Thursday, September 13, 2007

Banking on self interest

One of the key dividing lines between the left and the right used to be, when we had such things, the idea that people act in their own interests. The right assumed that perhaps they could be persuaded to group those interests for family or even town / village, but you shouldn't push your luck. The left saw this as cynical and believed in a more optimistic view of human nature ( remember 1997 - things can only get better ? )

Now we have the banking sub-prime loan disaster facing us, and Alastair Darling ( ably assisted by his Cat Sybil - all master 'bond' villains needs a cat and a swivel chair [ small banking pun - sorry] ) is telling off the bank for spreading round credit too much. He of course fails to mention his master Gordon Brown who allowed this credit fest to go ahead. Changing the Bank of England's inflation target to the CPI rather than RPI ( allowing in effect higher inflation ) - helping to keep interest rates down before Gordon Browns ascension and coronation as Labour supreme leader. Gordon was acting in his own interests - only a guardianista could be surprised by that.

And so it is with the Hedge funds and banks ( which have very close and cordial relations with Gordon Brown and the Labour government - and who have successfully persuaded them to regulate with a very light touch, perhaps why Alistair does make any noises about bank regulation or other areas of his master's former competence which he ignored and allowed to contribute to this mess). An individual being paid bonuses that are staggering in their size to the rest of us - decides not to worry about tomorrow as today is paying very well. Anyway they can parcel up their mistakes and spread them out to everyone else through clever financial instruments and contracts ( the equivalent of Doctors burying their mistakes ).

Many in the banking industry and hedge funds have become fabulously rich. The risks have been worth it for them - but they have in effect been taken by us. And the government has applauded all this from the side lines.

These people have played the game very well from their own personal point of view. The inevitable down side doesn't matter that much to them - as long as the good run was long enough and lucrative enough. And it has been.

It was the role of government to protect the weak and vulnerable who are now going to suffer because of this feeding frenzy. Regulation of the banks is a government role - which Gordon moved from the Bank of England to the FSA ( weaking the Bank of England's grasp on events and local knowledge of what is going on ). It just wasn't convenient for them to be too heavy handed due to their own person self interest in upcoming events.

In many ways ( PFI not the least ) Gordon Brown has been running up the country's credit card - taking over GBP 10 Billion from peoples pensions, signing ridiculous generous pay rounds with NHS staff - especially Doctors to do less for more, increasing the state sector to help provide the pay role vote to get him back into office, destroying the military's assets in the field without replacing them.

This crisis has the governments finger prints all over it, and Gordon Brown's in particular. But they are acting in their own selfish interest and trying to defect blame - hence Alistair Darling's article in the Telegraph and Times today. If trouble comes - they want you to think about it in a particular way and not to ask what the government, treasury and Gordon Brown's role was in creating this mess.

For the sake of all those who are vulnerable I hope this doesn't become a disaster - but its can't be encouraging that New Labour is moving so fast to cover its tracks and the back of Gordon Brown. Alistair Darling says in the Times that Banks need to ask themselves some searching questions - well that advice applies to the Treasury and it current and past Chancellor also.

Update: John Redwood has a interesting article on his blog here. It deals with the pot calling the kettle black aspect of this crisis. John is against further regulation - however I'm less sure. Banks have, since the great depression - clearly needed some regulation due to potential dynamic instability in the banking system. And that is the responsibility of government - however they chose to discharge that responsibility - eg via arms length bodies such as the Bank of England and the FSA.

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