Bank of England: Libor System
Lord James of Blackheath Excerpts(2 years, 1 month ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord James of Blackheath
To ask His Majesty’s Government what steps they will take to ensure that the Libor system remains available to be exercised by the Bank of England in the event that inter-bank lending is at risk of collapse.
Lord James of Blackheath (Con)
My Lords, during the three weeks or so since I entered the ballot for this slot, I have continued to maintain close contact with practitioners in the Libor market, as I support the case for a final resolution of the Tom Hayes case and press the argument to confirm the cancellation of his conviction. At present, he appears to be the only person alive in the world who has ever been convicted of a Libor offence. Everybody else has been acquitted and had their convictions cancelled. Indeed, in the USA, Libor manipulation is no longer regarded as a convictable offence.
Having continuous access to current opinions within the Libor community, I am beginning to consider that I am perhaps wrong in submitting my Question at present. There are too many uncertain factors surrounding this whole issue. First, there is no available market indicator as to the extent to which new Libor initiatives may have to be undertaken in the near future. It is too soon to ascertain whether any new initiatives will be required, arising from the present troubles in the world.
Yet these queries, however speculative and counteractive they may be to undertake, confuse the whole current Libor market. It is massively overstaffed at every level, and nobody knows who is supposed to be in charge on any initiatives. The market needs to be undone, taken apart and restored again, but not as a continuity of what we have. My principle, in seeking to wipe out what we have and start again, is a sensible proposal to run with, but we need to go back to basics.
For example, consider how very little we know of the actual incidence and effect of Libor for all or any portion of the near-80 years since its inception. Consider that we do not know how many Libor initiatives have been authorised or undertaken with official sanction, presumably, but not certainly, from the Bank of England. How many of these remain current, have been resolved or remain unresolved—that is, short-term funding not yet fully repaid? How many failed, and for how many were the rescue attempts successful? If we are to carry on in any form, we need a full and definitive report on what has happened in those 80 years and what we are left with.
I suspect that a good many did not work, and we have never been told their story. What indemnity arrangements remain in place to be utilised, not least to help those who allowed their funds to be used in a rescue and, presumably, have lost them? That is a great question to which we have never heard the answer.
If, at some point, an attempt is launched to terminate Libor, what effect would that have on existing unresolved cases? I am particularly concerned that we need to have an answer about what we will do for the future. A strange organisation called the Federal Reserve Bank of New York, which is not federal, not reserve, not New York and is not a bank—otherwise there is nothing wrong with it—is making a plea to the Federal Reserve, seeking the backing of the American Government to take over the entire Libor operation worldwide. We do not want anything to do with it. That is one reason why we might want to think of winding up now, so that we can take our own initiative, new and fully minted, with the Bank of England onside.
All these matters require close debate with the official bodies concerned, such as the Bank of England and the CSA. I now believe that my initiative in tabling this Question was premature for the reasons I have given. I request permission to withdraw it, but with the very strong recommendation that we now make separate approaches to the Bank of England and the CSA, and ask them to do their own assessment of the current status of the Libor market—its effectiveness and the extent to which there are unresolved issues out there in Libor initiatives which have been taken but are not yet resolved, of which I suspect there a good many, where funds are irrecoverable or have been misplaced. We need a definitive picture of what the Libor market looks like at this time. Let us not proceed to start the wind-up now, but let us get a definitive position on what the market shape and state is. I suspect it is in an awful mess.
I urge that exploratory initiatives are launched with the key bodies. We need an inside track on these matters so that we can redesign a Libor market which works for us. We also need to be sure if we do this that we are not cutting across unresolved issues, such as winding-up arrangements for banks which fail to survive the initiative, of which I suspect there are quite a few; that any mergers which were created as a wider solution are not interfered with; and that any banks that have been repaired can continue in good order without any interference. This is a very complicated situation, and we need a proper fix on what we have to deal with.
