The Voice

CommentIsLinked@LDV: Vince Cable – The Storm … how to survive it (and how to prevent its return)

By | Wed 25th March 2009 - 6:29 pm

Over at the Guardian today, there’s a lengthy extract from Lib Dem deputy leader Vince Cable’s about-to-be-published book, The Storm: The World Economic Crisis and What It Means. Here’s an excerpt of the excerpt:

Escaping this crisis will require a combination of approaches, and the mix will vary from country to country. In each case, however, the price for restoring stability will be a greatly increased role for the state in the banking sector. Beyond that, the challenge will be to build a regulatory regime that provides greater protection against systemic risk. After the calamities of the past year, few now question that the Anglo-Saxon model of finance was deeply flawed.

Nothing has caused more damage in the UK and the US than the involvement of what used to be localised retail banks in global investment banking. Investment banking has, in recent years, resembled a casino, and the massive scale of gambling losses has dragged down traditional activities as banks try to rebuild their balance sheets.

The folly – and conflict of interest – in allowing the managers of banks to acquire equity interests in corporate clients, financed by loans from an in-house commercial bank, was recognised after the Great Crash and led in the US to the Glass–Steagall legislation of 1933, separating investment and commercial banking. These lessons were forgotten, but liberalisation now has to be reversed.

You can read the extract in full HERE.

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