It says that the directors were as daft as brushes, but we knew that already, before the right hon. Gentleman asked his question.
We have also seen, as a result of deregulation, the development of hedge funds, the increased involvement of private equity and the further promotion of tax havens so that rich people can get out of paying tax. If there is to be a new Bretton Woods agreement, I hope that it will clamp down on the minor tax havens around the world that have allowed rich people to rob everyone else.
The banks have carried out what they portrayed as sophisticated financial transactions. Time and again, their representatives went on television and radio and gave the impression that what they were doing was too complex for the average viewer or listener to comprehend its wonders. They were constantly announcing new products—ever more obscure and nearly always involving debt piled on debt. Those products were all dependent on inter-bank transactions so complex that several members of the boards of directors of the companies involved now say that they did not understand what was going on. Apparently the only thing that they understood was the whacking great cheque that came in at the end of each year to thank them for not understanding what their banks were doing. They apparently could not distinguish between assets and liabilities, and a banker who cannot do that has not got to first base in banking.
We have also had things like off-balance sheet transactions, and so on. There has been a feeling recently that the problem really had to with mortgages extended to a few badly off individuals, but in fact most of it springs from what might be described as the wholesale, rather than the retail, end of the business, and from transactions between one bank and another.
I had better move on from talking just about the banks, because then we have the auditors. There are supposed to be auditors, but what were they doing? What were the auditors of Northern Rock, Bradford & Bingley and the Royal Bank of Scotland doing? They were clearly not doing their job, but they were paid a fortune for not spotting that there was anything wrong. We need a regulatory system that will do something about that. Anyone who has been damaged by the auditors' failure should get ready to mount a class action and sue them. The auditors ought not to be allowed to fail, to let people down and cause them to lose money.
Then there are the rating agencies. Until about six months ago, a chap from Standard & Poor would come on television and radio and lay down the law to the rest of us about the wonders and risks of this, that and the other. Now we discover that the rating agencies were giving AAA ratings to pieces of paper that were not worthless—they were worse than worthless. That is what the rating agencies were doing, so we need new and tough regulation. I believe that the regulations need to be laid down by law that is passed by this House. I do not think we can leave the determination of the regulations to the regulators. Their job should be to enforce rules, not make them up.
As we all know, the major problem at the moment is that the banks do not trust one another. The deliberate obscurity of their accounts means that some cannot fathom even the extent of their own exposure, let alone that of other banks. If the banks cannot trust one another, there is no reason why the British people should trust them.
Some of us have talked in the past about tougher regulation of the City of London, but we have been told, ““Oh, you mustn't over-regulate, it would inhibit innovation.”” Well, we can see where innovation has got us, but the Spanish banking industry, which is not immune to the world's problems and which has what might be described as a little local difficulty over its own housing situation, did not get involved in US sub-prime mortgages. That is because the Spanish banking laws—what might be described as the new Spanish customs—prevented them from doing so. In fact, Spanish banks were subject to the sort of counter-cyclical regime described by the hon. Member for Twickenham (Dr. Cable), and that was because there were regulations in place. No one can say that those regulations stifled initiative: if they had, the useless people running British banks and building societies would not have seen them taken over by the Banco Santander. That bank was not restricted by any of the regulations, even though the Tories normally used to call them ““stifling”” when some of us advocated them.
If regulations had stifled some of the enterprise that we have seen, I frankly believe that that would have been all to the good. Some of that enterprise—and its ““new products””—has been the cause of all the problems that we now face, and is the sort of enterprise that we ought to stifle.
I come now to pay and bonuses. Even without the bonuses, the pay of some fat cats in the banking industry is at ludicrous levels. Barts hospital is in the City of London. If we asked people in this country in an opinion poll who should be paid more, a cardiac or cancer surgeon at Barts hospital or someone running a bank, I think that the ones doing the operations would probably get the nod.
As for bonuses, why did those overpaid people need them? Most people do their jobs to the best of their ability for a rate of pay. Why do bankers need bonuses in order to put their backs into their work? Surgeons and teachers do not get bonuses. Firefighters, police and research scientists work properly without bonuses, so what is wrong with the bankers? They are obviously so ethically degenerate that they cannot work without getting a bonus. Most of them are a deplorable lot of people, so why should they get a bonus at all?
They certainly should not get bonuses that are based on short-term targets and handed over long before the real consequences of their decisions become known. I want to put a suggestion to my hon. Friend the Economic Secretary, who is on the Front Bench at the moment, and to the Chancellor. It is that any bank receiving public money should be treated as part of the public sector, with public sector pay and conditions applying. On a bad day, I think that bankers' pay should be determined by the Low Pay Commission.
We all know now the long-term consequences of the scandalous and ridiculous activity in the banking industry. The failures of the banking industry start off by causing a run on share prices. Then the hysterics in stock exchanges around the world drag prices down even further for fear of a recession which everyone agrees has been caused by the banking failures in the first place.
Of course, the share price falls—I take the Financial Times as evidence for this—have been worst among those firms and industries most popular with hedge funds and least where there has been no hedge fund involvement. As various parts of the finance industry try to sort out their debts and assets, the private equity buy-outs based on heavy borrowing are becoming yet more heavily affected. That is what happens when deregulated, free-market, profiteering people get us into a mess.
It seems to me that there is every possibility that we will go into a recession, so I ask everyone to look forward to how we should deal with it. We can do no better than look at the works of that great economist John Maynard Keynes, who started getting things right in 1920. It took the politicians about 15 years before they got a grip of what he was saying and started doing something about it. He advocated investment, which increased employment by means which at the same time increased our stock of useful wealth. He pointed out that, if a recession is coming, that is the last time in a cycle one should try to reduce spending because if we all stopped spending, we would all be out of work. If we want to keep people in work, we should encourage people to spend.
In his great general theory, Keynes pointed out that the Egyptians built pyramids, and that created work, and medieval Europe built cathedrals, and that created work. As he said, we appear to"““have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the 'financial' burdens of posterity by building them houses to live in.””"
The Government need to bear it in mind that, whatever people from the City crawling back out of their holes say once they have got the money, we need to keep money going into the system. If we have to borrow to do it, we should borrow, to make sure that we do not go into recession and that people stay in work. It is no good messing around and taking four or five years to realise that we have to keep the economy up. The way to keep the economy up is by spending money; it is the only way to do it.
Banking Bill
Proceeding contribution from
Frank Dobson
(Labour)
in the House of Commons on Tuesday, 14 October 2008.
It occurred during Debate on bills on Banking Bill.
Type
Proceeding contribution
Reference
480 c728-30 
Session
2007-08
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House of Commons chamber
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2023-12-16 01:49:11 +0000
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