Since 1997 credit has escalated at a frightening pace - in my opinion and this has been driven primarily by the large-scale securitization of debt with CDOs, synthetic CDOs and CDS traded OTC (over the counter) with scant regulation or checks. The crucial point about these financial instruments is that they allow risk to be buried for substantial periods - and, in the context of mortgages issued by banks (in particular) allows lending of preposterous sums on the myth that, while individual loans might be extraordinarily risky, there is somehow negligable risk if long term investments are made in many high risk loans. It sounds incredible, but this is exactly what has driven double-digit M4 monetary expansion (i.e. the total amount of money/credit available to be spent) that has masked ailments ranging from a huge and escalating national debt to faltering industry and commerce that has necessitated widespread outsourcing to less indebted nations.

Whether intentional or not, Brown, as chancellor, seems to have made every effort to inflate the credit bubble policies which spring to mind include relaxing of the maximum acceptable RIPX inflation from 2.5% to 3.5% in 1997; further relaxing control on inflation in 2003 by adopting CPI (i.e. Eurostats HCIP inflation measure which excludes the cost of owner occupied housing an serious omission clearly identified and warned about by Eurostat, and one which disproportionately affects the UK c.f. other European countries) as the exclusive measure for inflation to control interest rates. I suspect that the most “clever” (assuming a debt bubble was the aim) trick was to tax pensions… leaving pension funds with long-term shortfalls… which, I suspect, has, in turn, encouraged fund managers to take imprudent risks buying higher-yielding extremely high risk “financial toxic waste” in order to meet their year-on-year accountancy targets, and secure their city bonus. Add to this heady mix the preposterous popular assumption that house prices can only ever go up and you have an explosive situation primed and ready to blow a massive, gaping hole in the UK economy.

In my assessment of national fiscal policies, Im frequently reminded about the misadventures of Enron… and I wonder if there is any coincidence that Brown in forming New Labours economic policy was, like Enron with its corporate accountancy, assisted by the (now disgraced) Arthur Anderson consultants?

If, by old-fashioned banking, we are talking about an honest assessment of risk then it is about time!

What does this lawyer turned politician know about banking ? Not a lot apparently.

So the government is trying to point the finger at those wicked banks as the culprits for the financial mess we are now in. Of course the banks must share the blame for lax lending standards but it is Gordon Brown’s policy of directing the ‘independent’ Bank of England to follow an inflation figure that does not include housing costs that generated the artifically low interest rates which generated the biggest orgy of credit consumption ever seen.

By shifting spending from central government to consumers and off-balance sheet expenditure such as PFis and tax credits, GB managed to maintain the charade of prudency while staving off the business cycle downturn we were due in 2001 by pumping the economy with a wall of liquidity. Alan Greenspan did the same but was wise enough to step down before his policies came back to bit him; our dear leader is already looking for a scapegoat.

The removal of the Branch Manager from taking major lending decisions arose because it was considered that many of the corporate borrowers were becoming too sophisticated for his analytical skills. The proper analysis and risk conclusions were considered more appropriate for “risk professionals” and the branch manager’s job evolved into a salesman’s role as the ’90’s unfolded.

This seems reasonable, however, the major problem is that organisations gradually relaxed their lending and risk criterias for the sake of chasing loan volume. A considerable number of my “generation” were “retired” for the sake of cost reduction. However in doing so the organisational “memory” was lost and mistakes made in the 80’s are being repeated (in a different way) primarily because it was considered by Executive management that modelling “gurus” could enable banks to lend money to previously unsound consumer and corporate markets (i.e. sub prime).

A proliferation of “waffle” enveloped the banking culture as young, intelligent but “business ignorant” bankers were able to persuade egotistical execeutives to move in this direction. Older generation bankers with the business experience woudl be ignored in this climate of macho financial engineering. Risk Managers who might have advised otherwise would “buy into” this business development culture probably for fear of losing their political power or job!

It is not the loss of the branch manager that caused this problem it is the old issue of senior bank executives trying to get “blood out of a stone” for the sake of share price enhancement and egotistical achievement. Many of the older generation of trained bankers were removed some years ago as they stood in the way of that and now we shall see the consequences.

It is a very good idea as i am tired of waiting to speake to someone who is never there when i as a customer need him or her most.