King and country

Bad debt and bad news' management

Mervyn King Mervyn King
What is now more correctly called the financial crisis started out as the credit crisis. But back in the mid part of 2007 we were all feeling our way. As per usual it was the politicians who rose to the occasion first in so far as they saw an opportunity, not least Gordon Brown and his spinners. The crisis was seen as a chance for Brown to show himself to the voters at his best. That did not work out as planned the Brown 'bounce' came and went. Never mind Brown had blazed a trail for others to follow. Sir John McFall, yes another Scot, and the Chairman of the Treasury Select Committee was not shy to follow his Leader.

McFall seems genuine enough, at first, but it soon becomes clear he is also enjoying himself; a man with a mission. This could be dangerous. McFall left school very young, you could in those days; there was no attempt to keep people in school so as to fiddle the unemployment statistics. He also left without any qualifications. Then he 'got going' and, full credit to himself, obtained a Bachelor's degree and then an Open University MBA. So he lifted himself out of obscurity and onto something better. There are suggestions that this is harder to do these days; perhaps a Parliamentary Committee should look into this?

Outside of the Westminster bubble and beyond West Dumbartonshire, McFall's constituency, few would have heard his name. Then came Northern Rock. Much as we see that far too many of today's policemen grew up on a TV diet of Starsky and Hutch and as a result are an unfortunate mix of the demonic and just down-right rude, iIt would seem that, in between his academic assignments, McFall watched too many TV court room dramas. His rumbustious style added not only to the gaiety of the nation, the press loved this, but gave the whole event a sense of purpose. In reality the horse had already bolted and to this day, the door remains off its hinges. The acerbic style of McFall and his furious digging, 'getting to the bottom of it', have illuminated some of the facts but solved none of the problems. As McFall has said "I enjoyed the academic world." But as we all know there is a huge difference between the thinker and the doer.

Perhaps the average spectator to all this will only remember the one-liners from McFall in committee. The Northern Rock chief executive Adam Applegarth was told he was "asleep at the wheel." That soundbite was given an immense amount of air time, perhaps more than it deserves and so has become a distraction. Sir John Gieve, at the time deputy to Mervyn King, was also given advice on his sleep patterns. McFall said he was "asleep in the back shop while there was a mugging out front". As McFall did, for a time, work in his mother's shop perhaps he understands these things better than Gieve, or perhaps not. As the typical tax-payer cum voter now feels they have been mugged by Nulabour's way out of the crisis and all without a chance to make a snappy comment, it could be that the nation will grow weary of McFall.
Lord Myners Lord Myners
Hence it was interesting to read the latest comments from Mervyn King. King correctly pointed out that the powers of the Bank of England were limited by Act of Parliament and hence he could not act beyond its remit and make it up as he went along.

According to the Times, King also took a swipe at Gordon Brown, suggesting that excessive government borrowing before the recession had left it badly boxed-in now over using tax and spending measures to combat the slump.

And King also said - “We entered this crisis with levels of borrowing which were too high and that made it difficult. We haven’t actually engaged in as a big a fiscal relaxation as many other countries in recognition of that fact.”

Many people blame King and the Bank of England for the whole crisis, maybe this is correct, maybe not. What is good is to see him getting his own back. No snappy one-liners from this man true, but King is hard to both ignore and refute, he was working in the shop at the time. In a BBC interview McFall seemed to suggest there were practical limits as to how far back in time to go with his inquiry. The risk here is that the Treasury Select Committee will be seen as just that, selective. Is there a move to keep the Chancellor from this period, Gordon Brown, off the witness stand? McFall also seems to want to forget about Sir James Crosby the ex-deputy head of the Financial Services Authority, a man who was closer to Brown than he is.

But time has moved on, we are now in the phase of 'deputy heads must roll'. And what better place to start than Lord Myners. Like an accident in slow motion we can see Myners being set up to take the hit. The reason being it is supposed to be Myners who gave the OK to ex-Royal Bank of Scotland chief Sir Fred Goodwin's pension. None other than John Prescott seems to be suggesting this would be an ideal solution to the problem. We are told Brown is 'angry' about this pension, as if this is important. Not so. Much of the UK is angry, not all about the same thing, but angry nonetheless. And still they are ignored! It looks like Goodwin will put up a fight to keep his pension and it can be imagined that he will win support for this, crazy as it sounds. But I fancy a large part of the population would like someone, anyone, to make Brown even angrier!

Back to Northern Rock, what if it had been allowed to fail? This was ruled out at the time for a variety of reasons. Looking back it is now clear this would have been the best option. The signal sent to other banks who now queue up for public money would have been clear and it might have started the return to good banking sooner. But one of the reasons for not letting Northern Rock go must have been its 'political proximity', its North East location. As we posted in Safe as houses, part 3.

in the real world business failure is a fact, a risk that has to be faced.But perhaps in the North East, a NuLabour bantustan, with Newcastle upon Tyne the home town of the Rock and on the same page of the map as the holy shrine of Sedgefield, reality takes on a different shape as if pulled by a mixture of shame and hope. What if the headquarters had been in Henley on Thames?

It's clear now that had the headquarters of Northern Rock not been in such a sensitive location then the option of letting it go would have been looked at.

Sir Fred Goodwin Sir Fred Goodwin
It is always said that Brown can never apologise, well here is such a thing from John Kay a former director of the Halifax Building Society -

As a Director of Halifax Building Society I was part of the decision to convert to a public limited company.....With hindsight, that was a mistake that damaged a fine business.

John Kay,

See, it can be done!