What are we banking on?

There will be no end to the economic crisis until the Government acts decisively to restore confidence in our banking system. Our policy of throwing money at the banks clearly has not worked. The root of the evil lies in those toxic assets into which the banking elite so greedily bought.

So I come back to a topic I keep banging on about. How the Government deals with the Lloyd's Banking Group crisis, which is largely of its own making, will dominate, no doubt, today's headlines. But the big issue of today and tomorrow and forever after, until the Government acts, is getting the bankers to own up on the size of their dud assets.

The FT Weekend had reports that President Obama was moving in this direction but there were problems on how to value these assets. Surely this conventional wisdom is wrong on this score.

The main issue surely is to get banks to assign those assets to a new national holding bank. Valuation can come later. The Government needs to then promise enough tax-payers' money to recapitalise banks.

It will be expensive. But it has been expensive up to now with the Government merely throwing money at the banks with little to show in terms of increased credit flowing to would be customers.

Parliament, which is in recess this week, needs to return to the task of both supporting decisive intervention on these lines, but also setting up its inquiry into who is responsible. The cost to savers and future pensions is huge.

Such an inquiry needs to go beyond traditional select committee hearings. There needs to be a special select committee of the whole house which pieces together both the genesis of the mega crisis as well as its latest manifestations.

Looking at the Lloyd's TSB and HBOS debacle could illustrate how such an inquiry will work. The inquiry needs to detail from known sources what the role of the Prime Minister was in this deal, was Sir Victor Blank the chairman of Lloyd's TSB a willing suitor, and how involved was the board of Standard Life whose Chief Executive Sandy Crombie, was the only figure from the financial services sector to receive a knighthood in the New Year's Honours - in Standard Life's public welcome for the fatal merger between Lloyd's TSB and HBOS? The committee could also look at the papers regarding Sir Sandy.

The role of the committee would then be to present their evidence to the main players and to ask for their comments. It would then be up to the respected boards to sack those chief players whose actions have helped bring the country to this sorry pass.

I usually try and balance the main part of the blog with a more cheerful comment. I cannot think of one today, try as I might.

Date added: Tuesday 17th February 2009
Latest updated: Thursday 30th April 2009