In the dying moments of the Labour government, namely those heady days between the election and Gordon Brown’s departure from Downing Street, Bank of England governor Mervyn King was perhaps a bigger player than any of the accounts so far have revealed.
His name is of course well-known in political, media and financial circles, and the powers of his position have increased substantially since Labour came to power in 1997, and GB made the Bank independent in one of his first, and most important, moves.
Yet the Bank Governor could probably walk down most High Streets without being too troubled by passers-by, even though he wields a fair amount of influence on their lives.
In those post May 6 days, the sense I had, admittedly only listening to one side of a conversation, namely GB’s, was that King saw the instability of the political situation as an economic problem, and therefore hoped to see it sorted quickly. I also got the impression – and again I stress that the prism through which I was seeing and hearing this was GB’s – that he felt the Tories’ harder line on the deficit might be more in tune with his own approach.
At one point, GB seemed to think that between them, the Tories and powerful figures within the financial world were jointly seeking to create a sense of pending economic crisis unless GB walked and David Cameron came in.
Anyway, all history now, though the sense of pending economic crisis is never far away. What has been a bit remote from the economic debate is any realisitic assessment of how we got to the current position. The coalition has no real interest in a sensible assessment. They just want to blame Labour. It is a fairly obvious political thing to do, but it doesn’t neccessarily help them reach the right economic decisions.
As I said here yesterday, because of the Tories’ determination to blame everything on Labour, the banks have largely disappeared from the debate about what happened to bring about the crisis, and what we do now.
So it was good to see Mervyn King in New York yesterday suggesting that the government needed to do more to reform the banks and the banking system that did so much to fuel the crisis. He is absolutely right that the reforms proposed so far, including George Osborne’s £2.5billion bank levy (around a third of the additional welfare cuts announced last week, and around a third of the bankers’ bonuses last year btw) are not enough to deal with the problem of banks that are ‘too big to fail’ – those whose collapse would threaten the entire financial system.
Right too that other proposals, including new rules forcing the banks to hold more capital as a buffer against losses, were not a ‘silver bullet’ and that ‘other, more radical reforms’ should be considered, including forcing banks to hive off their ‘casino’ activities.
In his speech, he said the financial system was based on ‘alchemy’, adding ‘of all the many ways of organising banking, the worst is the one we have today.’
Some will ask where he has been in this debate before. But it is good that he is getting into it so vociferously now. And interesting that at yesterday’s CBI, the person who seemed to go down worst with the audience was not Cameron, nor Ed Miliband, but Bob Diamond of Barclays.
Of course Barclays oppose the reforms King is proposing because they fear they would force banks like them to hive off their highly profitable investment banking arms.
But as this debate develops, I for one was pleased to hear him say that ‘the real failure was a lapse into hubris … there was an inability to see through the veil of modern finance to the fact that the balance sheets of too many banks were an accident waiting to happen.’
It is about time the coalition, and not just Vince Cable, started to echo his views, rather than continuing to peddle the myth that somehow teachers with an ok pension are the problem for the economy, past, present and future, rather than the banks, hubristic and greedy back then, not lending enough now.