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Revenge, as everyone knows, is a dish best served cold, and Paul Moore must be feeling satisfied today. It's nearly four years since he was sacked by Sir James Crosby and for much of that time his claims, that he had been pushed out because of his warnings about the risks that HBOS was running, were ignored. Even last year, as the banks were sliding into the mire, his protests on the BBC did not gain much traction.
This week, it's been different. The Treasury Select Committee fired the bullets, and within hours Crosby had quit as deputy chairman of the Financial Services Authority. Moore, who had been Head of Group Regulatory Risk at HBOS between 2002 and 2005, had his revenge.
This episode encapsulates the banking crisis, and sheds a little light on why we have sunk so deep into the mire. Moore is a barrister, an experienced accountant, and seems eminently qualified to judge banking risk. Two years into the job, there would not have been much doubt about his competence, but by June 2004 he was complaining to the HBOS finance director about obstacles in his path. His concerns about his conflict with the retail banking division were ignored.
By 2005, it was clear that the relationship had broken down, and that he had to go. The right governance boxes were ticked, but the decision to fire him was ultimately Crosby's, then in his fourth year as chief executive. Everyone, from the HBOS board to the FSA and the investigating accountants from KPMG, satisfied themselves that Moore's allegations were without foundation.
Since leaving HBOS, Crosby had not only joined the regulator, but has become our Dear Leader's tame expert on the mortgage market, that bubble which Brown and banks colluded to inflate to the point where buyers were guaranteed years of misery and negative equity.
This is all very cosy. What's worse is that this state of denial of blame is continuing. Crosby's valedictory statement yesterday repeated that "there is no substance to the allegations" made by Moore. Given that the bank Crosby used to run failed spectacularly, little more than two years after he left it, this is an extraordinary statement.
Whatever the problems with Moore's relationships, he was not the only one who thought HBOS was expanding too fast. Benny Higgins ran retail banking at the Halifax, Britain's biggest mortgage lender, and judged that the market was getting too hot. He deliberately made its products less attractive, and was pushed out of HBOS when it started losing market share for new mortgages. Last year Higgins joined Tesco to run its personal finance business, which the company expects to make a £1 billion a year in due course. He is certainly well-motivated to give today's hobbled Halifax a pasting in the marketplace.
Some of Moore's long statement to the committee is self-serving, and may be framed with the benefit of hindsight, but at the very least he was on the right lines. The combined expertise of senior bankers, accountants and regulators completely failed to measure the real risks facing the bank, and indeed, the banking system.
Someone, somewhere in this magic circle may have tried to get to the bottom of the question, but it's clear that most of the participants were essentially relying on the others. The failure to see the precipice was a classic example of group think, providing cover to ignore Moore's awkward questions. Crosby's letter yesterday, and the testimony of his former colleagues on Tuesday, shows that we are still a long, long way from breaking out of this mess.
King seeks licence to print money
“The UK economy is in a deep recession.” When the Governor of the Bank of England introduces the quarterly Inflation Report with that sentence, things must be serious. Interest rates are going to zero, or as near as makes no difference, and if the supply of notes starts to shrink, he'll consider printing them.
Mervyn King's unconventional remedy is a mixture of encouraging banks to lend while buying other people's debt — not your mortgage (or at least not yet) but debt issued by commercial borrowers. He's got £50 billion to spend.
Curiously enough, getting the notes into the hands of the rest of us is harder than it looks. The banks will only lend to very safe borrowers, and despite the cuts in Bank Rate the price is currently more than even they are prepared to pay. We'd rather cut back if we can, for fear of what may happen next. Unless and until the banks pass on more of the rate cuts, we are reluctant borrowers.
As for the Asset Purchase Facility, as the £50 billion is labelled, it looks doomed to failure. We're told that it will be used to buy “high-quality” assets, but just you try. The prices of high-quality corporate debt are far from the bargain basement, and on typical yields of 5%-6%, only look cheap when compared with the derisory returns on Government debt.
The real logjam is further down the quality scale, as the Bank's report makes clear. Here, the flight from risk has pushed spreads over gilts up to 51/2%, half of which reflects their illiquidity, according to the Bank, but it isn't going to buy these, for the same reason as nobody else will. Neither is it going to be buying any of the other distressed issues, like Bradford & Bingley's 6% perpetual subordinated bonds, currently well offered at 19p where they yield 31%, always assuming the dividend is paid.
Pull up the ladder, MPs are all right
Perhaps the most nauseating moment in Tuesday's bash-a-banker was when the Treasury Select Committee asked about their intended victims' pension arrangements. When they were not fiddling their expenses, Members of Parliament voted themselves the sort of post-retirement rewards that makes bankers' bonuses look stingy.
MPs accrue their benefits at one-fortieth a year, so a member serving for four years is guaranteed a risk-free, index-linked tenth of his final salary in retirement merely for winning the seat.
Fortified by their gold-plated arrangements, these tribunes of the people have voted for a lead-lined scheme for those at the bottom of the heap. The euphemistically-named Personal Accounts are a deadly trap designed to fool people into thinking they can look forward to a comfortable retirement.
The employee will be docked 4% of salary, and his employer a further 3%, with 1% from the taxman.
Starting in 2012, workers who don't watch it will find themselves automatically enrolled in a system which cuts their take-home pay, will not provide enough to live on and which may damage their entitlement to benefits as pensioners.
A study for the Department of Work and Pensions, which is naturally painting its best gloss on this miserable scheme, concludes that of the five million people who it expects to join, all but 250,000 will get back more than the sum of their contributions. This is too bad for the quarter-million losers, and even to reach this undemanding target, the DWP has made heroic assumptions about returns on the money.
The fact is that saving 8% of a low gross income will not provide enough for a comfortable retirement unless the saver takes a big risk which comes off. The returns on risk-free assets are nothing like enough — and unlike the MPs' pensions, there are no Government guarantees.
In addition, the DWP completely ignores the sacrifices that those at the bottom would have to make to maintain a Personal Account, like making the pay cheque last until the end of the month.
There is an escape route for alert employees. They can opt out, but must do so at the start. The lowest-paid are the least likely to understand this — and please don't ask your employer for help, or he risks committing a criminal offence.
