Monday, April 27, 2009

Gordon Brown's indecent love affair

John Kay has been writing another of his insightful comments in the Financial Times. It is a reminder of something we already know - the government was hopelessly in bed with the bankers - and that it still seems to be true, despite the occasional sign of real fresh thinking. The government, as Kay notes,

"conducted an indecent love affair with the financial services industry."

He asks

What would have happened if the Financial Services Authority or Bank of England had sought to block the competing bids from RBS and Barclays for ABN Amro – a contest which, we now know, would bankrupt the bank that won the race? The phones in Downing Street would have been ringing insistently and it is easy to imagine the government’s response."

And follows this with:

"Little has changed. The government continues to see financial services through the eyes of the financial services industry, for which the priority is to restore business as usual."

Notes that whatever old arguments there may have been are now out of date:

"For a time in 2008, it seemed possible to argue that a package of temporary support for the banking industry, combined with substantial recapitalisation of the weaker players, might stabilise the financial sector and prevent serious knock-on effects. But the problems of banks are much deeper than were then acknowledged and the destabilisation of the real economy has happened anyway. Government now provides taxpayers’ money to financial services businesses in previously unimaginable quantities. But there is no control over the use of the money, no insistence on structural reform or management reorganisation, no safeguarding of the essential economic functions of the financial services industry and no accountability for the damage that has been done."

And adding that

"We need a comprehensive reappraisal of both the fiscal framework and the economic and political role of the financial services sector."

Nothing extremely new here, but it's nice to see another influential voice making the case.


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