What caused the crisis, and how does Britain recover ?

After the financial crash, panic and spin, what looks like the longer term response of the Labour government to the crisis was ‘rushed out’ for the G20 meeting, amidst the swirling fog of ‘initiatives’.  And what a limp response it is too. The residents of NW Leicestershire deserve better.

Recently the FSA published its plans for regulatory reform in the financial sector.  This is it, then. What we have been waiting for.  It looks from this however, amidst self-deception of barely-believable proportions, that Gordon Brown actually believes his own spin ! 

The Prime Minister tells anyone that will listen that the financial collapse was America's fault, and the UK is a ‘victim’ the same as all other countries, and he also tells us all it could not have been foreseen. Neither claim is true.

On this logic however there's only a need for some regulatory tinkering just in case America does it again ! Most of the new proposals tragically reflect  Gordon  Brown’s UK government propaganda, rather than the real world.

But as senior city folk and economists know, in the UK and across the financial world, the financial collapse was caused by the UK and US together: both countries having massively more imports than exports, no savings by the public to lend out, and a tsunami of consumer and mortgage debt based on international loans to foolishly replace the lack of savings.

Both UK and US banks adopted a model of 'borrow from abroad, lend to people that can't afford it, get your bonus, and then sell on this new debt before anyone notices'. The UK government, having destroyed the quality of UK 'big picture' bank regulation from 1997, ignored the louder and louder shouts of 'stoooop !' from its many independent advisers from 2000 onwards.

Click this picture for a list of experts who predicted the crisis

Now they need to throw away the tinkering and start again if the country’s economy, the City and our banking system is to survive. The proposed approach however is akin to tidying up the deckchairs on the sinking Titanic. The banks are in danger of taking over the government, not the other way round, with total UK debt set to exceed 100% of GDP this year. We may face a choice of letting some banks fall or letting the country fall ! Oh deary me.

We now need to attack the 'seven deadly sins' of financial & banking regulation that permitted the crisis, and overturn the failed system – excessive monopolization & cartels, secret transactions (off balance sheet deals), huge areas of trading outside the remit of regulators, regulating bank ‘institutions’ only rather than banking ‘activities’, allowing disgraceful conflicts of interest to worsen, pulling out of global efforts to strengthen prudential regulations (eg capital adequacy), and weakening the power of regulators and shareholders to control the ‘incentives-to-destroy’ bonus culture, and to keep risky trading separate from high street banking. 

Utterly staggering to you the reader though it may seem, the government has very recently proposed ‘light touch’ self-regulation for the tax-avoiding ‘private equity’ industry. Is it not crushingly obvious that very major reforms are needed ? 

If they cannot be taken by this government because it would ‘lose face’, then a new face is needed.