Alistair Darling: The banks are to blame for this crisis
The Chancellor responds to our Business Editor's 10-point plan for economic recovery
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Independent Minds
The challenge for us here and in every country around the world is to deal with today's problems, but also to prepare for economic recovery. And everything we do will be all the more effective if it is matched by action from others.
The world economy is seeing the most difficult economic conditions for generations. They are the result of bad decisions by international banks – encouraged by low global interest rates, they took on too much risk. The banks often did not fully understand these risks. As the banks realised they were all exposed to each other's losses, they started retrenching, which cut off the supply of credit to the world economy. This global credit crunch has become a global recession. We are dealing with a constantly evolving situation. But I am confident that if we take the right steps we will get through this.
In October, we acted to provide additional capital for the banking system, preventing its imminent collapse. We could not have a British repeat of the failure of Lehman Brothers, one of Wall Street's biggest banks. We did not do this to help out the banks for their own sake. The action we took is designed to protect families and businesses from the past excesses of the financial sector. So in return for support, I imposed conditions on the banks to maintain the availability of lending. And for those banks that received public support, there was also a ban on paying bonuses to board members.
We were one of the first governments to restrict banking bonuses. Following October's recapitalisation, which saw public money used to purchase bank shares, we imposed strict conditions on RBS and Lloyds-HBOS: the boards of these banks agreed not to pay any cash bonuses in 2008. In November, we also took action to support the economy. The reduction in income tax, the temporary cut in VAT and the one-off payments for pensioners and other groups will boost people's incomes as the economy slows. Our decision to bring forward £3bn of capital spending will support jobs in construction and industry.
Almost every country is putting money into the economy now, even if the way we do so varies. In the past few days, we have seen provisional agreement on another US stimulus worth more than $800bn. This is a huge boost to the world economy. And monetary policy also has a role to play. Falling inflation has allowed the Bank of England to cut interest rates in a decisive way. But as interest rates approach zero, the Bank must consider how to continue to meet the inflation target.
Unprecedented stimulus action today comes hand-in-hand with careful exit strategies for the future. I have already announced plans to bring the public finances back towards balance. The Opposition talk about fiscal responsibility, but few countries have actually taken steps towards consolidation.
In the last month, I announced further measures to remove uncertainty from the banking system, and so allow an increase in lending. Though lending from the UK banks has increased since October, there is a gap in the market for credit, as specialised financial institutions scale down. My plans include measures to either insure against extreme losses or separate out impaired assets into a parallel financial vehicle. The support mechanism may vary between banks but the objective is the same – removing uncertainty by increasing the supply of credit to the economy. This support also comes with conditions attached.
I have been clear that the authors of this crisis should not be rewarded for their failures. It is wrong to reward people whose excessive risk-taking brought down the banks causing misery to millions of their customers. Success should be rewarded, failure should not. So for those banks receiving this additional public support, there will be restrictions on future pay policy. We also need to prepare for recovery, both in the financial system and the wider economy. First, banks everywhere need to change the way they operate. Society needs banks as much as banks need society, and banks need to recognise that sense of mutual duty. This is why I have established an independent review of corporate governance of the banks, to look at how we can improve the way boards manage the banks, including tackling incentives in their pay policies to take excessive risks.
Second, just as the banks need to learn lessons, so should governments and regulators. The Financial Services Authority is already looking at how regulation can be improved. I will publish proposals later in the spring, and I will continue to make the case for strengthening global regulation, including by making it more countercyclical.
Third, our policy must lay the foundations for the strong recovery of our well-diversified economy. Some of our manufacturers are among the most productive in Europe. We are leaders in creative industries and science. The challenge is to protect the achievements of the past 15 years.
Fourth, the economic upturn must not come at the expense of the environment. I believe the UK can lead the green global recovery. We will soon introduce carbon budgets, making us the first country to set legally binding targets for emissions reductions. We are the world leaders on offshore wind energy generation. I am confident that millions can be employed in "green-collar jobs" over the next decade.
Fifth, our presidency of the G20 this year will bring the world's major economies together. In April, world leaders will meet in London, and we hope to agree a way forward. Because if all countries work together, our individual actions will see their effect magnified. When each country helps its economy – with a fiscal stimulus, monetary boost or support for the banks – it is also helping other countries. The world's economies are all connected, and just as globalisation brought huge benefits in the good times, we must harness its power to come out of the bad times. We must not see a retrenchment towards protectionism. And in time, we must also work together to reform the international institutions that govern the global economy.
The world faces tremendous challenges. Just letting the recession take its toll is no answer. Governments should support people and business when they need it. In the words of John Maynard Keynes: "I would rather be roughly right than precisely wrong."
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Comments
However, this happened under your watch and you stood by and did nothing, indeed your policies actually encouraged this to happen.
You know this to be true, how can you deny this when since 2003, you (the Exchequer) chose to ignore the IMF and various others economic bodies and continued with policies that exacerbated the problem the UK now face?
The people were also shouting this from the roof tops as well and your response, to tax us more and more so you could fund the oppressive and controlling programmes such as the ID Card, surveillance and databases, diversity programme.
Your social engineering, uncontrolled immigration in an attempt the dilute our culture, giving one minority religion precedence over the indigenous one and all other minority religions. Your dumbing down of the Education System is unforgivable? How dare you tinker with the minds of future generations in your quest to control Orwellian style. May you all rot in Hell or worse for this.
And what about all our taxes that Brown spent on his foreign pet projects?
The EU?
All these things the people did and still do not want and your never listened, did you?
You had your own utopian totalitarian agenda without ever considering anything else related to it?
Your actions are most certainly treasonable and bordering on evil, is that why Blair changed the Treason Laws, why the Police are now armed with stun guns to attack the people when they rise up against you?
