Will the financial crisis save Labour?

I hope not.  It's astonishing that our Prime Minister seems so happy and confident in the face of this complete financial disaster.  In a way I can understand it - he has a fire to fight and can forget about all his day to day problems and focus on 'saving us'.  The trouble is, he should actually be apologising profusely to the taxpayer for his part in creating this mess.

I freely admit that right now the British bail out plan makes sense.  There's no point any longer trying to stick plasters on the banks - they need open heart surgery and that's what they are getting at vast potential expense to the tax payer. 

A few weeks ago, the prospect of part nationalising two of our biggest banking groups (RBS and Lloyds/HBOS) would have been unthinkable.  But all bets are off, and my biggest worry now is that Barclays and others who have refused Government capital injections are going to fail in their attempts to raise it from the markets.

But there is no doubt in my mind that Brown as Chancellor has played a huge role in getting us to the state we are in because of the failure of the regulatory system he introduced in 1997.

Bank of England independence, Brown's 'Big Idea' in 1997 was widely hailed as brilliant.  Yet the Monetary Policy Committee that sets interest rates failed to take account of the massive asset bubble - particularly in property - over the last 10 years. Why?  Because their task is to look at the Government's inflation measure, which EXCLUDES property prices.  In hindsight, interest rates at 2% higher over the last 3 years would have taken the edge of the property boom that caused the crisis.....

And Brown's other 'Big Idea' in 1997 was to split banking supervision from the monitoring of liquidity (cash circulating) in the banking system.  Labour's massive new quango, the Financial Services Authority, was made responsible for ensuring the viability of individual banks and building societies whilst the Bank of England kept the responsibility for making sure enough cash was being lent between banks to keep the system going.

This was a fundamental mistake, and it showed Labour's lack of understanding of financial markets.

In the 1990's I was a Financial Institutions Director of Barclays with responsibility for Investment Banks.  So when Barings collapsed, Eddie George (then Governor of the Bank of England) called us and over the weekend Barclays worked with the Bank of England to try and save Barings but more importantly, to prevent a run on British banks.

I believe the success in handling that crisis was simply because Eddie George knew the buck stopped with him, he knew Barings well as it was supervised by his staff, and he was able to quickly coordinate events.

By contrast, Northern Rock was a masterclass in dithering - the FSA, the Bank of England, the Treasury - who was in charge?  In the end it was Alastair Darling who had to face up to the press and take the decision to nationalise......I am certain it need not have happened.  Don't forget, it has already required a £3billion capital injection from us taxpayers.....

And what of Bradford and Bingley?  Lots of City people were talking about the worrying weakness of the business - it was obvious for months that it was at risk.  Why didn't the Government act earlier to stop it becoming yet another millstone around the taxpayer's neck?

Yup, it really is amazing that Gordon Brown has never looked happier.  I sincerely hope that voters are not fooled.