Westminster comment

Oct 8 2008 by Tom Clarke, MP for Coatbridge and Chryston

THE FINANCIAL storm clouds are reaching near hurricane proportions within the worldwide banking industry and it is likely there will be consequences for every household and business.

My criticism of the present financial crisis can be justified as I spoke out, years before it was ever topical, about the irresponsibility of both bank lending and debt.

Banks offer you an umbrella when the sun shines but take it away when it’s raining. Young people are incredibly vulnerable too as they have little or no experience of how quickly debt can creep up on them. There is no shame in having affordable debt but failing to deal with debt can lead people into a very distressing situation.

On outrageous banking charges, banks have abused their power and used smart city lawyers to shelve the problem in a legal quagmire, rather than admit their error to reimburse customers they have been overcharging for years. Now they are getting a taste of their own medicine in large indigestible doses.

Greedy banks engaged in irresponsible lending (notable exception, Airdrie Savings Bank) are the root cause of this present crisis. Banks that have behaved in such a manner will surely suffer the same fate as ‘Humpty Dumpty’, whose origin is of course Parliamentarian. Mismanaged banks that have arrogantly stood tall without sufficient regulation simply cannot be put back together again at the taxpayers’ expense.

Our Government is not alone, as Governments throughout the world are effectively nationalising banks to mitigate the damage to savers and businesses. But will it work?

The unanswered question is whether a bailout will have its intended effect of enabling the banks to start lending again. And, more importantly, if they can lend, whether they will indeed lend, or continue to hoard their cash.

It is possible that handing over cash to the banks won’t induce them to lend it? We just don’t know. On the other side of the equation it is reasonable to assume that doing nothing is not an option. Well it is, but not one to which I would subscribe.

A complete cessation of lending would most definitely lead to stagnation of the economy with devastating consequences. In short, we are facing the threat of a collapse of the banking system and a recession.

In the words of John K.Galbraith: “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.”

I have yet to see the essential guarantee that banks will lend to avert a deepening crisis. That is why Governments are obliged to intervene, but not with a blank cheque for the banks.