I was alarmed to read a piece in the New Milton Advertiser reporting an address I gave to the Lymington Chamber of Commerce in which I sounded rather complacent, assuring the audience that I did not believe that the economic downturn would be long or deep and that, notwithstanding the hyperbole in the media, there was absolutely no comparison whatsoever with the crash of 1929 and the Great Depression that followed. The problem is that my remarks were reported some two weeks after I had made them and the banking crisis had intensified in the meantime. By and large, I stand by them. It is important not to talk things down, much of the decline in stock markets is simply down to fear. I do not want to understate the scale of the problems that we now face, or the height of the cliff that we find ourselves precariously perched on, but I do think that General William Slim hit on a general truth when he reflected on 14th Army's Burma campaign and said, "nothing is ever as bad as first reported".
Parliament has an important and difficult role to play during this financial crisis. It must scrutinise and hold to account the Government's stewardship of the economy and its banking rescue package, MPs must give voice to the anger and anxieties being expressed by the people who elected them. At the same time, however, Parliament must not make things worse and I think that is exactly what the US House of Representatives did when it debated the President's banking rescue package on 29th September. I do not think that the public would thank us if the financial markets went into a further nose dive on the back of political bickering and dithering by Parliament. So I think it was entirely right of the opposition parties to stand full-square behind the Government in putting together the rescue package. Of course, there will have to be a reckoning and an analysis of how we got into this mess in the first place, but whilst the building is burning all hands must be manning the hoses rather than spending time asking how the fire started.
Parliament does have another important role in explaining to a sceptical public the reason why we have chosen to spend so much of taxpayers’ money in the way that we have. The cost implications of the financial rescue plan are enormous, estimates vary but it may represent some £16,000 for every taxpayer and it will take generations to pay off. There is a perfectly proper question in the many emails and letters which my constituents have sent to me, namely, "why should the Government bail out the banks which paid themselves billions in the good times, but the Government never bailed out my business, saved my job, or my home?” This question must be both asked and answered in Parliament if it is properly to represent the people who elected it. The simple answer is that, notwithstanding the irresponsible behaviour of the banks, if we let them go bust, the whole economy would go down the plug with them. If the banks are not able to lend to businesses or guarantee their payments and their credit, then economic activity and even the most basic transactions will grind to a halt: we would be reduced to a barter economy in a wasteland.
Another key concern that we have to address is that the rescue of the banks by the taxpayer will put an end to irresponsibility and that the taxpayers billions will not be squandered. Over a decade ago, I was responsible for risk management systems at the Royal Bank of Scotland which is now one of those banks at the centre of the storm. I have my own views about what has happened. Banks used to rely principally on the deposits of their customers to fund their lending operations. Over the last ten years, however, they have increasingly funded those operations by borrowing ever larger sums from each other and then stuffing the other side of their balance sheets with highly complex assets that few understand. I suspect that many non executive directors, in spite of being paid handsomely, lacked the moral courage to ask exactly what many of these complex derivatives really amounted to. I think it is also true that the regulators, charged with supervising the banks, also lacked that knowledge or the sense to find out.
Whilst the banks were borrowing recklessly, so were their customers. Consumer credit has left many households struggling to pay their debts and we are now the most indebted nation in the world. Despite the alarm bells being rung over the last decade, and I remember, in particular, the Griffiths report, nothing was done. In the past it was the role of the Bank of England to restrain consumer credit when things started to get out of hand but, unfortunately, Gordon Brown's reforms took that role away. The Government itself was never going to be well placed to blow the whistle on the ever rising debt because it was itself the biggest borrower of them all.
In 15 years of economic growth when the Government should have been repaying the national debt, it was on the contrary, piling it on. Now that the boom has turned to bust, we are very ill prepared and the Government is not best placed to assist struggling enterprises and consumers because its own cupboard is absolutely bare. If there is one lesson that comes of this "age of irresponsibility", it is that you cannot build a successful economy on debt. Britain used to be a nation of savers, if we are to recover, we will have to rediscover that virtue. |