I thank noble Lords for allowing me to share my interest in these matters with them. I am very concerned by what I have seen in the five years of close association I have had in pursuing the Tom Hayes case—the only person to have been convicted in this country. He got 12 years; he served five and a half years. He now has multiple sclerosis and is in a very poor way indeed. We need a final resolution of his case, and I am sure we will. We have a date for the Criminal Cases Review Commission to review it in November and that will be very welcome.
I thank noble Lords for letting me speak to them today. This is the first time I have spoken on any subject since my brain haemorrhage in August. I know that anxieties were expressed as to whether the stress of talking to noble Lords might have any further implications, but I am feeling fine. There is an issue here. It must not be dropped. It is urgent. We need to attend to it. Please let us proceed and I will give any help to anybody who asks for it.
Investment Bank (Amendment of Definition) and Special Administration (Amendment) Regulations 2017
Lord James of Blackheath Excerpts(7 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Tunnicliffe (Lab)
My Lords, I thank the Minister for introducing this order. As she has already outlined, the purpose of this instrument is two-fold: to correct the definition of “investment bank” and to extend elements of the special administration regime, the SAR, which is the administration procedure for insolvent investment banks. These measures are part of an effort to improve the regulations and processes that govern the financial services sector. We oppose none of the measures the Government are proposing to introduce, but I have a number of points that I hope the Minister can clarify.
Part 2 of the instrument alters the definition of “investment bank” to include alternative investment funds and undertakings for collective investments in transferable securities. It was the intention of the original legislation that such firms be included in the SAR. However, they have fallen out of scope as an unintended consequence of the introduction of other legislation. As has been said, this is merely a correction. In practical terms, it increases the number of banks covered by the legislation from 700 to 1,000. May I be assured that this rise has been taken into account when considering the resources needed to communicate changes to the SAR?
I will focus the bulk of my time on Part 3 of the regulations. After much discussion, the Banking Act 2009 did not include any specific reform of investment bank insolvency. However, it provided an enabling power to pass new regulations that had to be reviewed within two years. Accordingly, the special administration regime was introduced in the Investment Bank Special Administration Regulations 2011. Peter Bloxham carried out a review and published recommendations in January 2014. This instrument implements some of those recommendations.
The most substantive change the regulations will introduce is changing the “soft” bar date to a “hard” bar date. Under the current legislation, claimants who fail to claim before the bar date can still receive client assets. The introduction of a “hard” bar date would remove this right. This seem perfectly reasonable. The client asset can be closed more swiftly and at a lower cost. However, the key question I have about this switch is how much longer the process of insolvency will last as a result. If I am not mistaken, the “hard” bar date will not be automatic. The administrator will have to apply to the court. For the court to accept a “hard” bar date, it must be,
“satisfied that the administrator has taken all reasonable measures to identify and contact persons who may be entitled to the return of client assets”.
How long do the Government expect the administrator will need before it can collate all this information?
Furthermore, new Regulation 12D(2)(b) sets out the criteria for when the court can grant an application for a “hard” bar date. The first of these criteria is that there can be,
“no reasonable prospect … that the administrator will receive claims for the return of client assets after that date”.
How can the administrator be sure that there is “no reasonable prospect”? Surely this will require extensive research. Again, will this not result in delay before the administrator is confident it has a strong case for the court? The longer a case of insolvency drags on, the greater the uncertainty, and with uncertainty the prospect of market instability.
The next issue is one my honourable friend in the other place the Member for Stalybridge and Hyde raised, relating to the mechanisms in place before assets are pooled, which could assist in a more efficient and reliable return on client assets. The Economic Secretary to the Treasury in the other place stated in response to my honourable friend’s questions that,
“the FCA has taken a number of steps to improve firms’ record keeping. These reforms have been extensively consulted on with practitioners who have experience in dealing with pooled accounts”.—[Official Report, Commons, Second Delegated Legislation Committee, 7/2/17; col. 8.]
