I recently re-read Paul Moore’s 2009 testimony to the Treasury Select Committee in the aftermath of the financial crisis. Paul was the Head of Group Regulatory Risk at HBOS between 2002 and 2005 (this position is one below board level). As his testimony explains, in 2005 he vocally warned the board that their risky lending would put HBOS in danger, but was dismissed and replaced by someone with no relevant experience for the job in question.
A few selected passages give a great insight into the financial crisis and why banks are the wrong institutions to be in control of creating our nation’s money:
[sws_blockquote_endquote align=”center” cite=”Paul Moore” link=”http://news.bbc.co.uk/1/hi/uk_politics/7882581.stm” quotestyle=”style02″]2.8 But let’s start with the cause and this fairly obvious proposition: even non-bankers with no “credit risk management” expertise, if asked (and I have asked a few myself), would have known that there must have been a very high risk if you lend money to people who have no jobs, no provable income and no assets. If you lend that money to buy an asset which is worth the same or even less than the amount of the loan and secure that loan on the value of that asset purchased and, then, assume that asset will always to rise in value, you must be pretty much close to delusional? You simply don’t need to be an economic rocket scientist or mathematical financial risk management specialist to know this. You just need common sense. So why didn’t the experts know? Or did they but they carried on anyway because they were paid to do so or too frightened to speak up?
[sws_blockquote_endquote align=”center” cite=”Paul Moore” link=”http://news.bbc.co.uk/1/hi/uk_politics/7882581.stm” quotestyle=”style02″]2.22 To mix a few well known similes / metaphors / stories, the current financial crisis is a bit like the story of the Emperor’s new clothes. Anyone whose eyes were not blinded by money, power and pride (Hubris) who really looked carefully knew there was something wrong and that economic growth based almost solely on excessive consumer spending based on excessive consumer credit based on massively increasing property prices which were caused by the very same excessively easy credit could only ultimately lead to disaster. But sadly, no-one wanted or felt able to speak up for fear of stepping out of line with the rest of the lemmings who were busy organising themselves to run over the edge of the cliff behind the pied piper CEOs and executive teams that were being paid so much to play that tune and take them in that direction.[/sws_blockquote_endquote]
This doesn’t really need any comment. You can read the full testimony at the BBC news website. However, the final paragraph is worth noting:
[sws_blockquote_endquote align=”center” cite=”Paul Moore” link=”http://news.bbc.co.uk/1/hi/uk_politics/7882581.stm” quotestyle=”style02″]5.2 Sir James is still the Deputy Chairman of the FSA [Ed: he was at the time, in 2009, but later resigned] and advises the government on how to solve the mortgage crisis. Some might now also question what his “contribution to financial services” has in fact been when this will have led to millions of people in excessive debt, 10,000s who will lose their jobs and many more whose balance sheets have been impacted by the precipitous fall of the HBOS share price – apart from the reduction in competition in the retail financial services market threatened by the new Lloyds Group?[/sws_blockquote_endquote]
More importantly, why on earth was the chief executive of one of the UK’s largest banks allowed to have any position at all on the FSA board? It is difficult to believe how unhealthily close the FSA was to the banks they were supposed to be keeping in check; in fact, as our recent Banking Vs Democracy report has shown, in the last decade, many board members of the FSA either had connections to financial institutions, or even sat on the boards of them. How could the FSA board candidly discuss potential failings at HBOS when the members were colleagues of, and probably friends of, its chief executive? The arrangement seems ever so slightly corrupt.
Can anyone really argue that the same banks who have caused the financial crisis are the same one who should have the privilege of creating the nation’s money supply?