Britannia Radio

John Redwood has been brilliant rthroughout the crisis 'telling it as 
it is' with no jargon to get in the way.

Cameron PLEASE get him on the front bench.  He's worth ten of any 
other member of the shadow cabinet.

After his article is a brief report of what he said on Newsnight 
tonight, linking with Ireland.

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TELEGRAPH    8.4.09
Spare taxpayers from the cuckoo banks
We need more, smaller institutions that can fend for themselves, says 
John Redwood.

By John Redwood

You cannot mend broken banks by tipping ever larger quantities of 
public money at them - nor can you suddenly transform toxic debts 
into public treasures.

So far, the Government's approach to the banks has combined 
unpleasant rhetoric with excessive generosity: they have castigated 
the people in charge, but given them far too much money to play with. 
They have put huge sums in as new share capital, much of which will 
be wasted. They have lent huge sums to tide the banks over as the 
money markets dry up. They have bought or insured large quantities of 
"toxic" assets: loans to people who might not repay, or investments 
in clever financial instruments that went horribly wrong. They have 
tried to prop up property prices, since banks rely on real estate as 
security for loans. They have poured money into the economy 
generally, trying to "reflate" by spending more in the public sector. 
And now they are printing money.

All of these approaches, many of them driven by panic, have two 
things in common. First, that they have not worked as intended. 
Second, they were based on the idea of making the taxpayer pay. The 
Government wasted a whole year after the collapse of Northern Rock. 
Then, after deciding that the banks needed greater reserves, its 
regulators precipitated last autumn's crisis, suddenly demanding that 
the banks should have more capital, when their chances of raising it 
were not high.

We need a different approach: one that takes greater care of 
taxpayers' pounds, that offers tough love to the banks instead of 
ever-increasing amounts of cash. Some banks do need more capital in 
the longer term: regulators clearly allowed them to operate with too 
little by way of reserves. But should they have been told that in 
public, and made to raise it all in a hurry? Of course not. That 
undermined confidence, and ended with taxpayer subsidy.  [In short 
the extremity of the crisis was entirely caused by government 
precipitate action, amd not least by Brown forcing the sound Lloyds-
TSB into a merger with the disaster that was HBOS -cs]

As it happens, a bank can sort itself out by many routes. It can 
reduce its number of loans, by failing to offer new ones when old 
ones are repaid. It can raise new capital from shareholders. It can 
make more profit, or cut its dividend, and keep the cash for a rainy 
day. It can cut costs, paying fewer people large salaries and 
cancelling bonuses when returns are low. It can sell off assets. Any 
bank with a future should be able to get by without needing taxpayers 
to stump up new share capital. It was a disaster for taxpayers that 
they were made to invest in damaged banks at share prices that now 
look very high.

So what, as the Budget approaches, should Gordon Brown and Alistair 
Darling do now? First, they should make it clear they are not going 
to put in any more capital. More importantly, the Government should - 
in private - set deadlines for the banks it owns in terms of profit 
and cash generation, as a precursor to a sale. We need a clear exit 
strategy; instead, we have a couple of large zombie banks, too big to 
be allowed to go under, too weak to do much new banking, and too 
expensive for the taxpayer to maintain in the style to which they are 
accustomed.

Drastic action on the part of the banks may be necessary: selling off 
overseas assets and companies, cutting back their investment-banking 
arms, coming clean about losses taken before they lose any more. Most 
of their highly paid people should be told they are lucky to have a 
job: until the banks are profitable again, including exceptional 
losses, there should be lower pay and no bonuses at the top.

Many people are spending their time discussing future regulation, as 
if that mattered to get us over the present crisis. Let me give them 
a simple solution: we need regulation of cash and capital for deposit-
taking and credit-creating institutions, preferably in a way that 
dampens rather than reinforces the economic cycle, demanding more 
cash and capital as things hot up, and less as they cool down. 
Overall, there will be higher levels of capital, less borrowing, and 
stronger competition regulation. There was a good case to stop RBS 
buying ABN Amro, and it was a disgrace that the competition 
authorities waved through the Lloyds/HBOS merger [They were hardly 
going to contradict Brown, now were they ? -cs] . We need more banks, 
not fewer banks; smaller banks that do not cripple the economy when 
they make mistakes, not larger ones that are "too big to fail".

Finally, let me make the day of Yvette Cooper, the Chief Secretary to 
the Treasury, who seems to spend her days poring over Conservative 
speeches and articles to take the odd sentence out of context, as 
part of her continuing effort to avoid any serious analysis of how 
she has lost control of public spending. We need less regulation - by 
which I mean regulation of the box-ticking, process-watching kind. 
Never have mortgages been so regulated as in the past few years, and 
never have so many gone wrong or been at risk. We need better 
regulation of what matters.

The truth is that the Government has allowed a couple of banking 
cuckoos to take over the public-spending nest. It is putting 
taxpayers too much at risk. It is distorting the national accounts, 
driving us ever deeper into debt. It is delaying sorting out the 
crazy investments these banks made. Why can't these people see they 
are delaying the day of reckoning, not cancelling it? When will the 
taxpayers be given a break?
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Newsnight, BBC 2 7.4.09
Reported by Politics Home
Redwood: Britain is headed the same way as Ireland, but raising taxes 
is quite wrong

John Redwood, Conservative MP

Mr Redwood said Britain's economy was headed the same way as 
Ireland's, forecasting "pain and aggro" ahead.

"We're in the same boat as in Ireland, we've got the same banks...I 
think we're very similar apart from Euro versus sterling.

"I feel we've got a lot of pain and aggro ahead," he said.

He said the Euro had "exaggerated" the bust in Ireland and 
"devaluation" by the British Government was cutting living standards 
here.

Asked whether he would support the "Irish route" of raising taxes in 
Britain, he said: "I think that would be quite wrong. If you increase 
rates on businesses...you just send companies abroad."

Then asked if he would support spending cuts instead, he said: 
"You've got to do a lot on spending... You need nurses, teachers, 
doctors."

"What you can't afford" is very big subsidisation of banks and fat 
cats, he added.