Mr Goodwin deserved to lose his title
IT is right that Sir Fred has become Mr Goodwin once more. Goodwin was knighted for “services to banking”; given that he has done more than anybody else in the Western world to damage that industry’s reputation, Gordon Brown’s absurd decision to honour him needed to be reversed. It also sends a strong message that failure isn’t always rewarded – a key principle.
That said, there were lots of other guilty parties who did far more than the ex-RBS boss to create the crisis. None of them are being punished in the same way (my list includes Sir Alan Greenspan, the worst central banker in decades, who was also knighted by Brown and created the cheap money and moral hazard that caused so much damage). Scapegoating one individual for a complex, global problem caused by multiple economic forces is unfair, ridiculous and sinister; the official justification given for cancelling Goodwin’s knighthood exaggerates his role in the recession. Goodwin’s hubris was made possible by bubblenomics: it was not its underlying cause, regardless of what the mob may think.
It is also true that other banks failed, and their directors are not being stripped of their titles; in fact, hardly anybody ever loses a title. But none of this constitutes a reason to forgive Goodwin. In this case, selective justice is better than none at all. He is correctly being held accountable for RBS’s demise. Other directors, regulators and politicians (who supported the ABN Amro merger) should also share the blame – but CEOs are paid to take ultimate responsibility.
Many worry Goodwin’s treatment confirms that the UK is now virulently anti-business. They are right to be anxious about the general climate, which is awful – but there is nothing anti-business or anti-capitalist in cracking down on rewards for failure. The authorities have done the right thing stripping Fred Goodwin of an honour he didn’t deserve. In the long-run, it will help the City’s cause.
MONEY MATTERS
WORRYINGLY, the UK’s money supply declined by 0.2 per cent last quarter. Fortunately, money holdings of households and private non-financial corporations – the vital sub-component – rose by 0.7 per cent, which means there was no generalised liquidity squeeze. But what is astounding is that the money supply is falling despite a massive drive by the Bank of England to increase it – it engaged in £50.9bn of gilt purchases during the last quarter, as part of QE, equivalent to 3.3 per cent of the existing money stock, as Henderson’s Simon Ward points out.
The reason for this bizarre failure is simple: the boost to the money supply was offset by banks’ contracting their balance sheets. They cut their net external and foreign currency assets – by £28.2bn over the quarter. Fortunately, banks’ domestic assets were spared, with lending rising by £15.8bn or 0.8 per cent.
But all of this confirms that the massive increases in capital and liquidity requirements pushed through by regulators is having a crippling effect on the economy’s ability to grow. There is a massive contradiction at the heart of monetary policy: on the one hand, the authorities are trying to boost the money supply and lending – on the other, they are forcing a contraction of bank balance sheets (and via ring-fencing, the deglobalisation of finance, with banks retreating to domestic markets) which is cutting the money supply. It’s madness.
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