SUNDAY TELEGRAPH 15.2.09
1. A sorry parade of bankers can't put things right
The Government wrecked both our private and our public finances and
if Gordon Brown doesn't get a better grip of the banking industry,
the IMF will have to do it for him, says Michael Fallon.
By Michael Fallon MP
'We are profoundly and, I think I can say, unreservedly, sorry at the
turn of events" was how the former chairman of HBOS put it. "I think
I can say, unreservedly"? "The turn of events"? Only somebody as
deeply immersed in the British establishment as Lord Stevenson of
Coddenham could get away with destroying a great British bank, taking
£17 billion of taxpayers' money, and then offering up the kind of
shaded apology more appropriate for somebody caught out by a sudden
cold snap.
This won't do, and the parade of hapless bankers in front of the
Treasury Committee last week did not give us the answers we need to
the crisis in British banking. Instead, we were shown a sorry picture
of a sales-driven, deals-driven, bonus-driven culture wholly alien
from the banks our fathers knew.
This isn't a crisis of capitalism. It is governments that control
credit through their central banks and control capital through their
regulators. It was this Government that encouraged borrowing,
neglected saving, and ran up such a huge deficit in the public
finances. Gordon Brown was responsible. He took banking supervision
away from the Bank of England and ordered it to track inflation
without reference to asset prices. His Government signed up to
banking capital rules that fuelled the boom and allowed lazy
directors to fall back upon self-serving credit rating agencies.
He had every interest in fuelling the credit boom. In 10 years he was
able to double public expenditure on the proceeds, using stamp duty
from the housing bubble, and income tax on those City bonuses to puff
up our bloated public sector. He certainly wasn't bothered about
tighter regulation. Quite the contrary: in a now-forgotten speech to
the Wall Street Journal in November 2003 he argued: "Capital markets
can and should help us manage risk more effectively between sectors,
over time and across national boundaries . there is a need to remove
barriers to diversification of investments across borders." He kept
urging Europe to become more like America; he wanted more Lehmans here.
In the end, this was a failure of regulation and of government. Take
Brown's own creation, the Financial Services Authority (FSA). This
super-quango employs 2,500 staff, costs us a staggering £415 million
a year, and is supposed to supervise the banks. So far, five out of
the big 10 banks have crashed - that's some supervision.
Why weren't warnings enforced? Why didn't the FSA step in to block
over-priced acquisitions? Why did they tolerate such enormous funding
gaps? People such as Lord Stevenson became chairmen of these huge
banking conglomerates without any financial qualifications. The FSA
slept through Northern Rock, didn't challenge the Scottish banks,
failed to warn about Iceland.
Above it sat the much vaunted Tripartite - FSA, Bank of England and
Treasury, bound together in mystical confusion. Nobody was in charge;
for 10 years they hardly met. The Chancellor, - Brown - nominally
its chairman, first learnt of the crisis engulfing Northern Rock from
the newspapers. The result was that nobody really controlled lending.
Following its government remit, the Bank of England made credit far
too cheap and easy; British bankers lent it around the world, and
came back for more.
But 10 years ago, the amount British banks lent out was matched by
what they held on deposit. [That was part of the "dreadfu;" Tory
misrule, I suppose -cs] By 2008 they were lending £625 billion more
than they had in. That's the funding gap that lies at the heart of
this crisis; to bridge it, they depended on the wholesale markets and
those exotic securitisation products they didn't really understand.
HBOS's Sir James Crosby drove up its loan to deposit ratio to 180 per
cent - before he departed to become deputy chairman of the FSA.
Barclays' funding gap soared from £26 billion to £76 billion in just
three years. One third of the total funding gap of the big six banks,
£164 billion, was down to one bank alone - Royal Bank of Scotland.
Indeed, HBOS, run by Brown's favourite banker, bet 40 per cent of its
loan book on property and construction. It even took equity stakes in
the businesses it was banking, thus conflicting its own interests.
