The Great Financial Crisis

The following is a copy of a short essay I was required to write recently as part of a job application I made to a Business-to-Business media company as a trainee journalist.

The essay was required to be 500 words long and the only stated requirement was to "discuss the response of the British Government and regulatory authorities to the financial crisis". A pretty broad topic, and not many words to do it in. Here it is.

In late 2007 Northern Rock found itself struggling to raise money on capital markets. Defaults on sub-prime mortgages in the US had triggered a banking ‘credit crunch’ and banks which had specialised in mortgages found themselves unable to raise funds on capital markets. The government searched in vain for a private buyer before finally nationalised Northern Rock in February 2008. As credit tightened and liquidity decreased the Government moved to a Keynesian policy of active intervention to free up credit, consisting primarily of capital injection and asset guarantees.

The Government at first encouraged buy-outs, such as Lloyds TSB’s takeover of HBOS. The Bank of England, although its remit was supposedly limited to inflation targets, created a Special Liquidity Scheme to swap banks’ risky mortgage assets for billions of pounds of government debt. As banks refused to lend and share prices plummeted, private buyers stayed away and the Government was forced to nationalise banks such as Bradford and Bingley, taking on their debt. This process snowballed by October 2008 into the offer of unlimited guarantees to all British banks. The objective was to restore confidence, encourage lending and forestall a recession. Despite this the UK entered recession anyway.

In September 2007 the FSA imposed a belated ban on short-selling to relieve downward share price pressure. It also announced it would guarantee savings of up to £50,000 to try and reassure small savers. To boost lending the Bank of England made a succession of interest rate cuts until they reached the lowest rates ever seen in the UK. As the economy deteriorated the UK Government injected billions of pounds of taxpayers’ cash to bail out major banks in exchange for equity stakes. Confidence and lending had fallen so low that it was felt that only the most direct form of state intervention and control could restart lending. The Government had to hope, rather than guarantee, that taxpayers would eventually get their money back.

A second bank bail-out was launched in January this year, taking the total to almost £400 billion. The government also tried to tackle the problem by cutting VAT to encourage consumer spending; but (as German politicians pointed out) when weighed against the public’s instinct to save and continuing high street sales, the small VAT reduction had little effect. The government also unveiled plans to guarantee up to £20 billion of loans to firms.

The response of the Government and regulatory authorities has been incremental, reactive and often too little too late. The Chancellor’s recent reforms to vet the pay deals of bank executives, force banks to hold more capital and stop lending ‘overstretch’ by banks have not fundamentally altered the ‘tripartite’ regulatory structure between the Treasury, FSA and Bank of England. Nevertheless, the government has avoided a total banking collapse and this should be praised. The real cost, however, aside from huge debts, has been a collapse in the public’s trust.

498 words

BBC Licence Fee - licenced robbery

I've just had my latest direct debit through the post for the BBC licence fee. £142.50. The Licence Fee seems to be one of those things, like rain in the summer, that people seem to think is inevitable unless you go abroad. Except that it isn't. The Licence Fee should be abolished and the BBC privatised.

The licence fee is an anachronism, as well as being unfair and an inefficient way of funding what remains an organisation that still produces a lot of good stuff. Anachronism because the BBC is no longer the only channel out there. Unfair because you are forced to pay - under pain of jail - whether you watch the BBC or not. And inefficient because it stifles innovation and distorts output.

There is simply no coherent reason why the entire TV-watching population should fund a media organisation, even if they never watch it. The counter-argument is that the BBC is a source of excellence and a national institution: "Auntie". Well, I like my aunties but I still think they should pay their way.

I've always thought that simply being around a long time and having a bit of history - or being old, in plain English - is not sufficient to isolate an instutution from changing times. A bit like the Royal Family.

There are lots of sources of excellence in TV (and other media) - the internet has opened the floodgates and the market is king. If people like it, it will pay it's way; it they don't, it dies. I do actually support the state stepping in and preserving and nurturing our cultural heritage if society becomes more Philistine and prefers Big Brother to quality documentaries.

But the irony is that the BBC cannot escape market forces; it actually has to join the mob and pay Jonathan Ross his millions, bid for cricket, Wimbledon, football and other sport, buy film rights to screen them. So in fact the BBC would be better off being freed from the grip of the Government and the Culture Secretary telling them how to spend our money (not 'their' money) and going it alone by selling its output, having adverts and making better use of the internet and newer technologies. If the BBC's supporters are so confident that its output is first-rate, world-beating and second to none, then why not put their money where their mouth is? Why do you need a subsidy?

This isn't the USSR. Why should the Government control the BBC? What's that you say? They don't control the output? Au contraire, the Govenment can raise or lower the licence fee and appoint the Director General and therefore has the BBC by the short and curlies. The irony is it's our money, not the Government's. Any yet the licence-fee payers have very little, if any, control over the BBC's output.

The licence fee has also distorted the political slant of the BBC. Ever wondered why the BBC advertises its jobs in the Guardian and not The Telegraph? Surprise, surprise. BBC, of course, has a left-wing slant, which unless you've been living on the dark side of the moon for the last 50 years you can't have failed to spot. Left-wing, by the way, means more state influence and control as opposed to free enterprise; it does not mean equality as opposed to racism, as some people seem to think. State influence - it's starting to make sense, isn't it?

It's said by some that privatising 'Auntie' would lead to a political slant anyway. Maybe. But so what? At least people would have a choice whether to fund it or not (by watching it). Right now there is no choice. A company that forces money out of you and then creates content that has a slant you may not agree with! Want to switch over? Fine, don't watch us, but guess what - we'll take your money anyway! We don't care if you think it's mad, it's the law.

Scrap the licence fee and privatise the BBC.