Rein in the bankers

Published: 8 October, 2010

• AM I alone in tiring of hearing politicians pleading for more restraint among bankers, especially about big bonuses?

The unpalatable truth is that bankers have behaved as most of us would had we also been granted – almost literally – a licence to print money. We’d have been at that printing press day and night.

Greed isn’t a good thing but it comes naturally to most of us, given the chance. In aggregate, banker-greed endangered the whole economy.

When unsolicited “credit card cheque books” come via the post, that’s a sign that banks have too much money to lend. When banks offer 125 per cent mortgages, that’s nature’s way of telling you credit has become too easy.

Watch for these signs in a few years’ time and be ready to head for the hills.

It’s not simply that banks behaved irresponsibly.

It’s that they were allowed to behave irresponsibly.

The real failure lies at the door of delinquent regulators and a government that was too cosy with the City.

Central bank reserve asset ratios, as advocated by the economist Keynes, could control the phenomenon.

Such variable ratios could increase or decrease automatically, depending on whether the economy needed brake or accelerator.

It’d mean slower rates of growth in the short run.

In the long run it would mean more steady growth and avoid hubristic, Brown-type booms.

This has ended inevitably with one of the biggest busts ever, the biggest bail out and biggest deficit ever.

Will governments ever learn?

Can we have responsible banks, but absolutely coupled with meaningful regulation?

In October 2008 we came within 24 hours of a freeze of the UK banking system.

People have short memories; without real change soon, it will happen again.

In the same way that war is too important to be left to generals, banking is too important to be left to bankers alone.

CD CARTER
Stapleton Hall Road, N4

• IT’S convenient for some politicians to lay all the blame for our deficit at the door of bankers.

Of course, everyone knows the banks were responsible for triggering the economic crisis.

But the reason Britain’s government has the biggest deficit of any major country in the world (bar none) is that Gordon Brown overspent, year in, year out.

In the six boom years before the recession struck, our national debt rose by a staggering £222billion; we were simply spending money we didn’t have.

Next time these politicians throw their hands up in horror at public spending cuts they’d do well to remember just why we’re in such a mess.

YUAN POTTS
Hatton Garden, EC1