Early last week, the financial headlines were dominated by the trials and tribulations of a man called Paul Flowers. Later, the news flow switched, as the Bank of England and Treasury modified the controversial Funding for Lending scheme. The story of Flowers, the former Chairman of the Co-op bank, could have some bearing on the future of the UK banking industry. The government’s move to cool the UK’s rocketing mortgage market is also pretty important.
Yet, when it comes to this country’s future trajectory, both episodes pale into insignificance when compared to a little-noticed debate in the House of Lords. The government’s banking bill, debated by peers last week, is this country’s main response to the sub-prime crisis. Whether or not we avoid another cataclysmic financial collapse, with all the related economic fall-out and human misery, depends largely on the measures in that bill.
It’s five years since the “sub-prime crisis” began in earnest. Lehman Brothers filed for bankruptcy on 15th September 2008. The resulting financial meltdown lead to the first global recession in living memory, so causing countless job losses and widespread human misery.
Questions such as “what have we learnt?” and “could it happen again?” are of sufficient importance and complexity to fill thousands of columns inches, running to millions of words. I offer here, then, a necessarily brief explanation of why I believe the Western world’s policy response to sub-prime has been deeply flawed, and why we’re now even more vulnerable to another debilitating systemic collapse.
This coming Wednesday, the House of Lords debates the second reading of the government’s banking reform bill. Now we’re in the holiday season, and the sun is shining, the prospect of an ermined discussion about bank regulation may strike you as deadly dull. But you’d be wrong.
This draft legislation forms the centre-piece of the UK’s response to the sub-prime collapse, the related banking meltdown and the resulting economic damage meted-out to millions of British workers. It’s unfortunate that such vital measures are being considered by the Upper House only at the fag-end of the Parliamentary year, when the Commons has already risen and media scrutiny of Westminster is on go-slow.
There’s been so much in the news that a UK-based economist could be forgiven for fretting over what to write about this weekend. Inflation rose by 2.7pc in May, we learnt last Tuesday, up from 2.4pc the month before. Then there were the recommendations from the G8 summit in Fermanagh.
We’ve also seen policy fireworks across the Atlantic, too. Just a hint from Federal Reserve Chairman Ben Bernanke that the US could soon “taper” its turbo-charged money printing was enough to throw global stock markets into a rout.