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| George Osborne talks tough on debt – so why not on the banks? | George Osborne talks tough on debt – so why not on the banks? |
| (35 minutes later) | |
| Shock horror. A chancellor of the exchequer thinks we should not spend beyond our means. The habit must end. The Micawberish cliche, respun by George Osborne’s aides before his Mansion House speech tonight, is hardly new. Jim Callaghan shouted it at a rally in 1976, as did Margaret Thatcher at her party ad nauseam. Gordon Brown had his 1997 “golden rule” and America its Gramm-Rudman act. Such homespun mantras are recited by treasuries round the world, but they are dust blown away by the hurricane of politics. Like all voodoo economics, they are both right and rubbish. | Shock horror. A chancellor of the exchequer thinks we should not spend beyond our means. The habit must end. The Micawberish cliche, respun by George Osborne’s aides before his Mansion House speech tonight, is hardly new. Jim Callaghan shouted it at a rally in 1976, as did Margaret Thatcher at her party ad nauseam. Gordon Brown had his 1997 “golden rule” and America its Gramm-Rudman act. Such homespun mantras are recited by treasuries round the world, but they are dust blown away by the hurricane of politics. Like all voodoo economics, they are both right and rubbish. |
| Related: George Osborne moves to peg public finances to Victorian values | Related: George Osborne moves to peg public finances to Victorian values |
| Osborne wants to reduce government debt. He thinks the state should balance its books “in normal times”. Borrowing should occur only “in exceptional circumstances”, and such discipline should somehow be “entrenched”. The chancellor is even to revive a Victorian commission to ensure it happens. | Osborne wants to reduce government debt. He thinks the state should balance its books “in normal times”. Borrowing should occur only “in exceptional circumstances”, and such discipline should somehow be “entrenched”. The chancellor is even to revive a Victorian commission to ensure it happens. |
| Cynics may dance with glee at his get-out phrases. They point out that all economics is about abnormality and exceptions. But Osborne bears the scars of inheriting the largest government debt in peacetime history and, as yet, of failing seriously to dent it. Labour can mock him, but reducing such monumental debt is not ignoble, and there is no harm in the occasional reminder. | Cynics may dance with glee at his get-out phrases. They point out that all economics is about abnormality and exceptions. But Osborne bears the scars of inheriting the largest government debt in peacetime history and, as yet, of failing seriously to dent it. Labour can mock him, but reducing such monumental debt is not ignoble, and there is no harm in the occasional reminder. |
| Yet the flaws in such pre-Keynesian ideas have long been the stuff of economics essays. Indeed, Osborne’s success as chancellor is to know when he is talking rubbish. Mercifully he does not practise what he preaches. His public spending rises each year to meet promises to pensioners, schools, hospitals and aid. He knows no growing business – let alone a growing economy – refuses to borrow to invest. Hence his tax breaks, incentives, grants and skills programmes that must hold the key to Britain’s limping productivity. Hence his price-inflating subsidies to house buyers. | Yet the flaws in such pre-Keynesian ideas have long been the stuff of economics essays. Indeed, Osborne’s success as chancellor is to know when he is talking rubbish. Mercifully he does not practise what he preaches. His public spending rises each year to meet promises to pensioners, schools, hospitals and aid. He knows no growing business – let alone a growing economy – refuses to borrow to invest. Hence his tax breaks, incentives, grants and skills programmes that must hold the key to Britain’s limping productivity. Hence his price-inflating subsidies to house buyers. |
| Osborne is a politician before he is an economist, and a soft touch for any vanity project that crosses his desk. When he returns to his office tomorrow he will further boost his debt with aircraft carriers, nuclear reactors, high-speed trains, wind turbines, science parks, garden bridges and the rest. The only proper chairman for his “commission for the reduction of the national debt” is himself. | Osborne is a politician before he is an economist, and a soft touch for any vanity project that crosses his desk. When he returns to his office tomorrow he will further boost his debt with aircraft carriers, nuclear reactors, high-speed trains, wind turbines, science parks, garden bridges and the rest. The only proper chairman for his “commission for the reduction of the national debt” is himself. |
| Meanwhile what of the cause of all this woe? Conventional wisdom is increasingly putting the blame for the recession less on government debt than on the antics of the banking sector. Osborne’s Treasury boss, Nicholas Macpherson, recently agreed with the American economist Paul Krugman that the crash was “a classic banking crisis pure and simple”. While the regulators were dozing, it was bankers who went berserk. | Meanwhile what of the cause of all this woe? Conventional wisdom is increasingly putting the blame for the recession less on government debt than on the antics of the banking sector. Osborne’s Treasury boss, Nicholas Macpherson, recently agreed with the American economist Paul Krugman that the crash was “a classic banking crisis pure and simple”. While the regulators were dozing, it was bankers who went berserk. |
| London's financial community is in denial. It believes the past is best forgotten | London's financial community is in denial. It believes the past is best forgotten |
| So what does Osborne say to the splendid ones arrayed before him at the Mansion House looking, as Baldwin said of their predecessors, “as if they have done very well out of the war”? Not much. London’s financial community is in denial. It believes the past is best forgotten. The Treasury and its regulatory agents have settled back to doing what they know best, taxing and micro-regulating. | |
