Saturday, 11 April 2009

Oh, that terrible world crisis!

Who’s for a wee wander then? Excellent, follow me. Gordon Brown, in an interview on the Jeremy Vine show, insisted that the banking crisis was a global problem. It’s not.

The Australian banks haven’t melted down and haven’t needed a bail-out, nor have the New Zealand banks. When the Australian Government made a commitment to guarantee all deposits in an attempt to quiet troubled markets, the Australian Bankers Association was quick to emphasise that it wasn’t a bail-out and that the deposits were safe in any case.

Australia’s Treasurer, Wayne Swan was emphatic when he announced liquidity funding:
"Whereas the US Treasury is being forced to issue debt to invest in existing troubled mortgage assets, such as securities backed by subprime mortgages with high default rates, the [Australian Office of Financial Management] will invest only in newly issued, prime, triple-A rated RMBS that meet strict criteria in relation to the quality of the underlying mortgages".

In fact, Australia’s four main banks are pumping money into a new liquidity scheme in partnership with the Government. Ah, liquidity rather than propping up bankruptcy, properly regulated banks, oh the delights of old-fashioned prudence!

Then there’s Japan – it’s banks are struggling a little and are getting a dose of Government help but it’s nothing like a bailout or nationalisation. In the latter part of last year, Japan’s banks began buying up parts of failed US banks - which might be why their credit ratings may take a wee dunt, depending on whether their internal business models have stacked up properly. Japan’s banks, of course, are recovering from having their own problems a while back and learned the lesson a while back – it’s a pity our regulators smirked instead of learning.

Canada’s banks are closely regulated, meaning that they have come out shining and squeaky clean – drawing admiring glances from the US President (I imagine a few Canadian bankers sipped their drinks and muttered “it’s like 1812 all over again” with a wee smile). In fact, Canada’s banks have done so well that the Canadian Prime Minister fancies a bit of hunting, encouraging them to attend the US fire-sales - they feel disgruntled by annual profits sinking to ‘only’ $12bn while banks here would be delighted to restrict their individual losses to such an amount.

Indian Banks are doing so well that their share prices are on the way up and the banks themselves are starting to fund airlines’ new plane purchases. Indian banks are increasing their lending while our banks are shrivelling.

Russian banks (I’ve no idea what the regulatory system in Russia is) have not yet needed any bailout but might need help in the later part of this year since the Russian banks survived much longer than ours, can we judge them better or did it just take longer?

It’s not a global problem, it’s a problem caused by poor banking regulation in those countries which allowed it. Gordon Brown’s tenure as Chancellor puts him right in the frame.
Gordon Brown went on to claim that he had warned about the financial crisis for years. Hmmmm….

Let’s have a look at a speech that Brown gave on the Global Economy at the Reuters Building on October 1st 2007:

In the last 10 years our commitment to stability has been tested again and again, in the Asian crisis in 1997/8, the Russian crisis, the American recession, the trebling of oil prices, and of course in the last month with a wake-up call for every financial system round the world, a wave of turbulence that started in America, then Germany, has impacted on all countries and tested the stability of our own system. I believe it is because of the resilience of the system that has been built in the United Kingdom - Bank of England independence, the Financial Services Authority, the tripartite system we now have - that we are able to steer a stable course.
Yup, those regulators had it just about spot on, eh?

In any other decade but ours a trebling of world oil prices might have caused a recession but I believe the world economy showed itself flexible enough to adjust. Double digit price rises in housing in the United Kingdom in other decades have sparked downturns, but we have been flexible enough to be able to adapt. And I believe that because of the changes that have been made worldwide and then the changes that we have made in Britain, we are sufficiently flexible to adjust when events threaten our growth. And we will certainly continue to take all measures that are necessary to ensure that we are in future even more flexible to deal with events as they arise and to steer a course of stability.
Oh, aye, just so. See those warnings about the impending financial crisis just shining through?

In the days ahead we will continue to respond with the same calm vigilance. It is time however to recognise that there are changes in the financial system globally as well as nationally that do need to be made. Of course some of the wisdom we need is to refuse, even in the wake of difficulties, to make unnecessary changes. When Enron and WorldCom happened we did not in Britain respond with heavy-handed regulation. I believe that was the right decision then and in the same way we will not make that mistake now, but we will take measures that are necessary.
See how he insists on building us a buttress against the coming financial crisis?

You know better than me how we are and can continue to entrench our position as a world leader in business and financial services, but from the point of view of the government we insist that we will continue to implement our new risk-based light touch approach to regulation, we will make our planning system more flexible and responsive and of course we will work together on infrastructure to invest in our long term priorities. And I believe that that is an important part of London retaining its position as the pre-eminent financial centre in so many sectors.
Whoops! With a liability as Prime Minister is it any wonder we’re in difficulties?

Ach, woe is me, I’m aff to have stovies. Mind how you go!


Stuart Dickson said...

Iain Dale asks:

I don't know the provenance of A Leaky Chanter. Perhaps one of my Scottish readers could help out.

subrosa said...

Auch Callum I just love your style of writing and wish I had such skill. It's always a pleasure to read your posts so thanks.

Calum Cashley said...

Subrosa, you'll be making me blush - and what would that do to my macho reputation? Thanks though.


Stuart, I don't know who runs Leaky Chanter. Simon Pia might be a guess, but it has the feel of a collaborative effort.