Remarkably, Britain's biggest property lender "did not foresee the
deterioration in asset values that took place, it's as simple as
that", simple Stevenson told us.
These were British mistakes, made under British supervision, nothing
to do with the sub-prime lending in the United States. Not all banks
were so blind. HSBC does not lend more than it holds on deposit,
anywhere in the world; it hasn't asked for a pound of taxpayer help.
Putting this right is not too difficult. We must replace Brown's
failed FSA. We need rules that prevent booms, boards of directors who
understand risk, remuneration that does not distort judgment about
controls, supervisors who will enforce.
Meantime, the Government is repeating its mistakes. To save Scottish
jobs, HBOS was merged with Lloyds over a weekend without any due
diligence. Billions went into these banks before the books were
properly checked. This weekend, the £17 billion the taxpayer ploughed
into Lloyds and HBOS is worth only £4.6 billion. Billions were also
wasted last year in stamp duty relief, encouraging young couples to
buy into a falling market, and on a meaningless cut in VAT - begging
the rich to buy new Land Rovers. The Bank has cut rates to the bone,
without waiting for each cut to take effect.
Now they're going to print more money and call it "quantitative
easing". The last refuge of a scoundrel government is to subvert the
currency, storing up inflation for the future. We've been here
before: Labour pushed inflation to 25 per cent in 1975 and it took
years of pain to squeeze it out of the system again.
This is a government that has now wrecked both our private and our
public finances. And nationalising yet another bank, Lloyds, with
more taxpayer billions will further wreck the credibility of
sterling. If Gordon Brown cannot get a better grip of our banking
industry and our public finances, then we'll be following Iceland and
Serbia to the IMF and they'll do it for us.
----------------------------------------
Michael Fallon is MP for Sevenoaks and deputy chairman of the
Treasury Select Committee
============
2. HBOS: Another debacle that will cost the taxpayer billions
[Leading article]
Telegraph View: With so many political cross currents muddying the
waters, it is unsurprising that the Lloyds/HBOS marriage has proved
disastrous.
The malaise afflicting British financial institutions has taken a
sharp turn for the worse, with Lloyds Banking Group forecasting an
£11 billion loss for its subsidiary HBOS. This news provoked a fall
on Friday afternoon of more than 32 per cent in its shares, to 61.4p,
pulling down other banking stocks in its wake - Royal Bank of
Scotland dropped 9.2 per cent - while the pound fell more than a cent
against the dollar. These are extraordinary events which the public
watches with concern and exasperation. How can this have happened?
Such huge losses look certain to lead to further pain for the
taxpayer, already the reluctant subsidiser of financial institutions
which, only a year ago, boasted themselves masters of the universe.
The Government is expected by some to take majority ownership
(controlling more than 50 per cent) of sickly Lloyds, although the
Chancellor, Alistair Darling, says he wants to avoid full-blooded
nationalisation.
To understand this appalling situation, it is necessary to examine
how and why the Lloyds/HBOS merger was brokered - and by whom.
Initially, it seemed fraught with too many obstacles. Lloyds TSB was
leery of being subjected to a 12-month competition investigation.
That problem was dispelled at a drinks party in the City last
September 15, when the Prime Minister told Sir Victor Blank, chairman
of Lloyds TSB, the competition rules would be waived, in return for a
guarantee the merged institution would continue lending to first-time
buyers. Gordon Brown later boasted of his intervention, when the deal
faltered in late September, saying: "We have changed the competition
law."
From its outset, therefore, this was no normal operation of market
forces, but a Government-brokered merger that was inevitably
influenced by political as well as financial calculations. Gordon
Brown's concern for first-time buyers, though legitimate, was a
political rather than a market imperative. Yet there is evidence of a
rawer political self-interest guiding the Prime Minister's conduct.