I ask the Minister: what specific steps have been taken by the FCA and has it seen a reduction in the rate of regulatory non-compliance cases it deals with as a result?
I turn to the issues raised by the Secondary Legislation Scrutiny Committee. Why have the Government not published the full consultation response to the Bloxham review? I note the Minister’s apology but I hope she can go into a little more detail. I have read the explanation, as has the committee, and I have to say that neither it nor I are convinced by the answers so far. The Government state that:
“The areas raised in the consultation were largely technical in nature”.
Surely this is exactly the place where such technicalities should be debated and scrutinised. I look forward to hearing a more detailed response from the Minister as to why the Government feel it is appropriate to flout their own consultation principles.
My final query for the Minister relates to the procedures used in the event that the administrator’s conduct is challenged. The new sub-paragraph (e) in paragraph 14 states that the FSCS, the financial services compensation scheme:
“may make an application … on the grounds that the administrator is not performing the duties … as quickly or as efficiently as is reasonably practicable”.
I note that the new Section 10A(b) inserted by the order says the administrator must “keep the FSCS informed”, but what does the Minister anticipate that will mean in practice? Surely in order for the FSCS to be confident that the administrator is not fulfilling his statutory duty, he must have detailed knowledge of the workings of the operation. What criteria will be used to judge whether an administrator has failed, and by whom? If the administrator is found to be inappropriate, whose responsibility is it to complete the insolvency? I look forward to the Minister’s response.
Lord James of Blackheath (Con)
My Lords, may I intrude a word into this debate? There is an aspect of 2008 that has never been corrected, and which did a great deal to disguise the extent of the insolvencies existing at that time. It might now perhaps be possible to squeeze a solution into something like this.
There is a practice that was prevalent in cases such as Bradford & Bingley and Northern Rock: if a bank or building society had a house on which it had an outstanding loan of, say, £10,000, and the house was worth £1 million, it entered the whole £1 million as an asset on its balance sheet, although it had no legal access or right to that surplus value. Banks did that solely to emphasise the extent of the solvency that they could demonstrate for their loans, but it made a complete distortion of what the balance sheet really was and misled people into letting them trade on for too long. Nowhere have we ever corrected this in any of the accounting rules. This may be the last chance saloon.
Baroness Neville-Rolfe
My Lords, I thank the noble Lord, Lord Tunnicliffe, and I will try to address his various questions. I am very grateful to my noble friend Lord James for his comments, and I will see if I can answer his question. If I am not able to do so today, I will certainly write.
We all share an interest in ensuring that we handle the failure of an investment bank effectively. That is not only for the benefit of any clients or creditors who will be involved but to the benefit of our whole financial system. Since the investment bank special administration regime was introduced in 2011, firms operating under the procedure have given us valuable insights into how we can improve it, and in particular how we can improve the ability of clients to receive their assets as quickly as possible in the event of a bank failure. The return or transfer of client money could take as little as 30 days, but closing a whole estate can be very complex and is obviously very unlikely to occur in less than a few months.
The noble Lord, Lord Tunnicliffe, asked whether the Treasury had considered the number of banks in scope of this legislation. He referred to the number going up from 700 to 1,000, and he was concerned about the communication resource in relation to that. In fact administrators believe that the additional costs of familiarising themselves with the regime will be negligible; indeed, the impact assessment shows that there are thought to be savings from these changes. In the majority of cases, the amendments provide helpful legal certainty.
Lord James of Blackheath
May I suggest that the matter could be taken up with the Accounting Standards Board?
Baroness Neville-Rolfe
I can certainly agree to talk further to my noble friend, and if talking to the Accounting Standards Board seems to be a good way forward, I would be happy to do that. I am grateful to him for raising the point.
I conclude by saying that these regulations make important reforms to strengthen the investment bank special administration regime. I hope the Committee will join me in supporting our efforts and this Motion.
