Clinton started the rot
We should wind the clock back to the 1990s and the Clinton administration's decision to repeal the Glass-Steagall Act which was the first, flawed, step in handing the banks too much power and control over the world economy. It allowed them to consolidate and grow to an extent that appeared to put them beyond the reach of national regulators. Then came the fashionable policy of granting central banks independence from government control which was one of Labour's key policies when it was elected in 1997. Gordon Brown, as Chancellor, took only weeks to cut the Bank of England free from Treasury control, enthusiastically supported by the Liberal Democrats and never opposed by the Tories. This was another signal to bankers that governments trusted them to run the economy.
Were we in safe hands?
Where has that got us? It has led us into the most severe global economic crisis since the 1930s. The banks ran the global economy to suit their interests. Fine for a while as those interests looked to coincide with those of governments hooked on growth (unsustainable as it may have been) but once those interests parted ways the collapse was catastrophic and the banks were exposed for their role in creating a financial system that served their interests above everything else. Almost everything they have done since has reinforced that analysis.
Central banks should be democratically accountable
I can't say I have often agreed with the former Tory minister and leadership contender John Redwood but when he said on Radio 4 at the weekend that independence of central banks was not compatible with modern democracy I found myself cheering. I have always thought this was a misguided policy and so it has proved. He was talking in the context of the Eurozone crisis and the growing tensions between national governments (especially the Germans) and the European Central Bank but it equally applies to the UK. Perhaps we will at last challenge the absurd notion that the Bank of England can be left to its own devices so long as it keeps an eye on inflation and writes a nice little note to the Chancellor every now and then to explain why it can't even do that one thing effectively. I think there is a challenging debate to be had around how central banks should be democratically accountable in a modern democracy and complex economy, with the emphasis firmly on how and not whether they should be accountable.
This is about who runs the economy
This is part of the context for the debate on the Banking Commission's report. It should be about who runs the economy and who controls the banks, not what the banks perceive is in their best interests. I'm afraid for all the PR and political skills Angela Knight deployed over the weekend I think it unlikely that the public and politicians will buy the argument that the banks need to be left alone to promote economic recovery. I just don't think people trust them any more and who can blame us.
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