Banks
Mervyn King put it much more eloquently than I could in a speech in Edinburgh today (pdf download from here):
The sheer scale of support to the banking sector is breathtaking. In the UK, in the form of direct or guaranteed loans and equity investment, it is not far short of a trillion (that is, one thousand billion) pounds, close to two-thirds of the annual output of the entire economy. To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.
It is hard to see how the existence of institutions that are “too important to fail” is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don’t, distorts the allocation of resources and management of risk. That is what economists mean by “moral hazard”. The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history.
Interestingly, he goes further than I did by pointing to the merits of separating not just vanilla banking from casino banking, but even of separating the two main vanilla banking functions: money transfer and basic lending. He commends John Kay’s proposal for “narrow banks” which just provide payment services:
There are those who claim that such proposals are impractical. It is hard to see why. Existing prudential regulation makes distinctions between different types of banking activities when determining capital requirements. What does seem impractical, however, are the current arrangements. Anyone who proposed giving government guarantees to retail depositors and other creditors, and then suggested that such funding could be used to finance highly risky and speculative activities, would be thought rather unworldly. But that is where we now are.
MPs
An MP’s comment on the Channel 4 News last night caught my attention: “Where is the quid pro quo?” He was saying essentially that MPs had been allowed to get away with expenses claims whose purpose was to enrich them rather than to meet necessary expenses. They were now going to be forced to give up such enrichment. So what were they getting in return? I find it amazing that a politician can be so insensitive to the depth of public anger on the issue.
Maternity rights
Eleanor Mills, not a columnist I normally read, had a good article in the last Sunday Times (18 Oct). A headhunter friend, herself a mid-thirties working mother, had apparently placed a woman with a FTSE100 company, only to find she then took two years off (for two successive children) in the first two and a half years.
It just takes the piss,” said my friend. “Behaving like that just makes it much more difficult for the rest of us. Every time a woman does that, it makes it that much harder for me to put forward a female the next time. Women who abuse the system give all of us a bad name.”
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