No amount of trying to position blame elsewhere, as gatekeepers of our National economy you have most catastrophically failed to serve the people who pay your wages, perks, expenses and two pensions.
Never once have you asked the people what they want and what they expected from their servants, you?
Your myopic greedy self serving actions will come back and haunt you.
I love the idea of making "regulation... more countercyclical", because, as even a politician as shallow as Cameron recognises, the horse has already made its own way to Utoxeter. Are you admitting Government negligence? I think what you mean is that you'd like regulators to institute countercyclical measures, such as for banks' capital requirements (to try to reduce lending during an economic upswing). I guess this is a start, but in the absence of more fundamental steps it may simply have unintended consequences such as allowing bubbles to inflate even further, perhaps correcting themselves by unleashing a 1970s style period of general inflation rather than a financial crisis.
In fact, our government is not only ignoring what has happened but is lining us up for some more of the same, not learning from its mistakes, nothing has changed, no checks, no safeguards, if the US was to do the same tomorrow, we would have foisted on us more of their toxic debt and this is why we are in a mess.
I am most concerned after reading in the Telegraph that 1 in 4 CIA operations are centred on the UK, this is a very serious situation in my mind and I consider that we have lost control of our governance and have placed ourselves into a Vichy state, a state where the US can dump its toxicity, a state where we are compelled to buy bloated US systems like the Trident replacement regardless of whether we need it or not, folks, we are being bilked continually and we cannot afford to do this any more.
And there should be a time when we begin to hold people to account for this treason, this fraud, this deception, from covering up massive overbilling by Halliburton and Carlyle at DML Ltd to examining politicians who have vested interests in their own personal gain and how they place this above the people that elected them to serve those people, if we don't put a brake on this and take a U-turn then Britain is going to disappear into the same abyss America is headed.
And right now, we need protectionism, we need isolationism for our own protection, its either that or full amalgamation into the Euro...
So your boss will be offering his resignation the the queen then? No, though not.
Who was it removed the established regulatory function of banking from the Bank of England? Who instructed the reduction of the bank's capital reserves? Who was publicly told we were heading for a credit crisis in 2003, denied it then and still denies it? Who proudly claimed to have abolished boom and bust whilst presiding over a very obvious credit boom? Who claimed to have saved the World and has been undermined by a schitsophrenic French President and the arguments of many at Davos? Your boss, that's who. I assume, if you genuinely believe failure should not be rewarded, you will be debiting his bank a/c with all the pay and expenses he has received since 1997?
By the way, I suspect less than the 28% of those polled who leant their support to your party really believe in you or your faith in your boss, so go and go now, before you make things even worse.
Can't the stupid man see that virtually nobody believes his ridiculous rhetoric any longer?
Is he not aware that the majority are totally sick & tired of his bare faced lies & evasions?
It's more than time the NuLabour traitors were thrown out & dealt with in an appropriate manner eg stripped of all personal wealth & barred from ever holding public office again.
They might start to appreciate the damage they've done then.
But it really does not matter anyway because the whole man made global warming business is a pseudo scientific scam and more people realise this as time goes by.
One of your own MPs called the FSA "an old banger".
The question is: was it a cock up, or did you intend regulation to be banker-friendly?
And did it matter? After all the 'boom' was never going to lead to 'bust', was it?
Excellent post.
Whats rightly ours, our resources and finances should never be under the control of others who use and abuse them for self gain, who gave the old battleaxe MF the permission and right to sell my future anyways?
Make something good of this mess!
Louise Lloyd
http://www.moneymarketing.co.uk/cgi-b
Yes, it's a bit dated, but true in essentials
There is much confusion in laws and taxes surrounding international trade, we now have a tool in the internet to find exactly what we want from anywhere in the world, direct from the supplier/manufacturer, yet we must pay import and export taxes, exchange rates, all fueled in bureaucracy which in itself all costs money, we are paying for many middle men who in actual fact do little but hinder the average individual citizen of the worlds progress and profit, large corporations and expansive national governments are no longer necessary, we are being forced into believing we must blame Americans, when it is the American Government we should be directing our thoughts too, equally those in America are fed a distorted view of Britons, and are forced to conclude that we are trying to lay blame at their feet, this may be applied equally to any country on this, our planet, yet I have never met an average person from any country with which I can say I have felt the animosity portrayed in the media.
We do not need legislation and bureaucracy to bring world trade together, that will only benefit those with an already strong position in the global economy, and those companies/banks/governments have shown us all, not once, let us not forget the same mistakes have already been made once in the 1930's, that they cannot run the global economy, they have had their chance, it is now time for change. REAL change.
Now the government is trying to prop up a corrupt and outdated system by borrowing money - that has to be created by banks in the long run - that will have to be paid back by the tax payer plus interest.
This will not do and in the long run must be changed though we may need a revolution first.
Odd that!
How come the Treasury had a black hole of gigantic proportions (especially when one adds in the hidden debts that are kept off the balance sheet)? That wasn't the fault of the banks. Where did all that money go? What did Gordon do with the money built up by Kenneth Clarke?
Is anyone surprised that after 3 spendthrift and incompetent terms of Labour, we are three times worse off than we would have been without them? Why didn't Labour tax the financiers? Why has the Govt allowed these enormous bonuses for failure? What is wrong with Labour that they never ever seem to know how to manage money? Why on earth would anyone in their right mind vote for a party that can't manage money? You can't live on Labour dogma and pontificating self-satisfied condescension. You need money money money......
This is the first bank crisis we have had in 140 years, not even in the 1930s did we experience failing banks. And this has all happened on Brown/Darling's watch. Yes, the bankers should be blamed for this crisis but a substantial amount of guilt lies at the doors of 10 and 11 Downing Street.