How to sell horsemeat and sub-prime loans

Trusting businesses to do the right thing is naive. From banking to the meat industry, without strong regulation, it's inevitably the consumer who loses out

Related Topics

It seems a far-fetched comparison, but the more closely the horse-meat scandal is examined, the more it brings to mind the origins of the banking crisis. In these two examples of globalisation gone mad, the resemblances are remarkable. To start with, there are the same hard-pressed customers.

In a recent poll of British consumers conducted by Kantar, more than 40 per cent of those questioned said that they would make no change to their shopping habits in light of the horse-meat scandal. They couldn’t afford to pay more. Horse meat, if that was what they were eating, was better than no meat.

Now recall the origins of the banking crisis. It began when prices in the US housing market suddenly turned down. This, in turn, undid the billions of dollars in mortgages granted to customers with poor credit ratings. This was called sub-prime lending and was also widely practised in the UK.

Just before the crash, Professor Harvey Rosen, of Princeton University, explained that what he called “innovations in the mortgage market” had let in the excluded: “the young, the discriminated-against, the people without a lot of money in the bank to use for a down payment”. So, like it or not, both the suppliers of horse meat fraudulently labelled as beef and the reckless suppliers of credit in the housing market were meeting a genuine need.

Nonetheless, what was going on had to be disguised. The meat that ended up in Tesco Everyday Value Spaghetti Bolognese, for instance, could no more be labelled 60 per cent horse meat than the originators of sub-prime loans could sell them on to investors around the world if they were described as the high-risk propositions they actually were. In both cases, the technique used by the suppliers of the dud products was the same – mix and match.


Don’t try to sell horse meat as horse meat but mix it with beef and call it beef. Don’t attempt the hopeless task of selling bundles of sub-prime loans to international investors but mix them up with better quality securities so that the whole package gets a much better rating than would otherwise be the case. For many years, these methods were effective.

It may seem surprising that neither the hard-nosed buyers working for the big supermarket groups nor equally canny professional investors discovered the frauds that were being carried out under their noses. But perhaps they didn’t want to know. Wilful ignorance does happen.

Strong-armed regulation would be the remedy but instead, again in both cases, government rejected this approach. In the financial markets, Britain boasted of its “light-touch” regulation. In November 2006, two years before the crash, Gordon Brown, then Chancellor of the Exchequer, gave a speech to the CBI extolling what he called “stability through a predictable and light-touch regulatory environment”.

Now the extraordinary fact is that although “light-touch” financial regulation comprehensively failed, the Coalition Government has been regulating the food industry with a very light touch indeed. It proudly relies on what are called responsibility deals in which food companies, drinks producers and big supermarket chains make voluntary pledges to tackle issues such as alcohol abuse and obesity.

It’s a kindly approach. Who wouldn’t want to trust businesses to do the right thing, and to reduce regulation to a minimum? It’s like patting a tiger on the head and telling it to be good. Fortunately, a well-documented warning against taking this optimistic view of nature has just been published. The latest issue of the authoritative journal The Lancet documents the “strategies by industry to undermine effective public health policies and programmes”.

It reports that the main method is to bias research findings. Articles sponsored exclusively by food and drinks companies are four times to eight times more likely to have conclusions favourable to the financial interests of the sponsoring company than those articles that were not sponsored. Policy makers and health professionals are co-opted where possible, huge sums are spent on lobbying politicians and public officials to oppose public health regulation, and access to objective health information is blocked.

Broken links

The banking industry uses many of the same methods. Even larger amounts of money and effort are spent on lobbying. Policy makers are suborned. And before the crash, prudential regulation was evaded by the simple device of engaging in “shadow banking”, routing business through companies specially set up to borrow short and lend long (which is what banking is) without calling it by its proper name.

What we learn from these two examples of global business, the meat trade and banking, is that the individual units in the international supply chain have little idea of how they fit into the whole. Who knows where the labels are changed in the chain of relationships that links the horse dealer in Romania and the supermarket in London selling “pure beef” products? Could the British institution buying a package of mortgage securities before the banking crisis broke have had any idea that he or she had taken a bet on, say, the over-heated Florida residential market?

These cross-frontier relationships are vulnerable to fraud. A trader in Cyprus deals with a trader in Holland, business is placed with a factory in France that, in turn, subcontracts some of the work to Luxembourg. Who fully understands what is going on across the border? Instead, it is everyone for themselves and only strong regulation can keep consumers safe. Don’t pat the tiger on the head, it may pull your arm off.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Pharmaceutical Computer System Validation Specialist

£300 - £350 Per Day: Clearwater People Solutions Ltd: Pharmaceutical Computer ...

High Level Teaching Assistant (HTLA)

£70 - £90 per day: Randstad Education Birmingham: Higher Level Teaching Assist...

Teaching Assistant

£50 - £80 per day: Randstad Education Birmingham: Randstad Education is the UK...

Senior Java Developer - API's / Webservices - XML, XSLT

£400 - £450 Per Day: Clearwater People Solutions Ltd: Our client is currently ...

Day In a Page

Read Next

Letters: No vote poses difficult questions – so why rush?

Independent Voices
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside  

Autumn’s subtle charm is greatly enhanced by this Indian summer

Michael McCarthy
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments