TELEGRAPH 13.2.09
Bit by bit, Gordon Brown's fantasy is being pulled apart by the facts
The scale of our problems is at last being recognised by the Bank of
England, says Jeff Randall.
Jeff Randall
In China, they have show trials. The Communist Party's disciplinary
inspection group doesn't mess about. Those it suspects of involvement
in bribery and corruption are ritually humiliated, forced to confess
and shot.
The process is often put on video tape. Alleged culprits can be seen
crying on cue, apologising to the people and reciting an ancient
saying, the rough translation of which is: "One mistake and sorrow
for a thousand years."
In Britain, we do things differently. Which is just as well for the
nine bankers (seven Britons, one American and a Spaniard) who this
week appeared before the Treasury Select Committee, accused of
wrecking the economy. Had the inquiry occurred in Beijing, it is
likely that firing-squad rifles would have been loaded even before
the chairman's opening remarks.
For, in addition to destroying shareholder value and causing mayhem
in the markets, bankers have embarrassed the Government. By their
folly, they have helped expose, albeit unwittingly, the ignorance of
ministers, flaws in the Financial Services Authority and impotence at
the Bank of England. This will never do. What's more, they have
established beyond dispute the Prime Minister's inability to pick a
winner. Or, put another way, the Curse of Brown.
The Prime Minister's choice of banker to compile a report on ideas
for improving public health was Sir Derek Wanless. This is the same D
Wanless who was a Northern Rock director when it spontaneously
combusted in 2007.
Then came Sir James Crosby, the former HBOS chief executive, who was
asked by Downing Street to look at how the mortgage market might be
made more effective. More delicious still, he was appointed to the
board of the FSA. Yes, the very same J Crosby who resigned this week
after becoming embroiled in the who-said-what-to-whom row over
failings of risk management at HBOS.
When it comes to coincidences, the French believe "jamais deux sans
trois". And blow me, it now seems that Glen Moreno will be forced out
of his job as chairman of UK Financial Investments Ltd - the company
set up to oversee the taxpayer's stake in the bailed-out banks -
because of his links with a Liechtenstein trust accused of tax evasion.
Had the issues not been so serious, Bankers on Trial would have made
a jolly soap opera for enthusiasts of courtroom dramas. As it was,
episode one turned into a depressing spectacle. Lord Stevenson and
Andy Hornby, both formerly of HBOS, and their counterparts from RBS,
Sir Tom McKillop and Sir Fred Goodwin, apologised profusely without
ever appearing to have understood what went wrong, how it went wrong,
or why it went wrong.
It was as though they were saying sorry for having been knocked over
by an express train that whizzed in from nowhere. Mr Hornby, in
particular, looked shocked and dazed; a forlorn figure whose
elevation from marketeer at Asda to banking big-shot had been so
rapid that his ears went pop.
Along with others in the Gang of Four, Mr Hornby's excuse was, in
essence, that nobody could have spotted the locomotive of destruction
which smashed into the banks. It was beyond detection by even the
most rigorous stress-testing models, a Black Swan event. Except that
it wasn't.
The growth of unsustainable borrowing did not happen overnight. Debt,
vast unmissable mountains of it, had been building up on the balance
sheets of consumers and companies for years. The banks had it shipped
to their customers in pantechnicons. As long as it seemed that
interest charges were being serviced, debt-delivery lorries kept
arriving. Repayment in full of the monies lent was for wimps.
Kidology became a currency of conviction.
One did not need fancy banking qualifications to work out that such
an accumulation of credit would eventually destabilise irresponsible
borrowers and reckless lenders. A little common sense and a sub-GCSE
command of adding-up were all that was required to identify looming
disaster.
Banking, when done properly, is a simple business. As a reader
reminded me, it requires the banks to ask just three questions. What
is the borrower's ability to repay? What is the borrower's
willingness to repay? What are we going to do if he doesn't repay?
It's now clear that for much of the dodgy business done in sub-prime
markets - mortgages for people on welfare - the answers to these
questions were: don't know, haven't a clue and write off billions.
For policy-makers, Bankers on Trial provided a welcome distraction
from a rapidly deteriorating economy and the emergence of the D word
in polite society. Paul Krugman, professor of economics at Princeton
University and Nobel prize-winner, wrote recently, "this looks an
awful lot like the beginning of the second Great Depression".
Such a prospect cannot be accepted, at least not in public, by Mr
Brown. He clings to the fantasy that, thanks to his genius of
administration, British citizens are far better placed than
competitors to handle a battering.
Bit by bit, however, the credibility of that claim is being pulled
apart by brutal facts, not least of which was the Office for National
Statistics' revelation that while the number of foreign workers
getting jobs in the UK continues to grow (up by 175,000 to 2.4
million last year), domestic unemployment is rising sharply.
Alistair Darling has given himself until April 22 to prepare his
Budget, much later in the year than normal. At this rate, he'll need
every minute. According to Business Monitor International, a research
company specialising in country risk, "Britain is facing an
unprecedented fall in its economic world ranking. from 12th place in
2007 to 21st in 2010".
Its report, Britain on the Brink, says the UK economy is sliding out
of the global premier league: "Despite enjoying 11 years of growth
between 1997 and 2007, the UK ran a budget deficit of 1.7 per cent of
GDP over this period, fuelling a fiscal time bomb. Faced with the
financial burden of bailing out the banking sector and kick-starting
the economy, the budget deficit will swell to an unsustainable 9.3
per cent of GDP in 2009."
The scale of our problems is at last being recognised by the Bank of
England, which has been way behind the curve in forecasting the speed
and depth of recession. Mervyn King, the governor, whose style of
communication is that of an Oxbridge professor addressing a village
idiot, is preparing the way for unconventional measures to turn back
the tide.
"It is at this point," as Orwell wrote, "that the special connection
between politics and the debasement of language becomes clear." For
when the Bank talks of "quantitative easing", what it really means is
printing money: increasing the amount of paper stuff swishing through
the economy. You get more, I get more and, in a flash, we'll all be
millionaires.
You can see where this is going. From here, all roads lead to Harare.
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