David Cameron displayed an astonishing lack of understanding of the banking sector in his interview with Sarah Montague on the BBC Radio 4 Today programme on Tuesday morning (as I'm afraid did Sarah, given her blinkered obsession with "bonuses").
If Cameron's stumbling performance was due to ignorance, then it's simply inexcusable. If it's down to him attempting to gloss over a situation he knows to be far worse than he claims, then it's sinister.
On a positive note, Cameron started out by saying:
"We're completely dissatisfied with the way the banking industry behaved over the last decade."
But it was what Cameron said afterwards that suggested the prime minister was either totally out of his depth or just mendacious. For example Cameron said:
"There are those banks that we effectively own, like Royal Bank of Scotland, where actually we have put in some pretty tough controls on pay and bonuses and quite rightly so. ....
This is simply untrue. If any statutory controls actually were put in place (and I don't think they were; all we've had are the woolly and elastic voluntary agreements that came with 'Project Merlin') then RBS has ridden roughshod over them, with the acquiescence of its apparently brain-dead majority owner, UK Financial Investments.
The under-performing Edinburgh-based institution continues to dole out massive pay and bonus packages to hundreds of third-rate investment bankers in Global Banking & Markets despite the losses they are making. Whether it continues to do so, given that GBM staff have apparently badly miscalled the eurozone sovereign debt crisis and are currently said to be losing hundreds of millions of pounds daily on cack-handed forex and fixed-interest trades, remains to be seen (I'm writing a more detailed piece on their current losing streak in the near future). Irrespective of their current performance, it is farcical for Cameron to claim bonuses are "toughly controlled" at RBS.
Cameron then said:-
"Let's look at what we actually did with the banks. We sat down in a room with them and we drew up Project Merlin which was to say right we won't go for an extra bonus tax if you agree the bank levy - now raising more than Labour's bonus tax - if you agree the lending targets to small and large business, done, and if you also accept some rules and some restrictions on bonuses, which they did.
"So I think we are effectively regulating the banks after years of ineffective regulation and the bigger picture is we've also got the Bank of England now properly in control of the banking situation which wasn't the case in the past."
This is just plain hogwash. For a start, Project Merlin was always a charade which even Cameron's colleague, business secretary Vince Cable, admits has failed, both in terms of persuading bankers to rein in their pay and to lend more to small businesses. Otherwise, why would chancellor George Osborne bother to announce the launch "credit easing" in his conference speech on Monday?
And for Cameron to claim that the coalition is "effectively regulating the banks" is simply laughable. The Fundamentally Supine Authority remains in sole charge of financial regulation until 2012-13. Remember that this is the organisation that has failed even to publish the findings of its supposed "investigations" into why banks like Royal Bank of Scotland and HBOS failed, largely, it seems, due to its own complicity in their collapses.
Worse, it's highly probable that the FSA continues to conspire with several large British banks to cover up their pre-crash misdeeds. Indeed, if the UK had a properly functioning democracy and judicial system, it's possible that some of the regulator's senior officials would be found guilty of conspiracy to pervert the course of justice. I believe the justice secretary Ken Clarke knows this.
Given this background, can the FSA really be expected to "effectively regulate the banks"? I doubt it.
Cameron's claim that the Bank of England "is properly in control of the banking situation" is also factually incorrect. The Bank of England hasn't controlled UK banking since Labour introduced the tripartite system since 1997. And it's fairly clear that the Old Lady made a bit of hash of the bits it was supposed to oversee -- assessing systemic risk and macroprudential oversight -- in the critical years of 2006-08. It was so obsessed with monetary policy, it seems to have had blindspot where such things were concerned.
Regretably, therefore, and contrary to Cameron's claims, the FSA remains the sole regulator of the financial sector until the new regulatory structure, which is still going through the consultation phase, takes effect in December 2012 (at the earliest).
These are just some of the reasons why my jaw hit the floor when I heard Cameron's remarks about the banking sector on Tuesday morning. He came over as so glib, so blandly complacent, and so ill-informed it bordered on the terrifying.
This blog first appeared on Ian's website.
Ian also blogs for QFinance