Analysis: The blame game
Lord Turner blamed the government for the regulator's failures yesterday
3M is inspired by working closely with its customers to create innovative products that help make the world smarter, faster, healthier and safer. |  |
Find more Opinion Formers in this category:
Financial Services Authority (FSA) chairman Adair Turner pledged a "revolution" in reform to MPs in Westminster this afternoon. |  |
It's never good for ministers when major policy decisions are affected by their friendships, especially if the friend in question is a Russian oligarch. |  |
Thursday, 26, Feb 2009 10:41
By Alex Stevenson
Who is to blame for the banking crisis? According to all those who have been in front of the Treasury committee so far, everyone but them.
Bank of England governor Mervyn King is the latest to receive a grilling from John McFall and co this morning. He will do what all the others have done: admit some mistakes, acknowledge some failures, but ultimately argue he was doing what was fundamentally though to be the right thing - at the time.
There had been hopes yesterday, when the Financial Services Watchdog chairman and chief executive answered questions, we might get slightly different answers. Banking bosses (between saying sorry) attacked the regulator; so too had the journalists. As the appointed scapegoat of the day, how would Adair Turner and Hector Sants respond to the Treasury committee's probing questions?
Initially it appeared they favoured the bankers' approach. Lord Turner pointed out the FSA "has been more open than any other institution in apologising". But only over Northern Rock; when it came to the wider crisis the failure was only one of seeing "systemic risk". Oh, well that's OK then.
On the whole, Lord Turner argued, the "philosophy" before 2007 was one where light-touch regulation was de rigueur. Economists said so; bankers said so; the government said so. The FSA was supposed to respond in this environment by ignoring its own worries. Lord Turner said he wrote a book in 2001, before he joined the watchdog, admitting his personal "intellectual doubts" about the new world credit order. "Those doubts were not as deep as they should in retrospect have been."
Where does this leave us? With a bit of finger-pointing at the government. The problem is a certain Gordon Brown was in charge of the economy during this period. Even on taking office in No 10 in July 2007 he was telling the City the regulation model would not be changed. That followed months in which politicians called for the FSA to 'back off' in its management.
Astonishingly, Lord Turner had done the same as everyone else: passed the buck.
The question which now has to be answered is whether the government was to blame. Many, of course, have argued it was. Presiding over an economic boom is already well, but when the bust comes the blame game must be played. The Treasury committee inquiry has given us the opportunity to engage precisely in that.
Brown's well-rehearsed answer is that the global problems which developed into the present liquidity crisis did so simply because any national regulator would prove insufficient.
"What we are dealing with is a global banking system that is regulated only by national supervisors," he pleaded to the liaison committee earlier this month.
Is this the right tactic? Will British voters buy it? That question will, more or less, decide the outcome of the next election. Current opinion polls suggest the electorate is less than convinced. Downing Street may need to try another line.
The truth, unfortunately, is even less vote-winning. What the Treasury committee has established is a common theme: important people and institutions being overwhelmed by events. It was the philosophy of the time to assume the credit system made the world safer, not riskier. It was no surprise politicians followed the lead of the financial world in dealing with the crisis. It was no surprise, as Lord Turner pointed out, the FSA dare not put its head above the parapet in 2004 and start telling banks not to earn so much money on short-term deals.
Bankers have already paid the price for this fundamental error of judgment. Politicians are yet to. But that may change at the next general election.