Budget Statement
Lord James of Blackheath Excerpts(10 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord James of Blackheath (Con)
My Lords, I shall deal with two separate points and will make a separate declaration of interest on each. First, I was for a significant period early in my career a member of Lloyds Bank. In that context, I want to address one point which arises in the Chancellor’s address on the Budget. It is probably the only sentence in the whole thing that does not deal with the Budget. He said:
“Another abuse has been the manipulation of the LIBOR rate”.—[Official Report, Commons, 19/3/14; col. 786.]
In that context, I question the words “abuse” and “manipulation” as being too easily accepted without challenge.
When I joined Lloyds in 1959, I was sent to the training course at Ramsay Lodge in Scotland—it was part of the castle complex—which was owned by the Bank of Scotland and run by Lloyds. It was a wonderful training course, with the slight complication that it was in a building immediately adjacent to a residence for trainee nurses. There were 80 of them and 40 of us. It was a bit of an unfair match. There was a croquet lawn between the two buildings. In the course of 12 weeks, I do not think a single croquet match was played on it but by the end not a single blade of grass was left because of the clatter of boots.
Every week, we got a visit from a different director of Lloyds Bank who lectured us on a specific subject. In week 2, in September 1959, we got a lecture from a director on the subject of LIBOR. None of us had ever heard of LIBOR. I took proper lecture notes, and I still have them. I have been looking at them, and there is a very interesting distinction in them. When the director explained to us what LIBOR stood for, it was not what it was said to be when the scandal erupted three or four years ago. Then we were told it was the “London interbank offered rate”. On the training course, we were told that it was the “London interbank overnight rate”, and the director made no bones about the fact that the word “overnight” implied that it was take it or leave it, no option whatever. He freely admitted that it was the most profitable thing in the bank and made a fortune for everybody. If the word has been altered from “overnight” to “offered”, the latter would surely be manna from heaven to any lawyers defending it, because it would mean that you have a choice. If we have moved into the electronic age as regards the movement of capital, you can make that choice and manipulate it very much more easily and swiftly.
Can the Minister talk to the London clearing bankers’ association—and can the Treasury look at this—and find out when that word changed? What principles and rules were laid down for its application at that time? It may be that we have challenged and accused the banks because of the way that they operated under the old system, and that it has been replaced, and this is damaging our banking industry and the scale of fines and punishments that are now being imposed. That issue should be addressed, and I ask the Minister to look at it. The Bank of England may have some clues, and Lloyds Bank itself may have some, but there has been a significant change in that wording, which needs to be looked at.
Secondly, there is a very interesting difference between the attitudes of the two sides of this House as shown in the course of this debate, which puts me in a very interesting position. I want to declare that my father was a fully paid-up member of the British Communist Party. I do not know how many descendants of members of the British Communist Party sit on these Benches over here, but he would be horrified to see where I am now standing. He had two great hates in this life: the Conservatives and the Church of England. I think that he thought they were both the same; he never drew a distinction. He had a lifelong desire to see the destruction of both, and there were two great bad moments of my life as a young man. The first was when I joined the Young Conservatives and he immediately called me a class traitor who should be thrown out of the house. I said, “I only joined it because they’ve got the best-looking girls”. He replied “Yes—but they all stink. All Conservative women stink”. “Why, father?”. “Because they have such terrible ideas in their brains, and it rots their insides and they stink.” I said, “I’ll go and do some market research and will let you know”, and I never found any evidence to support it.
My father regarded the Conservatives as the enemy, but attributed the extreme poverty in which he had grown up to the Church of England—that was the cause of his problem with it. His mother had been the district nurse—the midwife on a bike, although nothing like the television programme—in Hammersmith. His father had died the year after he was born, and she had managed somehow to keep three children alive and fed. However, she then got a dreadful infection of her teeth, all of which had to be extracted, but could not afford the dentist’s fee. Therefore the church got the dentist who was part of the congregation to agree to do it free, but nobody would pay the seven shillings and sixpence for the anaesthetic, so she died in the chair as a result of the whole process being done in one night. The church then had three orphans to deal with, whom it initially put into a Church of England orphanage in south London. Two of the children were then sent across to Canada as boat children, where they were sold for $50 each to the first family who would take them; my father never saw them again. Meanwhile, he met my mother, who was in similarly unfortunate circumstances, in the orphanage in south London. She was 12 and he was 14, and they married 10 years later.
