“The budget should be balanced, the Treasury refilled, public debt reduced, the arrogance of officialdom tempered and controlled, and assistance to foreign lands curtailed lest Rome become bankrupt. People must again learn to work instead of living on public assistance.”
No epitaph on the first decade of the new millennium could be more apt than those sage admonitions of Cicero, uttered 2,000 years ago.
the merger descended into chaos and exposed gargantuan losses
It seems that there is nothing unique in having a government lacking direction or any coherent policy for restoring stability to the nation’s shaky institutions. For example, no one in authority has any notion of what to do about the banking fiasco that trundles blindly on. Barely a year ago, Sir Victor Blank was nobbled by the Prime Minister at a cocktail party and encouraged to merge Lloyds and HBOS to help save the banking system. He was forced to resign when the merger descended into chaos and exposed gargantuan losses whose final tally has still not been reckoned.
The government, clearly in headless chicken mode, has now been ordered by the EU competition minister to break up the bank it merged – again to save the banking system, but with the help of a further £6 billion of our money. Is it any wonder that the governor of the Bank of England has referred to the relationship between government and the banks as the greatest system of moral hazard ever created?
Ironically, “market fundamentalism” is blamed for causing this long-running muddle. Yet the concept of being “too big to fail”, which dominates the crisis, is the very antithesis of market economics. If the purpose of banks is to look after depositors’ savings and to lend wisely, our motley clutch of retail behemoths has failed on both counts. If we were designing a banking system, we would certainly not start from here.
I have before me a letter from the bank I have been with for over 30 years. It delightfully confirms its readiness, in return for an “arrangement fee” of £125 (which they had already abstracted from my account before they wrote the letter!), to renew my rarely used £5,000 overdraft facility. Interest, however, will be charged at 8% over the bank’s base rate of 2%, while a credit balance will attract interest of 2% under the base rate of 2%. The letter helpfully adds “producing a gross rate of 0% AER”.
When, historically, were banks able to make a 10% “turn” between borrowing and lending rates? And this extortion is being practised upon us by banks we effectively own, under the useless gaze of all the authorities, in a period of the heaviest regulation in banking history.
At any other time, the forces of a market economy would have guaranteed an influx of fresh competition to narrow the mismatch in differential rates that has ground the provision of funding to a halt. Yet the Financial Services Authority appears to suffer paralysis whenever presented with new applications for banking licences, entrenching the stagnation in lending.
We are told that the banks need to be allowed to “rebuild their balance sheets”, even if it means committing unbridled usury on the way. Yet how will it help their balance sheets if their stinging measures prove to be so unpopular that the take-up is scant? Have banks completely forgotten that the surest way to get themselves out of this mess is to return to their proper place in the economic framework and protect our deposits through the practice of judicious lending? That would certainly be preferable to their previous gambit of stuffing their balance sheets with assets whose values depended on the obvious fantasy that house prices could only ever go up.
Human folly is limitless. But folly turns to tragedy when it finds a home in the boardrooms of our most venerable financial institutions.