? Mervyn King is essentially an academic: he studied at Cambridge and Harvard, before teaching at the London School of Economics. As such, he is enthusiastic about Facts, a characteristic that sets him at odds with those he regulates. After a blizzard of Facts about Chinese electricity production, Brazilian car sales and Japanese industrial output, Mr King eventually got round to the United Kingdom's woes. His disparagement of our bankers was refreshingly frank, arguing that recent measures were designed to "protect the economy from the banks". Later, in an unscripted comment, he accused the banks of holding their customers "hostage". This played well with an audience made up largely of CBI members. But, for me, the bit that really hit home was Mr King's assessment of how total debt in the UK, relative to GDP, was allowed to double between the early 1990s and 2007. "It is clear that policy did not succeed in preventing the development of an unsustainable position," he said. Yes, domestic policy failed. It is a Fact. But have we heard that from either Mr Brown or Alistair Darling? No we haven't – and I don't think we are going to. Instead, as winter drags on, and the economy is run into the ground, they can barely mask their panic. Meanwhile, the rest of us, like the narrator of Hard Times, look on in despair as "the ashes of our fires turn grey and cold". 'Jeff Randall Live', a news programme focusing on business and politics, is broadcast on Sky News at 7.30pm, Monday to Thursday.Financial crisis: It's impossible to get any hard facts and figures from British banks
Jeff Randall believes the disintegration of Britain's financial sector has finished off Gordon Brown's dwindling reputation for competence
Friday, 23 January 2009
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