UK Parliament / Open data

Banking Bill

Proceeding contribution from Lord Clarke of Nottingham (Conservative) in the House of Commons on Tuesday, 14 October 2008. It occurred during Debate on bills on Banking Bill.
Two or three years ago, the Government declined all invitations to deal with the out-of-control credit bubble that was obviously affecting the country, not to mention the out-of-control housing bubble that was inevitably going to end in grief. The hon. Member for Twickenham talked of us rewriting history, and I do not want to dwell on that for too long, but we all need to establish our credit in this area. I have dug out one of my several references to the problem. In the debate on the 2006 Budget, I said that GDP growth was sustained"““on a sea of household debt, and public debt and borrowing””." I pointed out that that"““was not sustainable, and what is not sustainable always stops””.—[Official Report, 28 March 2006; Vol. 444, c. 722.]" I said that on many occasions, and more distinguished people than me said it in the House and outside, but the Government treated those predictions with disdain. On other occasions, we will tackle the Government and especially the then Chancellor on their total negligence on dismissing the alarm calls about the mounting level of debt and the unsustainability of the growth—what was left of it—of our economy two or three years ago, and about the threats to the banking system. As we all recall, he actually took credit for it. Far from trying to restrain boom and bust—a phrase that he took from me in the first place—he led the public to believe that the top of an uncontrollable boom was the result of the remarkable economic policy over which he was presiding, and that it was spreading wealth as never before through a country that somehow had become free of the economic cycle. Not only were the Government complacent, but the regulatory system completely failed. Some of the more excitable left-wing members of the Labour party now like to say that this issue reignites the old argument between laissez-faire capitalism and the role of the state and Government intervention. That argument has been dead not only since the birth of new Labour, but ever since the second world war. There are very few advocates of laissez-faire capitalism in this country and very few advocates of a command economy. Everybody has always accepted that the free market requires a proper system of regulation to protect stakeholders and to avoid the obvious dangers of potential financial crises of the kind that we have had on occasion ever since the Dutch tulip bubble and, more recently, after the 1929 crash. Not only were the Government inactive during the credit bubble of recent years, the regulatory system was ineffective. The then Chancellor made a fatal error in 1997 when changing the regulatory system and moving to the tripartite arrangement that has plainly failed. The Bill acknowledges that in a way, because it proposes strengthening the powers of the Bank, and shuffling the arrangement of responsibilities between the partners. However, the Bill does not convince me. The most obvious problem is that tripartite arrangements give rise to confusion and differences in information between the parties, and there is always the possibility of dissension—always denied thereafter—between the three institutions. The failure of the tripartite structure became clearest at the time of the Northern Rock debacle. A very good report by the Treasury Committee showed how useless the FSA had been as the lead regulator. It did nothing. There was no mystery about Northern Rock: it had a strange business model in which it relied on the money markets to give extremely generous loans. It is fashionable for Ministers to claim that the problem stemmed from the US, with the so-called sub-prime crisis causing a tsunami to fall on these fair shores where nothing of the kind was happening. We may not have called them sub-prime mortgages, but they were being granted here. There were mortgages for more than 100 per cent., lent on self-certified income at rates of six times income. Reckless banking practices included the abuse of the securitisation of such debts, by bundling them into instruments to be sold on to others so that they were taken off the balance sheet to avoid the regulatory arrangements. Such practices were all raging in this country and it was first the duty of the Government to prompt its chosen regulator, the FSA, to look into that and to consider the sustainability of the model and the likely effects if it continued. Not only was the then Chancellor, the present Prime Minister, totally dismissive of such fears—he constantly made speeches about the lighter regulatory touch that was helping to make the City of London a financial centre in the world—but so was the FSA. As far as I can see, the FSA never even raised the telephone to Northern Rock when the first hints of the credit crunch began to enter the money markets as they started to get sticky in the beginning of 2007.
Type
Proceeding contribution
Reference
480 c724-5 
Session
2007-08
Chamber / Committee
House of Commons chamber
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