Back to the Future for Ed
AS Ed Balls heads to Blackpool this weekend it is hard not to think of him with his body whirling like a dervish, arms turning like a windmill and his large frame moving with surprisingly light feet across the dance floor like an aspirant Fred Astaire.
Amid all the high jinks and heart stopping lifts that have endeared him to ‘Strictly’ viewers, it is quite hard to see him as a serious policymaker again.
But then people do recover from such comic humiliations. Ann Widdecombe is still worth listening to on the nation’s chaotic prisons, Michael Buerk still admirably chairs the Moral Maze on Radio 4 and Sir Vince Cable is still sage on credit and the economy.
Nevertheless, it was a bit disconcerting to hear the former MP and Shadow Chancellor Ed Balls pronouncing on steps to curb the Bank of England. Balls rightly can claim some ownership of Bank independence.
As economic guide to Gordon Brown at the Treasury, he was the architect of giving the Bank ‘operational control’ of monetary policy and interest rates in 1997. This despite reservations by Treasury traditionalists and the refusal of previous reforming Chancellors to take such a step.
We tend to forget that Balls gave with one hand and took away with another. It was Brown and Balls who removed policing of the banking system from Threadneedle Street and gifted it to the now defunct Financial Services Authority. The result was catastrophic when the credit crunch and financial crisis blew up in 2007-08. The Bank of England lacked the intelligence network to see it coming and the FSA was useless.
Balls’ new idea, contained in a Harvard academic paper, talks of setting up a new systemic risk body, headed by the Chancellor, to take the political heat off the Bank. This essentially is a rerun of the past when Balls and Brown drove Eddie George to the brink of resignation after they moved banking supervision to the FSA.
The Bank already has a Financial Policy Committee with outside members to take the hard decisions on risk. Major policy changes such as the Bank’s right to curb loan-to-value ratios for mortgages require Treasury concurrence. Politicians find the independent Bank an easy target as we discovered with Theresa May’s injudicious speech at the Tory Party conference and Donald Trump’s unprovoked attacks on Federal Reserve chairman Janet Yellen during presidential debates.
Both governor Mark Carney at the Bank and Yellen have demonstrated the strength of character to defend their institutions robustly and go about the business of central banking.
There is a case for increasing the political accountability of the Bank. One way of doing that would be to give the Treasury Select Committee and House of Commons a binding vote on approval or rejection of nominees for the governor-level jobs at the Bank and all the members of the policy committees. Handing back powers to the Chancellor – even if the idea is to somehow strengthen the Bank – is not the answer. Balls should spend more time perfecting his footwork.
Mining misdeeds
NATURAL resources is a rough business and much of what goes on in some of the poorest and most ethically challenged parts of the world goes relatively unnoticed.
BHP Billiton disgracefully held a closed session at its recent AGM rather than allow the media access to detailed questions over the Samarco dam disaster in Brazil. This is the biggest natural catastrophe facing a Britishquoted company since BP’s Deepwater Horizon explosion. Rio Tinto’s new chief executive Jean-Sebastien Jacques is adopting a very different approach over the bribery scandal that has erupted in Guinea, classified by Transparency International as 139th on its 168 list of corrupt nations. Jacques peremptorily sacked two senior officials – Alan Davies and Debra Valentine – for failing to maintain ‘the standards expected of them’. Davies is hitting back and clearly wants to protect his reputation.
Rio is right to want to clean the stables. But it appears from emails seen by the FT that two well remunerated former chief executives, Tom Albanese and Sam Walsh, may have had some knowledge of the allegations. As a leading Anglo-Australian company expected to abide by the highest standards of governance, Rio cannot be allowed to sort matters alone. Both the Serious Fraud Office and its Australian counterparts should become involved.
Dimon days
ANOTHER day and another fine for America’s largest bank JP Morgan Chase. This time Jamie Dimon’s bank has coughed up a £212m fine to settle a US probe into charges that it gave jobs to Chinese ‘princelings’ – relatives of key figures in power – so as to win favour with officials in Beijing, who could help the bank win business.
As well as being the US’s biggest bank it is also the world’s most fined and has paid an estimated £22.5bn in penalties. Yet Dimon remains in work as chairman and chief executive, and his power looks undiminished.
Who could blame him for seeking an exit.