David Cameron and his Masters of Disaster

By Hopi Sen

“Do We Need All This Regulation? Government claims that this regulation is all necessary. They seem to believe that without it banks could steal our money…”
Conservative Economic Competitiveness Group, August 2007, p.59

“Financial authorities in the US are investigating “hundreds” of individuals and entities over suspected Ponzi schemes as turmoil on the global financial market exposes fraudsters, whose ill-gotten gains have remained undetected for years”
The Guardian, 20 March 2009

Tonight David Cameron will try to convince voters that the Conservatives didn’t mean anything by that first quote. It was just some advice he got.

It’s vital for him to persuade voters that the Tories aren’t the party of the finance houses, the bankers, the deregulators and the big bonus brigade.

So to show what the Tories really stood for, David Cameron launched his flagship “Economic Recovery Panel” last month. This panel was special, journalists were told. Not only was it composed of big names in British business, it would be executive. It would have real authority on issues of the day.

Funnily enough, this flagship economic team is full of people who believe in big bonuses, deregulation of financial markets, unfunded tax cuts, and reduced government oversight. Strange, that.

Take one real authority on bankruptcy, bonuses and the problems of weak executive oversight: Sir Christopher Gent.

Sir Christopher is a pillar of British Industry and a long time Tory adviser. The Conservatives described him in their Tax reform commission as “a non-executive Director of Lehman Brothers where he serves as a member of the Audit Committee and the Compensation and Benefits Committee“. That is, he was a director of the bank.

He’s not any more. Lehman’s became the largest bankruptcy in US corporate history last Autumn. Sir Christopher was on the Audit committee.

Yes, the Tory “economic recovery panel” involves a man who was responsible for the books at the largest bankruptcy in US corporate history.

It’s not just his forensic auditing skills that Sir Christopher brings to the economic debate though. He was on Lehman’s compensation committee too.

That’s the compensation committee that gave Lehman’s CEO Dick Fuld a bonus of 22 million dollars – a year before they went bust.

In fact, Lehman’s granted their CEO over 200 million dollars and gave out 16 billion in general bonuses in the four years before they went into Bankruptcy.

Sir Christopher’s audit committee experience must have helped a lot in those salary and bonus negotiations. In return for his efforts Lehman’s paid Sir Christopher a little over 350,000 dollars for these services. In one year.

While he was a Lehman’s director, Sir Christopher sat on the Conservatives’ Tax Reform commission, which recommended “a programme of fiscal deregulation” and a reduction in UK Tax law. Oh, and tax relief on dividends from foreign shares.

Sir Christopher’s commission called for £21 billion in unfunded tax cuts. Perhaps David Cameron wants to hear that advice again.

But Sir Christopher isn’t the only one.

Former Barclay Chief Executive and Chairman Sir Peter Middleton is another member of the Tories’ “recovery panel”. What does he think of the best way to handle markets?

Here’s what he told the Independent in 2003:

“The banking system is sinking under an ever-growing mountain of regulation, from the seemingly endless stream of government reviews and new accounting rules, to the capital requirements of Basel II, the corporate governance obligations of Sarbanes-Oxley, and the price controls imposed by the Competition Commission.”

And the Sunday Telegraph in 2004:

“”In the interests of freeing up markets, you strangle them because regulation finds it difficult to operate without huge rule books.” He wags a finger at me disapprovingly before grumbling about: “The sheer number of things we’re having to do at the same time . . . and endless government enquiries, none of which have ‘value for money’ anywhere in their remit.”“

And the Spectator:

““People think that if they get regulation, everything they do will turn out to be right, or that they will and should be compensated. Trying to make life certain, you end up dead.” Governments, he says, encourage this: “Because they make promises, they are always drifting into areas which should be left to the markets.”“

I imagine that it’s government interference, over-regulation, complexity and “drifting into areas that should be left to the markets” that explains why Barclays is currently fighting to keep stories about its tax “planning” activities out of the Guardian.

Then there’s Simon Wolfson. He co-chaired the Tories’ “competitiveness commission”. which famously said “Do We Need All This Regulation? Government claims that this regulation is all necessary. They seem to believe that without it banks could steal our money…”

And went on:

“Mortgage Regulation: We see no need to continue to regulate the provision of mortgage finance, as it is the lending institutions rather than the client taking the risk”.

In fact, Wolfson’s economic policy group was so effective in its calls for deregulation of the finance markets and venture capital that the Tories have spent the last year busily denying they’ll do any of it at all. Which makes you wonder why they’ve asked him to tell them what to do again.

I think it’s fair to say that Sir Peter wasn’t a fan of financial regulation, that Simon Wolfson isn’t keen on protection for mortgage holders and bank customers and Sir Christopher wasn’t an opponent of the short term bonus culture.

I wonder what advice they’re giving Mr Cameron now?

Still, there is some good news. The economic recovery panel also contains the Chief Executive of Google, Erik Schmidt.

Erik Schmidt knows what he’s talking about when he says we need government action to revive the economy.

Says he:

“There are… steps that need to be taken to speed up the process – getting credit flowing again, taking action to create jobs, repairing our broken infrastructure and increased transparency to ensure we measure the effectiveness of the dollars we spend. And the good news is that Congress and the president are pressing ahead in the knowledge that to stand still is no solution at all.”

On that, I think we can agree. Even if George Osborne, David Cameron and the rest of the “economic recovery panel” don’t.