He\’s good for a laugh this morning, that\’s for sure:
Thus the collapse of the American housing market, the explosive growth of American home repossessions and the discovery that \’structured investment vehicles\’ (SIVs), the toxic newfangled financial instruments that own as much as $350bn of valueless mortgages, are not American problems.
"Valueless"? Certainly, it\’s true, that people are having a hard time putting value upon them, which is the cause of our problems, but that\’s not to say that they are valueless, in the sense of worth nothing. Even the most pessimistic forecasts assume that the majority of those loans will continue to be paid, all the way to completion of the mortgage. Of those that will default, there migh be renegotiations, there might be foreclosures, the house then passing into hte ownership of the lender which they then sell again. Sure, there will be losses in that whole process but no one at all thinks that those $350 billion of loans are "valueless" ….except our foremost financial commentator, Little Willy Hutton, of course.
What should have happened, of course, is that when the Bank of England found that it could not find a secret buyer for Northern Rock in the summer, it should have done what it did in the 1974 secondary banking crisis. It should have taken Northern Rock into the Bank of England\’s ownership. Individual depositors and the City institutions alike would have been quickly reassured, and when the crisis passed the bank could have been sold back into the private sector.
But in 2007, the Ridley view of how to run a bank is also the authorities\’ view of how to respond to a crisis. There is a prohibition on even short-term public ownership. In a free-market fundamentalist world, this, like regulation, is regarded as wrong. Instead, the most expensive and riskier route has been taken so that Northern Rock remains part of the problem rather than the solution.
And that is also hilarious. For it doesn\’t mention why the Bank of England didn\’t do something (possibly) sensible like that. Because it is in fact no longer responsible for regulating the exposures of individual banks. Still responsible for the markets as a whole, true, but not the individual banks. That\’s the responsibility of the FSA. And, err, who set up this system of greater (note, greater, not lesser, at least on paper) regulation? Why, that would be Gordon Brown wouldn\’t it?
But of couse no criticism of the Great Man can be allowed to drip from Hutton\’s pen now, can it?