Thank you for calling me, Mr. Deputy Speaker, as I have had the slow torture of being the last Back-Bench Member to speak in the debate. May I say how pleased I am to see my hon. Friend John Howell making such an impression after spending such a short time in this place? I reserve particular pleasure for seeing Mr. Pelling back in the Chamber; he has been away for a short while, but he made a robust speech and seems to be in robust form. It is very good to have him back.
This is the first chance, apart from the 90-minute debate we had last week, for Members to get near to the events—the almost calamitous events—of the last couple of weeks. I appreciate that this is not a debate on the current banking crisis, so I will try to speak within the bounds of the Bill before us. Clearly, however, there has been a collective failure of the regulatory sector and the banking sector. Of course, having been in power for the last 11 years, the Government have to take their share of responsibility as well, but I do not want to take a gratuitous swipe at the Government at this stage, as there will be plenty of opportunities to do so in the future. The collective failure has been clear and we cannot ignore the fact that the International Monetary Fund has said that, of probably all the developed economies of western Europe, we are one of the least well placed to cope with the current downturn. The Government need to take a good long look at themselves and ask whether they have done the right things over the past 11 years.
Unlike my right hon. Friend Mr. Redwood, I am not a financial expert; I worked in the City for a mere three months before being given my marching orders. I am absolutely staggered by the amount of risk banks have taken on board. I understand from my right hon. Friend that their liabilities are somewhere in the region of £3 trillion. That is simply staggering. What amazes me about the crisis is that we have moved on from talking about £10 billion as being a lot of money to £100 billion as being the same, and we seem to have moved seamlessly on from that to speaking of trillions of pounds and trillions of dollars. It is difficult to keep up with these enormous figures, but enormous they are.
What amazes me is that we did not learn the lessons of Barings. When Barings failed, the board of directors admitted that they really had no concept or understanding of the derivatives being traded on their trading floors. The complexity was simply beyond them. I thought and believed that the Bank of England and the Financial Services Authority had taken that into account and would do something about it to ensure that the boards of banks did not allow it to happen again. Clearly, however, it has happened again. We have seen banks leveraging their capital thirty-fold or perhaps more. What that means is that one pound of capital on the balance sheet—an asset of £1—is supporting £30 worth of risk or £30 worth of what could be called "make-believe money". The pyramid has been inverted, with £1 supporting £30. Like all pyramid selling schemes, it works well in the good times, but sooner or later, something goes wrong, the pyramid collapses and everyone is left picking up the pieces. On this occasion, I am afraid that it is the taxpayer who is left picking up the pieces.
This Member of Parliament has some very humble suggestions to make. First, the FSA has to tell banks that if they are going to trade in financial derivatives, as they will continue to do, we have to be able to understand them. We must understand where the risk resides. If we do not understand them, we should say, "Buddy boy in the red braces, you are not going to trade them." There has always been a sneering regard in investment banks for the FSA. They say, "We employ people who earn £3 million a year, and these thickos in the FSA understand nothing, as they can afford to employ people earning only £250,000 a year." Well, in this case that is a good thing. All the rocket scientists in the investment banks will have to sit down and come up with financial instruments that mere mortals—talented people, but still mere mortals—understand, and if they do not understand them, they will not be traded. [ Interruption.] Does anyone want me to give way? I think that someone does, so I give way to him. I am sorry; I have taken my glasses off, so I am completely blind.
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