No more boom and bust was what Gordon Brown promised us when Labour came to power in 1997. So why is UK plc in such a mess now?
The main reason is a complete lack of regulation of the financial services industry. The responsibility for this is fairly and squarely with the government.
When it seemed like the stock market could only go one way; the banks were allowed to take more and more risks and came up with more hair-brained schemes as a way of increasing profits for the shareholders. The trouble was that no one stopped and said ‘Wait a minute, what happens if this is goes pear-shaped?’ There was never any belief that it would do anything except make money for their bank and increase the bonus that became not so much a bonus as an extra salary payment as there was never any doubt that they would receive them.
The extent to which some of these institutions have shown themselves to be exposed also indicates breathtaking management incompetence. The first rule of long term business survival is “not to put all your eggs in one basket.” Instead it has all been about the short term gains; some for the individuals and some for the shareholders, so keeping the board in their jobs too. It just stinks.
During the last ten years or so in the UK, the growth of the health and safety culture has been amazing. Most of it is about common sense. However part of it is about managing risk. So it is even more amazing that no one in these institutions looked at the risk to the business of such massive exposure to such highly risky schemes.
And yet, the government decided that it was important to bail the banks out. Obviously the risk to the economy as a whole if some of them were allowed to fail was not worth contemplating, so this was the correct thing to do. Having done this though, the government having had the opportunity to rid these banks of the people responsible and insist on a return to a more sensible strategy, failed to do anything. This could include insisting that the banks continue to support UK businesses.
However, the banks have been allowed to stop lending and in some cases, withdrawn existing arrangements from their clients, in a kind of ‘knee-jerk’ over-reaction to losing so much money. This shows such an immature attitude to their own business as well as a lack of understanding of how to grow it again.
Now we are starting to see businesses fail, resulting in a rise in unemployment which creates a massive lack of confidence in the economy. Retail sales plummet and more businesses will fail. And so the spiral continues.
Because of this over-reaction, the UK will actually be in a worse state than if the government had not bailed out the banks. And the people running these institutions have shown that they are incapable of running a corner shop, never mind a multi-national bank.
I sure hope that I am wrong and yet the UK government do not instill me with any confidence that they known what they are doing. To do this, we need strong leadership, prepared to make unpopular decisions when they are required for the long term benefit of the whole country. However what we have is a government (and opposition for that matter) that are only interested in sound-bite politics and scoring points over each other.
The phrase "Nero fiddles while Rome burns" comes to mind ...