| In Britain almost no one has been prosecuted, fined or struck off for actions involved in the credit crash of 2008-9 – a point finally made by Bank of England governor Mark Carney tonight. The banks have faced some £26bn in claims for the PPI mis-selling scandal. But the worst that happens to those leading the banks involved in the crash has been early retirement, the loss of a knighthood or a reduced bonus. Osborne may set up a Dickensian commission to curb public debt, but I see no British bankers are on their way to the Marshalsea. | |
| This week Britain’s biggest bank, HSBC, pulled off a trick of pure blackmail. Hardly a week passes without that company facing new accusations of money-laundering, market rigging or aiding tax evasion, usually from across the Atlantic. Yet in 2012 David Cameron actually gave its boss, Stephen Green, a peerage and a job in, of all places, the department of trade, charged with bank regulation. | This week Britain’s biggest bank, HSBC, pulled off a trick of pure blackmail. Hardly a week passes without that company facing new accusations of money-laundering, market rigging or aiding tax evasion, usually from across the Atlantic. Yet in 2012 David Cameron actually gave its boss, Stephen Green, a peerage and a job in, of all places, the department of trade, charged with bank regulation. |
| In an attempt to recoup some of the money HSBC and others have contrived to divert from the Treasury, Osborne has steadily increased the 2010 bank levy to an estimated £700m on the bank this year. HSBC’s response is to announce, in effect, that unless there is an end to attacks on its profits and its integrity, it will up sticks and leave London. It might go somewhere with more respect for the values of hard graft and oligopolistic capitalism, such as China. We await the budget to see if Osborne is ready to call the bankers’ bluff. | In an attempt to recoup some of the money HSBC and others have contrived to divert from the Treasury, Osborne has steadily increased the 2010 bank levy to an estimated £700m on the bank this year. HSBC’s response is to announce, in effect, that unless there is an end to attacks on its profits and its integrity, it will up sticks and leave London. It might go somewhere with more respect for the values of hard graft and oligopolistic capitalism, such as China. We await the budget to see if Osborne is ready to call the bankers’ bluff. |
| As with data surveillance and football corruption, so with global finance, it is America that is now acting as the world’s policeman. (Indeed it is a tragedy of our age that such worthy policing by Washington is not confined to non-military interventions.) Prosecutors are seeking accountability and retribution for past misdeeds. Bankers involved in subprime scandals, market rigging, Libor fixing and insider dealing are hauled in handcuffs before the courts. Massive fines are imposed. | As with data surveillance and football corruption, so with global finance, it is America that is now acting as the world’s policeman. (Indeed it is a tragedy of our age that such worthy policing by Washington is not confined to non-military interventions.) Prosecutors are seeking accountability and retribution for past misdeeds. Bankers involved in subprime scandals, market rigging, Libor fixing and insider dealing are hauled in handcuffs before the courts. Massive fines are imposed. |
| Related: Labour overspending did not trigger financial crash, says senior civil servant | Related: Labour overspending did not trigger financial crash, says senior civil servant |
| As of March, US banks are required to prove they are small enough to collapse without bringing down the system, as in 2008. They must break into separate operations, rid themselves of “junk DNA”, expose poor debts and generally get their acts together. The banks are howling. Their lobbyists are in full cry. Complicated though it is, it will happen. This is a form of “national security” that matters. | As of March, US banks are required to prove they are small enough to collapse without bringing down the system, as in 2008. They must break into separate operations, rid themselves of “junk DNA”, expose poor debts and generally get their acts together. The banks are howling. Their lobbyists are in full cry. Complicated though it is, it will happen. This is a form of “national security” that matters. |
| When the world banking system failed, millions lost their jobs and tens of millions saw their living standards collapse. Whole nations were plunged into penury from which they have yet to escape. In the case of Greece, even now Europe’s bankers are denying the essence of bankruptcy, that lenders too should accept risk and write off debts. This is the economics of the middle ages. | When the world banking system failed, millions lost their jobs and tens of millions saw their living standards collapse. Whole nations were plunged into penury from which they have yet to escape. In the case of Greece, even now Europe’s bankers are denying the essence of bankruptcy, that lenders too should accept risk and write off debts. This is the economics of the middle ages. |
| Britons still find it mystifying that there has been no general inquiry into what happened in 2008-9, despite the Queen asking economists the question directly on her 2008 visit to the LSE. There has been no allocation of responsibility so as to stop it happening again. From the US, the message is that never again must a bank or linked group of banks be so big that its fall can cripple an entire economy. | Britons still find it mystifying that there has been no general inquiry into what happened in 2008-9, despite the Queen asking economists the question directly on her 2008 visit to the LSE. There has been no allocation of responsibility so as to stop it happening again. From the US, the message is that never again must a bank or linked group of banks be so big that its fall can cripple an entire economy. |
| Osborne half understands. In his speech he singled out for applause the financial stability of Sweden and Canada. Not all small countries have proved stable – witness Iceland. But on the whole, small works. The Americans understand. Why not Britain? HSBC is arrogant, rackety and above all big. I say good riddance. | Osborne half understands. In his speech he singled out for applause the financial stability of Sweden and Canada. Not all small countries have proved stable – witness Iceland. But on the whole, small works. The Americans understand. Why not Britain? HSBC is arrogant, rackety and above all big. I say good riddance. |
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