When the announcement of Lloyds' proposed takeover of HBOS was sent
to the stock exchange it contained the telltale commitment that "the
management focus is to keep jobs in Scotland". This discriminatory
policy towards employees in a UK-wide institution that must shortly
shed thousands of staff infuriated Linda Riordan, the Labour MP for
Halifax, who denounced it as "totally unacceptable".
Its context, however, was the run-up to the Glenrothes by-election,
in the neighbouring constituency to Gordon Brown's own seat in Fife,
where a significant number of HBOS employees live. After a series of
by-election humiliations, the then orthodoxy was that defeat in
Glenrothes could end Mr Brown's leadership. Against predictions,
Labour later held the seat. So, while paying lip service to first-
time house buyers, the Prime Minister's priority was clear: Scottish
jobs for Scottish workers.
With so many political cross currents muddying the waters, it is
unsurprising that the Lloyds/HBOS marriage has proved disastrous. One
healthy institution, Lloyds TSB, was manipulated by the Government
into a merger with the terminally ill HBOS, the outcome being one
large, toxic liability. Now the taxpayer is faced with paying out
billions more of borrowed money, potentially putting pressure on the
pound in the international markets. Tomorrow could be a hectic day
for traders.
Contrary to the misrepresentations of the nay-sayers, this debacle is
not evidence of the collapse of capitalism and free-market
principles, but of the malign consequences of government manipulation
of market forces.
But it does raise profound questions about political opportunism, the
Prime Minister's judgment and how much worse this crisis will become
before it gets any better.
============
3. As Rome burns, Gordon Brown keeps passing the buck
It is too late now for the public to acquit an increasingly petty and
desperate Gordon Brown, says Matthew d'Ancona.
By Matthew d'Ancona
The pettiness is the giveaway. Later this month, Gordon Brown is
hosting a dinner to mark the unveiling of a new portrait of Margaret
Thatcher. Naturally, No 10 asked the Iron Lady for the names of
guests she wanted to attend. No less naturally, it was suggested by
her office that the present Conservative leader should be invited.
But when Downing Street heard that David Cameron was on the list,
there was, I gather, a preposterous attempt to strike him off. Did
the Prime Minister seriously think he could exclude Mr Cameron from
the dinner? And on what possible grounds? No 10 backed down grumpily,
and the Tory leader will indeed be attending. But the damage - to Mr
Brown's dignity, principally - is already done.
As Rome burns, the PM is fiddling with guest lists - and much else
besides. When Mr Brown discovered that Owen Paterson, the Shadow
Northern Ireland Secretary, was being given a briefing by MI5, No 10
tried to limit the length of the meeting. This combination of
petulance and micromanagement is meant to signal power, but - of
course - signals precisely the opposite. As authority drains from the
Prime Minister, he is reduced to tiny acts of churlishness unworthy
of the office he holds.
On Thursday, Mr Brown made his third appearance as PM before the
Commons Liaison Committee, the grand panel of select committee
chairmen. The transcript, which can be read at www.parliament.uk,
provides vivid case notes on the Prime Minister's state of mind, his
growing testiness and his delusional insistence that repeatedly
blaming other people, institutions and global forces for this
recession will eventually persuade the voters of his own innocence.
The tell-tale signs were the occasionally captious moments and
frissons of fury that peppered his familiar speak-your-weight
answers. When Sir George Young asked him to rule out going cap in
hand to the IMF, the PM growled that we were "reaching an absurdity
when people make these comments or statements.just simply
ridiculous." When he warned Sir George that he should "be careful
about making those statements as well", he might as well have said:
we know where you live, mate. you should keep away from the edge of
the platform, accidents can happen.
As you would expect, Mr Brown was cross-examined at the hearing about
the resignation on Wednesday of his adviser, Sir James Crosby, as
deputy chairman of the Financial Services Authority. Sir James's
hasty departure followed allegations that, when chief executive of
HBOS, he had fired the bank's head of regulatory risk, Paul Moore,
for raising heretical concerns about its rapid growth and reckless
lending strategy. The gist of the MPs' questions to Mr Brown was that
this was not exactly a PR triumph and dramatised all too clearly the
impression of disreputable cosiness and neglect stretching right to
the very top. As John McFall, Labour and Cooperative chair of the
Treasury select committee, put it diplomatically: "Prime Minister,
there is a long hard road to go to bring the public round on this
issue." I'll say.
