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As the City digests President Obama's bold new moves to regulate the banks, the comparisons are inevitably with Gordon Brown's approach. And while the US plans are still short on detail, they highlight some of the shortcomings of our own Government's measures.
It might have been better if President Obama had worked out more of the detail for last night's speech, an intervention clearly intended in part to seize back the political initiative following the Democrats' humiliation in the Massachusetts Senatorial contest. Nevertheless, the main thrust is clear: to prevent retail banks from engaging in proprietary trading, gambling on financial markets using their own money — an increasing phenomenon in recent years. The effect would be to split retail from investment banking, which would entail the break-up of many banks.
That restriction in itself would not have stopped the Lehman collapse of September 2008: Lehman was purely an investment bank. But Mr Obama's bigger aim is clear: to cut the banks down to size so that they are no longer “too big to fail”, the characteristic which forced governments to prop them up at such vast cost.
Mr Brown's measures, by contrast, have been much less programmatic. The supertax on bankers' bonuses, while popular and supported by the Conservatives, is just a gesture, unlikely to change banks' behaviour. The Tories have proposed US-style legislation to separate the retail and investment banking arms of the banks. That is a more sensible approach than simply punishing bankers. Banks need to be able to make a profit, and we want them to continue to do so in London.
But reforms are clearly needed to prevent the banks from running out of control as they did in recent years — and nothing that Mr Brown has announced to date will achieve that goal.
Broken Britain
David Cameron's speech today lambasting the Government's “moral failure” has clear echoes of Tony Blair's attack on the Tories in the wake of the 1993 Jamie Bulger murder. The Tory leader made reference to the appalling case in south Yorkshire where two boys tortured and almost killed two younger children. Such cases are in fact incredibly rare, even though local social services have some very hard questions to answer about how they failed to act on the two offenders' behaviour. But the case does highlight a wider social breakdown, what the Tories call “broken Britain”, and the persistent failure of the Government to make much impact on it.
For while the results of growing up on such estates are rarely as horrific as this case, they are depressing and widespread: unemployment and unemployability from generation to generation, endemic petty crime, teenage pregnancy, drink and drug abuse. Whether measures such as the Tories' plans to encourage marriage will make enough difference is open to question. What is surely not is that, after almost 13 years in power and innumerable promises, the Government has failed to turn around the fortunes of these most desperate parts of society.
Boris's left turn
The Mayor's proposal to allow cyclists to turn left on red lights is imaginative — so it is encouraging that ministers are backing a pilot scheme to test the idea. Cyclists need to obey lights and road regulations but allowing them to turn left on red could, in particular, help reduce the danger posed to cyclists by lorries turning left. If it made people feel safer cycling, that could encourage more of us to take to two wheels — which has to be good for London.
Reader views (3)
If Brown said he would do the same as Obama,this leader would have been about how he was damaging the City of London.
- Colin, barking essex, 22/01/2010 15:48
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This is just Gordon Brown returning to type - way behind the curve as usual. Ian is quite right. If Northern Rock had been south of Watford it would have been allowed to have gone to the wall. As a TSB customer I was really miffed with Gordon making the bank over HBS. A real disaster, which he now says had nothing to do with him! TSB never set the world alight; but it was reliable.
Breaking the banks up is the only way forward. No doubt Gordon will change his mind when he next meets Obama; but the mood signals seem to be that Obama is keeping Brown at arms length. Very sensible.
- Brian G, Norfolk Gorleston, 22/01/2010 15:28
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Obama’s direction has a lot going for it. However, over here we have a government that makes its choice on not what is right for the country but what is right to keep it in power. Northern Rock being a case in point it was about looking after votes in a Labour area not about private savers. The money this Government has so far lost on keeping failures afloat could just as easily at less cost gone directly to the savers and depositors.
Lloyds TSB was suckered in to HBS and should have walked away. As for the RBS carbuncle the only time it ever worked was when the separate components were stand alone entities as such it should be well and truly split up.
Being big for the sake of being big, is not the same as being good.
- Ian B, Reading, England, 22/01/2010 14:00
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