Frank Dobson had a good go at bankers, who are a pretty easy target, but there is nothing new in the behaviour of banks creating financial crises, which is why they need regulating. I think it was Warren Buffett who observed of this crisis that banks have spent the past 10 years inventing a whole load of new ways of losing money, which was completely unnecessary as the old ways were working fine. I am afraid that there is not much new in what the right hon. Gentleman's target has been doing.
I wish to spend my few minutes talking about how we go forward rather than how we got into this crisis. There has been a huge amount of analysis of how we got here, but what are the sensible things to do to get out of the crisis? I do not agree with some of the Government's policies, but I do with others. One must spend a moment reflecting on what happens in a recession, which is the hangover after the binge.
We have had years of excess monetary growth, which has gone into living beyond our means at both public and private level. There has been too much private sector borrowing, and the Government have been running deficits and living beyond their means. Monetary growth and excesses have found their way into asset prices, particularly houses and property, rather than into consumer price inflation. Those things have to be corrected, which will take some time and will not happen overnight. We have to move to an economy in which savings are higher, asset and house prices are lower, money is tighter in the long run and bad loans and investments are written off. That is a painful process, but the mistakes in policy are behind us. There are no options in front of us that could enable us to avoid that process happening, which it must.
We certainly want to help the victims of the recession, as the Conservative Government did in a recession and as this Government are doing. We want to help people who are unemployed or in danger of losing their houses. Of course one wants to do that and to let the natural, automatic stabilisers work, but from what I have read they account for about 3 to 3.5 per cent. of GDP. The fiscal stimulus is an awful lot bigger than that. I do not believe that in the current circumstances, an additional fiscal stimulus involving the numbers being talked about will make any difference to the recovery from the recession. It is a monetary phenomenon with a monetary cause, and the correction will be in monetary policy.
This recession started in the banks, which is perhaps why it is unusual among the recessions that have happened in my adult political lifetime. Usually, recessions that start in the financial system last longer, because it takes the first year for the system to sort itself out, so the Government are right to concentrate on sorting out the banks and getting them back to lending. We can argue about whether their schemes could have been introduced better, sooner or cheaper, but certainly their strategy is right. However, those policies have to be given time to work. They have had only a few months, and there is a misplaced sense of panic about what is happening. If the panic had happened a year or two ago we might have been able to do something different, but from where we are now the measures taken in the monetary markets must be given time to work.
We need four things, the first of which is prudential regulation, which has been discussed a lot, including by the right hon. Member for Holborn and St. Pancras. Regulation has clearly failed, and it is no good anybody pretending it has not. What we need is not more regulation, more regulators or more money spent on them. As my right hon. Friend Mr. Lilley said, we have had that in spades for the past 10 years. What we need is more intelligent regulation. The difficulty is that the people in the FSA are not as good as the people in the banks, who despise them and say that they are all 28-year-olds who do not know anything. With a lot of unemployed, smart people from the banks around, perhaps the FSA can employ some of them and be slightly better.
However, the next stupid thing that bankers do in making ridiculous loans will not be the same as they have just done, but something new. In the past it was the Latin American debt crisis, Russia, the far east and then the dotcom bubble. The next one will not be one of those, so it is no good regulators now shutting that stable door. They have to think about what is coming, and that is what I mean by more intelligent, rather than tougher, regulation.
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