LIBOR (2)

Show me a judicial enquiry, or for that matter a Royal Commission, and I will show you a weak politician or a corrupt one. Jim Callaghan was the master of this, having hordes of lawyers and civil servants scribbling away on any issue he found difficult, confident in the knowledge that, by the time they reported, the issues would be forgotten by the public and Sunny Jim would be safe in the House of Lords.

In this case it was the Opposition which wanted a Judicial Enquiry, hoping by the time of the next election they would have got over the stigma in the public's mind of having brought the economy to its knees. The Government is right not to let this happen and, of course, is enjoying itself enormously.

Let's just deal with where the bankers come into this. I joined the City of London in the mid '70s and found the people simply normal. I never heard any of this 'my word is my bond' stuff: it was intended for stockjobbers, a now defunct breed, to the effect that if they agreed to sell you shares at 10p, they wouldn't subsequently sell them to someone else for 11p. It wasn't a morality statement, just a contract term. Closer to the City's working methods was a friend in an American bank, who said his employers' unofficial motto was 'If you can't kick a man when he's down, when the hell can you kick him?'

Normal people. If you leave a £50 note outside it will eventually disappear into someone's pocket. Normal. Unless, that is, it is watched night and day. That is what we call regulation.

When Gordon Brown became Chancellor he wanted to emaciate the Bank of England, which he didn't like, and set up a new tripartite system of regulation, involving the Bank, the Treasury and the new Financial Services Authority. It has been an unmitigated disaster. Nobody knew what anybody else was doing. In the case of the FSA, which also had to regulate the insurance policy on your fridge, it was either out of its depth or asleep on the job. Probably both.

So to those who want an enquiry into bankers' behaviour let me say this: The City employs some very intelligent and aggressive people. The reason they are always trying to make as much money for their banks as possible is that that is what they are paid to do, and the more they make for their employers the more they earn. There, glad I could help with that.

A couple of extra points. The way to stop people losing confidence in LIBOR is to base it on real trades: the quoting banks submit their last five trades and an average is picked, ignoring any obvious anomalies.

Secondly, is there much difference between fiddling the LIBOR quote downwards and Quantitative Easing, where interest rates are fiddled down by the government by printing more money and buying government debt?