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eric pebble

Banks: The Blame Game

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As Ihave said MANY times -- the Lenders have a lot to answer for....

BANKS: The blame game

The blame game

http://www.bbc.co.uk/blogs/thereporters/ev...blame_game.html

* Evan Davis | Notes on Real Life |

* 8 Sep 07, 08:50 AM

It's perhaps a bit early in this crisis for the blame game to start - but somehow I can't resist getting the ball rolling.

Now you know that when children mis-behave, there's typically an argument about whether it is them, or their parents who are to blame. Well, it's not that different in this episode.

The banks have - arguably - got us into this by their behaviour. But is it they who are to blame? Or the grown-ups, the central banks and the other authorities?

Obviously, you start with the banks:

• they lent money stupidly; and devised clever ways of lending more than their regulators allowed by getting other organisations to lend on their behalf.

• they made enormous profits in recent years, but failed to anticipate the most obvious problem in their business model - that they were lending money out on a long term basis, but depended on borrowing it week by week.

• and it was the banks who created sophisticated financial instruments that obscured the risks that they were taking.

In fact, given all of this, one of the most remarkable features of this recent crisis is that the banks most complicit in it have been so unapologetic. They talk up the crisis when criticising the lack of help they're getting from the Bank of England, but they have not suggested the crisis is of such a magnitude that their own presidents should lose their jobs.

So yes, the banks do have a lot to answer for.

But then, banks will be banks. Maybe they should have just been brought up better.

Look for example, at the banking regulators. This crisis has perversely been made worse by banking regulations that have allowed banks to push their activities off their balance sheets, and have indeed made it highly profitable for them to do so. The world's banking regulators will have some thinking to do when it's over.

And then there are the central banks, who made credit very easy in the first place.

That induced banks to lend recklessly in a search for new markets, where they could lend more profitably.

Our own Bank of England kept interest rates low for ages - it was trying to stimulate the economy to stop inflation going too low. But its success at stimulating the economy partly came out of the banking sector's willingness to lend money so freely. That's been stimulating things all too well. If the banks hadn't done it, the Bank of England might have just had to cut rates even more than it did.

So, maybe the central banks got the banks they deserved.

Well, in the blame game, these thoughts are just a first move. There'll be many more.

But don't obsess on blame right now - it can get us too far in the mindset of teaching the banks a lesson, "making them suffer".

Of course, the most guilty banks should suffer - but the problem at this fragile time is that we don't them want to suffer so much it backfires on the rest of us.

Edited by eric pebble

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Just you wait.

In the words of the song it is 'the rich that get the pleasure and the poor that get the blame'.

Same as it ever was.

And the middle classes? We just all get f****d!

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