There is a lot of ‘I knew it would end in tears’ chat around the credit crunch at present, but less in-depth thinking about what it means and how to respond. Here are some points from conversations I have had in recent days:
- No-one is making an apology, but at the same time we may all be complicit, as we benefited as consumers from more extended and less expensive credit. Talking with Richard Lambert, CBI (who says “good luck to Consumer Focus in your early days!”), I floated the idea of a Truth and Reconciliation Commission on the credit crunch. We need to understand and not just condemn, or alternatively, just move on.
- The credit crunch was foreshadowed in the collapse of Enron, which was before a model of corporate success, but based on creative /illegal off-balance sheet accounting and disguised through charismatic leadership that was hard to question. But Enron had a whistleblower, which the credit crunch has not had. There are dissident economists who have been warning of risks for years, but they do not enjoy the protection and rights that whistleblowers now have. Perhaps we need, as a culture, to listen more to voices of dissent.
- One of the weaknesses of regulation has been that it has assumed that financial transactions between consenting professionals does not need the scrutiny and attention that financial deals with consumers attract. Those who work in financial markets are assumed to be alert to the risks. But what was missing, as one friend from Reuters argues, is God’s eye – in the sense that it was nobody’s role to have a look at the overall system. Regulators are not God, that much we know, but they ought to have an eye on the system overall and the incentives that led the professionals to stray.
- The fallout for you and I and the public at large could be awful, in the sense that the economy has been propped up high levels of employment, but with many having no savings to speak of and no real safety net, for example in public housing, is we see genuine economic distress. Annuity rates are falling for peole retiring now. Banks are busy withdrawing access to borrowing and, talking to John Fingleton of the OFT, we could see that mortgage costs may rocket in the same way that energy prices have. All of this adds up to millions of cases of what is essentially a personal credit crunch.
- If banks are too big to fail, and have the implicit guarantee of state protection, then we should argue that they have a reverse obligation to society, to provide payment and credit services on an equitable basis of access to all.
Welcome your views on this. I am away this week with family.