| THE SYNOD sought to inform itself about the financial downturn and banking crisis by means of a question-and-answer session on Tuesday afternoon. This took off from a paper that Synod members had in front of them from the First Church Estates Commissioner, Andreas Whittam Smith, a financial journalist earlier in his career.
Lord Griffiths of Fforestfach, familiarly known as Brian Griffiths, vice-chairman of Goldman Sachs, described the financial crisis as of “monumental proportions”. It would be necessary to go back to the 1860s for anything comparable.
Lord Griffiths addressed the Synod “in a spirit of humility”. There were complex reasons for the scale of the crisis. The business cycle, asset bubble, and banking crisis had happened simultaneously. Six players had added to the complexity: banks, rating agencies, the public, central banks, regulators, and valuers, who had allowed the public finances to go in an unprecedented way.
There were key factors. The 1990s had been a period of exceptional stability, with 60 full quarters of economic growth, low interest rates, and low inflation. Someone graduating in 1990 would have known nothing but borrowing, economic growth, rising house prices, and low interest rates. Another key factor had been the build-up of unrealistic expectations. The ratio of household debt had risen to 160 per cent by 2007.
Banks and the banking system had “got it desperately wrong in certain areas, through incompetence. We mismanaged risk,” he said. People had not understood the products they were dealing with, and had outsourced risk management to rating agencies. They had been guilty of recklessness, too, in the taking of too many risks and the incentivisation of people to do so.
It was difficult now to find anyone in banking or politics who supported the deregulation of the banking system, said Dr Peter Selby, the former Bishop of Worcester. He praised Mr Whittam Smith’s brief account (in a Synod paper) of the financial crisis, except for one word: he could not agree that Mrs Thatcher and her Government “unwittingly” created the conditions under which unbridled speculation could race ahead; nor could he accuse Gordon Brown of being “unwitting”.
He said that one should take care not to use the words “greedy” and “selfish” too easily, because they were in danger of obscuring what really took place. “At the time when foreign exchange controls were removed, I thought we should have a Conservative government for ever. But what was worse was that the Labour Party reinvented itself, and so we arrived at a position where there was no longer an alternative. That is why we are where we are.”
The Bishop of Winchester, the Rt Revd Michael Scott-Joynt, asked what the justification was for the reward structure and levels of reward in the banking industry; and why should they be so strikingly different from other organisations?
Lord Griffiths replied that they were necessary to keep the staff capable of recovering the money loaned to them by the Government. If they did not get high levels of pay and bonuses, an Asian bank could well come along and hire the whole team.
Gavin Oldham (Oxford) wanted to know how regulators could be given the capacity to see that the emperor had no clothes. The Bishop of Birmingham, the Rt Revd David Urquhart, asked what place the free market should have in the future economy, and what place manufacturing would have.
Barry Barnes (Southwark) said that when he bought his house the mortgage was set at three times his income. Since then, mortgage lenders were offering five to six times, mortgages that young couples would not be able to pay. How could this be reversed?
Dr Selby replied that he believed one of the drivers in the housing market was fear and self-protection. “We don’t like to think that our existing lifestyle will be affected.” It was generally agreed that house prices were too high, but when they dropped there was alarm.
Lord Griffiths insisted that the Government must deal with the crisis. The bail-out of the banks deserved applause; the banks’ re-capitalisation was just about right. But there were banks in Britain that did not have to match assets every day to the market price, and toxic assets needed to be tackled if confidence was to be restored.
He asked how it was going to be possible to finance this huge public debt now that the pound had fallen and interest rates were so low. Do everything in the short term to mitigate the effects, but then switch to an anti-inflation policy. No one was talking about this, he said, but there were stirrings.
Dr Selby lamented that the creation of money had been delegated to the banks “in hugely esoteric forms and transactions which, it turns out, many didn’t fully understand”. The move had been away from the sovereign authority of the Government in issuing currency. “We don’t allow people to create private armies. We shouldn’t allow them to create private money.”
The Bishop of Dudley, the Rt Revd David Walker, asked whether the perception of a house as an asset rather than a social need and its increase in price in relation to personal income was a form of private money. Should there be more investment in social housing to avoid entry into another cycle of spiralling prices?
Anthony Archer (St Albans) asked whether a new global institution was needed to address the problem. Governments had retreated into protectionism. And what was the future for mutual social finance?
Jenny Bate (Carlisle) reflected that a generation of people who had known only good times did not perhaps do enough checking. They had not known any element of caution. Collectively, everyone had allowed this to happen
Mr Whittam Smith said that every country in the world had been affected by the recession, except China, India, and Brazil. Some had been affected mildly, some seriously, and, in the case of some Eastern European countries, some very seriously. The crisis had jumped from a banking crisis into a wider economic crisis. It was now jumping again, into a political crisis, with street rioting in Russia and increasing social unrest.
Lord Griffiths said that the crisis was comparable only to events in the 1860s. The crisis of the 1930s had not been a banking crisis. It had seen the simultaneous interaction of a business cycle, an asset bubble, and a banking crisis. There were six players, all culpable: they were banks; rating agencies; the public, because of its willingness to be so heavily indebted compared with its income; the central banks, especially the Federal Reserves; and the regulators and governments that had let the public finances go in a way they had not predicted.
The crisis had followed a period of unprecedented growth and stability, with the emergence of China and India as economic powers adding two billion workers to the economy.
Dr Selby said that freedom could exist only if it was regulated and constrained by law. “Why should it be any different for trade and borrowing?” he asked. They had been “conned” into believing there was such a thing as a free market.
Asked whether people had been greedy, the Bishop said that people could not be called greedy for wanting to own their own homes. But there had been “crocodile tears” shed over the high cost of homes for first-time buyers. If people were pressed to borrow more, so the price of land would rise; for, as Mark Twain said, “they are not making it any more.” The housing market was going to have to be reorganised.
Lord Griffiths said that countries had co-ordinated their response to the crisis, unlike the 1930s, when countries had played “beggar my neighbour”. Central banks had been creative; governments had talked to each other. This was “one reason why we are not going to have a Great Depression”.
There was, however, a case for reforming the IMF and including China and India. But reforming the institutions was never enough. “The one thing that has been missing is common sense, both with banks and with consumers.”
Mr Whittam Smith, who is the chairman of a mutual society, said that mutual societies, which had long been unfashionable, were now “overwhelmed with business”.
Lord Griffiths said that self-regulation “has had its day”. This year would be the year of regulation for the City of London.
There were “wonderful oppor-tunities” to say to every parish and every diocese that it was important to try to do something. But the leadership should avoid getting into technicalities. “You can get easily tripped up.”
It was time for another report that would have the same impact as Faith in the City had had, but this time on the financial city — “maybe not Faith in the City”. A considered statement, like a papal encyclical, would “really add to this”.
Money, he said, was a spiritual power, and he wanted to see the Archbishops raising questions of their own values, spiritual lives, and how this area was tackled. He had been inspired by the way his Jewish colleagues kept the sabbath. He also called on the Church to put pressure on governments to ensure that they kept to their Millennium Development Goals.
Dr Selby said that the “money issue” had inflicted the deepest scars in Christian relationships with Jews and Muslims. “We need to be under no illusion that beliefs that have motivated us, that have brought us to this stage, have led, on the world stage, to violence and death.”
The Church must be less fearful. For instance, he told the Synod, don’t just give five per cent to the Church, but regard tithing as standard. “That means we are raising money for the poor of the earth.” “Until we show that we are not fearful of money, we shall not be able to speak to a world that needs to hear us.”
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