Saturday, April 11, 2009

George Osborne "Good Policy" Shock Horror

If he's serious, this is excellent news :

A Conservative government would look at whether Britain needs smaller banks, shadow chancellor George Osborne has said in a speech. Mr Osborne said the eventual sell-off of part-nationalised banks should not necessarily be to the highest bidder but those benefiting the economy most. Creating larger institutions could encourage more risk because they were "too big to fail", he added. It would be a "bitter irony" if the sector became "even riskier", he said.

He's quite right. Both here and in the US regulators should be breaking up financial institutions into small enough units that the failure of one has a minimal domino effect. But doubtless the reason nothing will be done (and I'd be so pleased to be proved wrong) is that the banks will 'need to be large enough to compete internationally' or similar. In which case we'll be back where we were, only more so, as we now have the Lloyds / HBOS behemoth. As I said :

"if the banks were 'too big to fail', shouldn't we be thinking, both here and in the States, of breaking them up into units which could be allowed to fail - with appropriate protections for depositors ? Instead we're creating even bigger banks."
I would love to be persuaded that the Tories have the root of the matter in them, as Churchill would put it. But I fear that my General Election vote will be a case of the least worst option.


Edwin Greenwood said...

""if the banks were 'too big to fail', shouldn't we be thinking ... of breaking them up"

Or of nationalizing them. If a supposedly commercial institution cannot be allowed to fail and carries an effective state guarantee (implicit or explicit) then the state has a legitimate interest in its operation. Break-up into failable chunks may be the answer in some cases. In others, outright nationalizaion or heavily regulated monopoly/oligopoly (as with the old Bell System) may be necessary.

What the current débâcle has forcefully demonstrated is that the pure free market is does not work in the real world.

Ross said...

Smaller banks might cause more damage when they do fail, but they will be more likely to fail as they cannot spread their risks as far.

Anonymous said...

Thats the good thing Ross, they would have to be more fkin careful.

Edwin, we do not have a free market, if we did those banks would be bankrupt.
I don't think its true that the state had to bail them out, the government could have quite easily let them fail and then picked up the pieces at bargin prices after.

Adam Smith pointed out right from the begining of free market thinking that it wouldn't work if there was a monoply, its statists that are to blame for creating those monoplies in the first place, they did it with shipbuilding, British rail, the car industry, and more recently a whole series of bank mergers went on on New Labours watch, some virtually force through by the government.

Old Codger said...

"Least worst option" is right. Problem is identifying the least worst option. Pity Vince Cable is in the wrong party.

Despite the odd flash of understanding and perhaps competence the "new" Tories started and are continuing much as new labour. Although the spin is nowhere near as competent the leaking of odd bits of possible policy, to assess the view of the electorate, and the avoidance of anything that might lose the odd vote is very new labour.

Dave might be making noises about dealing with public service salaries and pensions but even he must know that the first step must be to deal with MPs and ministers, not just their expenses but salaries and pensions also, and I don't mean an increase in salary instead of expenses. Many politicians these days are in it as a career and money spinner, they are not honourable. Reduce the rewards, encourage those who really do want to serve the country, regain integrity and honour. Until that is achieved have a regime that assumes dishonour and reacts accordingly.