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Feb 12 2012

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No sir of mine

The U.K. Government sent out a message to fat-cat bankers by stripping ex-RBS chief Fred Goodwin of his knighthood. But should Sir Alan Greenspan and Sir Mervyn King suffer the same fate too, asks a senior economist?
The U.K. Government sent out a strong message to fat-cat bankers by stripping former RBS chief Fred Goodwin of his knighthood.

In the past the British Queen has meted out such treatment only to those who have been jailed or people who have been removed from professional institutions.

The decision is seen as a victory for David Cameron's Government which has been looking for a scapegoat to blame for the global credit crisis - an episode that has affected London's standing as a global financial hub.

Mr. Goodwin led the multibillion acquisition of ABN-AMRO just before the global financial crisis of 2007, leaving British tax payers to bail out the bank.

"They are clear that the failure of RBS played an important role in the financial crisis of 2008/9 which, together with other macroeconomic factors, triggered the worst recession in the UK since the Second World War and imposed significant direct costs on British taxpayers and businesses," said a UK Government spokesperson.

"Fred Goodwin was the dominant decision-maker at RBS at the time. In reaching this decision, it was recognised that widespread concern about Fred Goodwin's decisions meant that the retention of a knighthood for 'services to banking' could not be sustained."

This is no doubt a huge embarrassment for the banking community which has been blamed for the global financial crisis and have - for the most part - been rewarded with even higher profits and bonuses at least in the immediate aftermath of the crisis.

But the chief economist of Soc-Gen Albert Edwards has asked the question:
If knighthoods are being removed for those held primarily responsible for the debacle, shouldn't Sir Alan Greenspan and Sir Mervyn King, like the ex-CEO of RBS Fred Goodwin, be stripped of their honours too?

In a spirited commentary, Mr. Edwards lays out his case: "My trenchant criticism of Fed Chairmen Greenspan and Bernanke's tenures at the Fed has been as lengthy as it has been voluble. The UK Bank of England governor Sir Mervyn King has presided over similarly ruinous policies to those in the US. Their bankrupt-(ing) policies can be summed up in one paragraph written in a Global Strategy Weekly back in December 2002:

'The nature of the Fed's role as guardian of the punchbowl has altered. It is 2am. The party has wound down. The guests are sloshed and want to get home. Yet in one of those Nightmare on Elm Street moments, Big Al has bolted the door and is now dunking the struggling guests' heads into the punchbowl.'

Indeed, for any one following Mr. Edwards commentaries, knows that he has always laid the blame squarely on the excessively loose monetary policy, both in the US and the UK that was primarily responsible for the 'Great Recession', not the over-exuberant actions of lenders and borrowers.

Mr. Greenspan, the legendary American central banker became the Knight Commander of the British Empire in 2002, but his legacy has been tarnished as he has been widely criticised for loose monetary policies and has admitted that he missed the housing bubble crisis till it was too late. Time Magazine placed him third on the list of 25 people to blame for the financial crisis.

Sir Mervyn King, who did not make it to the list perhaps because it was mainly an American one, continues presides on one of the worst financial crises facing the U.K.

BLAMING BANKERS

But it's investment bankers that have faced the full fury of politicians, regulators and the average public. Bankers have been under pressure, after rewarding themselves with multi-million bonuses, even as they packaged dodgy assets to unsuspecting customers and continued to fight against greater regulatory oversight.

They have also been targetted by the Occupy Movement which considers them prime species of the 1% that's looting from the 99% - picking up the rewards while leaving the mess for the 99% to clean up.

But in this hunt for scapegoats, the regulators themselves have avoided much criticism, says Mr. Edwards.

"In the wake of the 2008/09 economic collapse, central bankers have been working very hard," says SocGen's Mr. Edwards. "Working hard, that is, to deflect blame away from themselves. Long before the credit bubble burst we had identified the former and current head of the US Federal Reserve as primarily responsible for the inevitable debacle."

Of course, there is an element of jealousy involved here - Mr Edwards represents the bankers who find themselves being painted - unfairly if you ask them -- as the prime culprits for the global financial crisis.

But the fact of the matter is that few people - central bankers or investment bankers - have gone to jail for a crisis that have seen the financial ruin of million of families, businesses and damaged the reputation of the stock markets and the global financial services system.

Sure, there have been instances of some in the financial services community jailed for insider trading, but few have been held accountable for the collapses of Lehman Brothers, AIG and now MF Global.

But the blame game continues, as Mr. Edwards notes: "Both Sir Alan Greenspan and Sir Mervyn King resolutely mounted stern defences, claiming that they were impotent in the face of global events -- including both saying, wholly disingenuously in my view, that their respective credit bubbles were the consequences of excess Asian savings which they could nothing about!"

But someone should tell Mr. Edwards that his banking colleagues are doing the same thing: shifting the blame to other parties.

© alifarabia.com 2012