Given the obvious risk of self-fulfilling prophecy when terms like ‘bank run’ start being bandied about in the midst of a low level consumer panic, sensible commentators try to err away from being too lurid in what they say to the mainstream media during a crisis.
A pity, then, that Will Hutton just couldn’t resist when the opportunity for some publicity came knocking. Yesterday, he was in the Observer, arguing that:
This is a full-blown run on a bank, something we have not seen on such a scale since the 19th century, and a measure of the depth of mismanagement, non-regulation and structural dysfunctionality of today’s financial system.
By this morning, he clearly felt that he hadn’t gone far enough, so he decided to go on the Today programme (RealPlayer stream; fast forward to 10.30) and announce to the nation that unless the government improved the depositors’ insurance scheme, got the interbank loan market moving “at all costs”, was willing to “stand behind structured investment vehicles” and “re-regulate the markets”, and was prepared to nationalise Northern Rock if push really came to shove, then
“…there is a really serious risk that there could be a bank run that spreads beyond Northern Rock.”
This is not to deny that a serious problem is underway; we published posts on both 22 August and 7 September quoting experts who were arguing that the situation was considerably worse than generally understood by generalist policymakers or the mainstream media. But Hutton’s shrill polemic is both uninformative and unhelpful, especially as it ignores the two key counter-arguments to his plan for a mega-bailout: moral hazard and the question of who picks up the tab.
If the Bank of England says it will prop up any bank or building society at risk of failure now that we’ve hit the first really serious bout of financial market turbulence since the turn of the decade, what kind of signal does that send? And his call for the government to “get the interbank market moving at all costs” seems similarly bizarre: given that the reason it has dried up in the first place is because banks don’t know who’s been left holding the bad loans now that the music’s stopped, is his suggestion that the Bank of England should pick up the tab for all of them?
Both of these issues have been widely – and soberly – debated in the press over the last few days. But by ignoring the nuances at the same time as upping the rhetoric, the risk that Hutton runs is of worsening perceptions of the problem without contributing to a consensus on solutions. There are serious structural issues of financial market regulation that clearly need to be addressed, yes. But there’s plenty of scope for a frank discussion of symptoms, causes and policy without tearing on to the Today programme to tell the nation about “financial tsunamis” and suggesting implicitly that perhaps we should all withdraw our cash from wherever it’s saved, convert it into gold sovereigns and stash it under the mattress.
