Sean O'Grady: Caution, not recklessness, is the problem now

The economics

Share
Related Topics

It would be easy to dismiss the threats by President Sarkozy to wreck the G20 summit with a Gallic walkout as a typical piece of French chauvinism. After all, Nicolas Sarkozy falls neatly into a long line of French leaders who seem to enjoy saying non to the British. In fact, it's worse than that. M. Sarkozy might even be right about demanding concrete results from the gathering on banking regulation, tighter supervision of hedge funds, credit rating agencies, tax havens and the rest – but he is badly missing the point about the priorities for the G20.

M. Sarkozy, indeed, has more in common with the anti-capitalist vandals who ran amok around London than he might appreciate. The vandals, like M. Sarkozy, want to scapegoat banks and bankers – "Thieves", "Built on Blood" and all that.

Yet the bankers are not the real issue. When the world economy faces meltdown, banking regulation ought not detain M. Sarkozy and the G20 for long: M. Sarkozy is throwing a tantrum about the architect's plans for his new dream home while his existing residence is still on fire.

Yes, the banks did make mistakes. They lent too much money to the wrong people, and they funded too much of their lending from borrowings from other financial institutions rather than savers. Some were exceptionally foolish and collapsed. There were lavish rewards for failure. Case proved?

No. It's a bit like the fable about the frog who gives a scorpion a ride across a river. The scorpion allays the frog's initial misgivings, but as they cross, the scorpion stings him and they both drown. Before their demise the frog asks plaintively: "Why did you do that?" The scorpion replies: "I'm a scorpion; it's my nature." Well, chasing profits is what banks do; it's in their nature. We ought to blame the regulators and governments for failing to curtail the credit boom which created all that money for them to play with. That is where M. Sarkozy has a point; but the problem right now is excessive caution by the banks rather than recklessness: regulation is irrelevant.

Think again, too, about how things might have been. Think back to 2003 or 2006 say. How popular would the Government have been if they had then restricted mortgages to, say, three times earnings and a loan to value ratio of 75 per cent? Could the Bank of England have realistically ramped up interest rates to – well, what? 8 per cent? 10 per cent? 22 per cent? Simply to choke off a housing bubble at the price of mass unemployment? If you'll pardon the expression, there'd have been a riot.

The uncomfortable truth is that we all enjoyed the party far too much to query where all the booze was coming from. Now we seem intent on lynching the barman for letting us get drunk and attacking the Government for letting us get a hangover. M. Sarkozy is only one of many to make the mistake. At least he didn't spray paint the Bank of England.

React Now

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

Recruitment Genius: Senior Environmental Adviser - Maternity Cover

£37040 - £43600 per annum: Recruitment Genius: The UK's export credit agency a...

Recruitment Genius: CBM & Lubrication Technician

£25000 - £27500 per annum: Recruitment Genius: This company provides a compreh...

Recruitment Genius: Care Worker - Residential Emergency Service

£16800 - £19500 per annum: Recruitment Genius: Would you like to join an organ...

Recruitment Genius: Senior Landscaper

£25000 - £28000 per annum: Recruitment Genius: In the last five years this com...

Day In a Page

Read Next
 

Errors & Omissions: Whoever and whatever Arthur was, he wasn’t Scottish

Guy Keleny
Labour's Jeremy Corbyn arrives to take part in a Labour party leadership final debate, at the Sage in Gateshead, England, Thursday, Sept. 3  

Jeremy Corbyn is here to stay and the Labour Party is never going to look the same again

Andrew Grice
The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea