Even in the world of literary theory, semantics is a thorny field. Transpose that to an uncomfortable argument about where to attribute blame for the onset of the financial crisis, and we’re all on tenterhooks.
Bank of England Governor Sir Mervyn King made an unlikely admission this week that the Bank, under his stewardship, should have done more “to prevent the disaster”.
“Our banking and financial system overextended itself”, he observed, in a speech for the BBC Today Programme Lecture.
He even turned to the tale of The Emperor’s New Clothes to demonstrate the fundamental ineffectiveness of contingency loans dished out by central banks – a thought that most would prefer not to visualize.
Solution and Absolution
But there is a rather vacuous absolution of responsibility in the Governor’s speech. We made the warnings, he says. We lost the power to regulate banks in 1997. Our remaining power to preach wasn’t penetrative enough. It’s an odd apologia.
Interestingly, Sir Mervyn infers that the UK saw no boom in the early 2000s – if that is what the temporal mechanics of recession are to be measured by.
“Recessions were supposed to follow booms and high inflation, not periods of steady and sustainable growth with low inflation,” he said.
Although inflation was under control, fragilities were building in the banking system. On all sides there was a failure of imagination to appreciate the scale of the fragilities and their potential consequences. No-one could quite bring themselves to believe that in our modern financial system the biggest banks in the world could fall over. But they did.
To Sir Mervyn, then, a boom is only to be categorised by surging growth and uncontrollable inflation; to which end, a recession was to be expected only as a consequence of these conditions.
“We focussed on the need to bring inflation down. But conquering inflation was not enough to ensure stability”, he admitted.
Put simply, it wasn’t recognised that a system of dependence had emerged with the capability of undermining the financial system with even greater severity.
And the effects are still resonant. Today, RBS is making slow progress after it was bailed out with over £45 billion of taxpayers’ money back in 2008. Next week, it is expected to pay back the remainder of the £75 billion that it owes through the credit guarantee scheme, though the bank’s share price remains a distant shadow compared to its peak back in 2007.
The National Institute of Economic and Social Research believes that growth will remain at zero for 2012, against 3.7% growth internationally. While we’ve all been hit, the UK economy remains more battered than most.
With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail… And in the crisis, we tried, but should have tried harder, to persuade everyone of the need to recapitalise the banks sooner and by more. We should have preached that the lessons of history were being forgotten.
Hindsight is a beautiful thing. Don’t blame me, when you and I thought alike, the thought-bubble utters, between the lines. “We should have preached…” In effect, what jurisdiction did we have?.
So, is it incompetence, or the claims of impotence, that has prompted MPs from all parties to call for an urgent investigation into the Bank of England’s role?
David Ruffley, Senior Tory MP for Bury St. Edmunds and Treasury Select Committee, member, said that an investigation could not come soon enough, while accusing the Governor of being amongst those “suspected of being asleep on the job”.
John Mann, a Labour representative, affixed Sir Mervyn’s role to the Bank’s mistakes.
There certainly should be an inquiry into the Bank’s mistakes and it is a shame that Sir Mervyn has rebuffed the proposal in the past,’ he added. ‘We need to know where the Bank failed, and why. We also need to look at his role, because he was a big part of the problem.
Mr Ruffley crossed swords with the Governor last November, at a joint committee meeting on the Draft Financial Services Bill, when he lambasted the Bank’s perceived lack of accountability and transparency.
He tested the Governor with the proposition that neither the Treasury Select Committee nor a Lords Committee had the same level of access to the Bank of England’s decisions that accountants had had into the Financial Service Authority’s decisions made in the aftermath of RBS’s collapse.
He then tested the level of the Governor’s authority with respect to the availability of minutes from the Court relating to the financial crisis.
You don’t think the Court would take cognizance of what the Governor of the Bank of England says? I am putting you on the spot here, Governor, for one very simple reason. I am taking you at your own word. You are saying you want the Bank, a very important institution of this country, to be accountable to Parliament, and we applaud that, but on the first test where we say, “Make available the detailed minutes and we, the Treasury Select Committee, will look at them in camera”, you are telling me you will not suggest to the Court that this is a good idea?
[SOURCE, p. 15. Note the caveats for the legitimacy of quotations therein.]
Not them, but Us
So, how does the beleaguered Governor, due to step down in 2012, survive the current onslaught?
Help may be at hand from those ready to deflect the blame back onto undisciplined consumers.
Defence Secretary, Philip Hammond MP, has said that British households which borrowed too much money must accept responsibility for their role in the current economic troubles. Banks were not solely responsible for the crisis, he identifies, as they had to lend to someone.
Mr Hammond suggested that the shelving of responsibility was developing into a giant circle. Those who took out loans and mortgages and spent on credit cards were consenting adults, he said, some of whom were looking to pass on the blame to others.
He told the Daily Telegraph:
People say to me, ‘It was the banks’. I say, ‘hang on, the banks had to lend to someone’.
People feel in a sense that someone else is responsible for the decisions they made. Of course, if banks don’t offer credit, people can’t take it.
But there were two consenting adults in all these transactions, a borrower and a lender, and they may both have made wrong calls.
Some people are unwilling to accept responsibility for the consequences of their own choices.
Where does the buck stop? Does sole responsibility lie with the Bank of England, or are we all equally culpable?
Equally, are we just as culpable of passing the blame around, until there’s nowhere left for it to go?