The gist of Gordon's answers was that none of this was much to do
with him, guv. He laboriously described the operations of the
tripartite committee of Treasury, FSA and Bank of England like a
plumber blaming the malfunctioning of a boiler he installed only a
week ago on the manufacturers, or the scarcity of spare parts, or the
alignment of the stars. "You may wish to ask questions about what
happened within the FSA," the PM said, "but I have to say to you that
on the basis of the information I have got the FSA went through all
the allegations that were being made, they examined all the details
of what happened and they reached a conclusion." In other words: ask
them, not me.
The Prime Minister is the polar opposite to Harry Truman: there ought
to be a sign on his desk that reads "The buck starts here." Part of
Brown's political genius has always been his capacity to avoid taking
blame - which is why the Blairites used to describe him furiously as
Macavity. As Prime Minister, it is no longer open to him simply to
disappear like the Mystery Cat: so he resorts to the tactic of Snitch-
in-Chief, blaming anyone or anything rather than himself. Was it
necessary or wise, asked Keith Vaz, to publish the number of non-UK
nationals in the workforce? "This is a decision that the independent
Office of National Statistics has made," replied the Prime Minister.
"This is not a decision that the Government has made to publish this
information." I suppose when you are busy saving the world there
isn't much time left to run the country.
Evasion, buck-passing, obfuscation: it won't do any more. The desire
for a reckoning is simply too strong. On Tuesday, the Commons
Treasury Select Committee grilled four bankers on their role in the
collapse of the financial sector. The most visibly chastened of the
quartet was Andy Hornby, the former chief executive of HBOS, whose
face was pale and lower lip trembling. I recall meeting Mr Hornby at
a dinner hosted by Mr Brown at No 11 before the financial heavens
fell. He was so confident and ambitious that he practically squeaked
when he moved. Indeed, he reminded me at the time of the Wall Street
tycoon played by Dan Aykroyd in Trading Places. "Lucky you," says one
of his friends. "It's not luck," Aykroyd replies.
But at least Mr Hornby has got his moment in the public stocks out of
the way. The PM will do all in his power to postpone his own moment -
not least because, apparently, he does not think that he should be in
the dock in the first place. At Thursday's Liaison Committee hearing,
Tony Wright asked him whether the time had come to acknowledge the
need for a true calling to account. "This is a big catastrophe," said
Dr Wright. "Do we not deserve an inquiry?"
And off Mr Brown went, as he always does, about "global issues.
external imbalances. It started, as you know, in America .contagion
across the system. the whole global picture. a global financial
crisis that started as a global banking crisis." Yes, yes, we get the
idea, Gordon. But how ironic that a Prime Minister who has had so
much to say about "Britishness", national identity and (foolhardily)
"British jobs for British workers" should try, no less brazenly, to
deny that there is a specifically British dimension to the story of
this economic disaster and to present himself, and us, as the victim
of forces quite beyond his control.
Much good it will do him. The public was never going to acquit Gordon
as readily as he does himself. They are already looking beyond his
premiership to what might come next and whether the Tories are up to
the task. The Tories, for their part, are privately wondering which
of his prospective successors they should fear most: as it happens,
Alan Johnson, interviewed in the current issue of The Spectator, is
the figure who bothers the Cameroons most, although the Tory leader
believes Harriet Harman is the Cabinet member running most
aggressively for the job. An era has ended but the PM does not know
it. And while the rest of us look ahead to the post-Brown world, the
increasingly isolated Prime Minister sits in No 10 and broods angrily
over whom to invite to dinner.
-------------------------------------------------------------
Matthew d'Ancona is Editor of 'The Spectator'
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