REMEMBER sub-prime lending? Fannie Mae and Freddie Mac’s absurd backing of mortgages for those who couldn’t afford to pay the money back? The US government’s decision to promote sub-prime lending? The Federal Reserve’s crazy decision to inflate endless bubbles via excessively loose monetary policy during the good times, and its destructive commitment to step in to bail out the stock market every time it dipped? The huge imbalances at the heart of the global economy caused by insufficient US savings and excessive consumption, helped by America’s control of the world’s reserve currency, the greenback? Yes, all of these daft policies have two things in common. They were made in the USA – and they were some of the key causes of the financial crisis.
Of course, most other countries also made terrible mistakes. The Basel Accords, which imposed ludicrously inadequate capital standards, and which stipulated that far fewer reserves needed to be set aside against CDOs than against actual mortgages, were an international disaster, as were many other accounting rules which helped exacerbate the crisis. The Bank of England made many of the Fed’s errors; the UK’s implicit guarantees for banks helped wreak immense havoc. Eurozone banks were disastrously mismanaged.
It is undoubtedly also the case that many absurd investment decisions were taken in the London offices of global banks – but plenty were also made in Frankfurt and in Wall Street. Yes, AIG’s London office was a disaster zone, as was Lehman’s – but these were US firms, ultimately supervised by US regulators, and the dud products against which they insured or in which they invested were often American. The ludicrous historical revisionism which is now seeing many US commentators pin the blame for all the world’s problems on London is a gross exaggeration, a shameless instance of buck-passing. Don’t get me wrong: UK monetary and regulatory policies were a disastrous joke – but that was true of most countries. Libor is a disgrace, of course, but Britain hardly has a monopoly on financial fraud – and don’t tell me that only British banks have ever engaged in money laundering. To repeat: this is not to deny the immensity of Britain’s problems, or to condone fraud. Quite the contrary: the UK needs to launch a crackdown on white-collar crime. Anybody guilty of breaking the law or of attempting to con or defraud people should be severely punished. We should follow the American lead in that respect.
But one other principal that is being forgotten here is that individuals and firms should be treated as innocent until proven guilty. There is a huge difference between the case of Barclays, which admitted to the Libor wrong-doing and which settled with regulators, and Standard Chartered, which contests most of the allegations made by the New York regulators. It is disturbing that merely having a regulator – acting almost like a politician, in typically aggressive style, rather than as an objective referee – make allegations against a foreign firm can slash its share price by a quarter in a matter of hours.
Britain needs to treat white collar crime as harshly as it treats other kinds of criminal actions. But there does seem to be an attempt in some US circles to use recent scandals as an excuse to try and engage in neo-protectionist economic warfare. We should see this for what it is, clean up our own house, but remember, as New York does with Wall Street, that a thriving, healthy and honest London-based financial services industry is the UK’s national interest.