My father used to go on about how I had advanced to the point where I had been able to go to private school and see the comparisons and all the rest, but I should always remember that I was a working-class boy—as I always have. However, he would then talk about the socialists of the day and say, “They’re not real socialists—they’re chocolate box socialists”. Today we have seen the chocolate box socialist position on this Budget on the other side of the House. My father would have described it as “chocolate box”, first, because they have all joined because they have opinions which mean that they want to be identified with the pretty picture on the box, and secondly, the chocolates inside are soft-centred and far too bitter to swallow. That would be his reaction, and that is my reaction to the whole presentation we have had across the House. If my father had then asked me what I thought I was associated with on this side, I would say that the contrast is that this organisation has understood this political difference: you cannot spend money that you do not have, and you have to make the money first to spend it. That is the line we have taken, and it has been consistent here today.
However, my father would now be sitting on a cloud, laughing his head off and looking at me, saying, “Look, lad, I used to tell you it was clogs to clogs in three generations but you’ve done it in two, because your posh friends have just completely destroyed your entire position with your pensions”. I have five pensions, but then I was chairman of 11 public companies in 21 years, and so I had to put them together bit by bit wherever I went. I think that my pension is ruined by the Budget last week, and I would like to hear a reaction from the Minister on that. My position is that if you stop the flow of funds to the annuity companies and simultaneously withdraw funds from them, you will create a double whammy that will drive them out of business in very quick time. In that case, I expect very shortly to get a letter saying, “Sorry, we can’t pay you any pension this month, as we’ve no money left”. How long is it before that is going to happen, and what will the Treasury do to mount an oversight and monitoring process to ensure the continued health of the annuity companies?
My nightmare would be to see Labour come back into power and decide that it had to correct this by nationalising the annuity companies. The Labour Party cannot say that it would not do it, as it has form on this—to put it in criminal terms. It has had a look at taking money out of pension schemes; it has form, and it would do it if it had a chance, so it should not say that it would not do it, because it would. So we need to know how we would protect the annuity companies against that ultimate calamity.
I think that my father is having a very good laugh and saying, “I told you so—it serves you right for being on the wrong side of the House”. But I am absolutely in the right place and, from what I have heard, you guys are in the right place, too, and thank you very much.
Banks: Payment Protection Insurance
Lord James of Blackheath Excerpts(10 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord James of Blackheath
To ask Her Majesty’s Government what plans they have to require all banks which have refunded payment protection insurance (PPI) monies to customers to send each such customer a statement, without charge, setting out how much money has been refunded under each of the three separate elements comprising a PPI payout.
Lord Newby
My Lords, the Financial Conduct Authority requires banks to explain clearly to customers, free of charge, how their PPI redress offer has been calculated. The FCA is actively monitoring banks to ensure that they are complying with this requirement. If a bank has not provided this information, or it is not clearly presented, the consumer can bring a complaint against the bank and, if it is not resolved, raise a complaint with the Financial Ombudsman Service.
Lord James of Blackheath (Con)
I thank the noble Lord for that Answer, but will he take it into account that the banks got off on the wrong foot with the repayment programme by refusing to write a letter to everybody telling them that they owed them some money? It was left to customers to initiate their own claim and there is no certainty that many have not slipped through the net. The noble Lord’s Answer does not allow for the possibility that there are a great many people out there who have no knowledge that a great deal of money is still owing to them.
Lord Newby
My Lords, I can assure the noble Lord that the FCA is taking this matter seriously and I am sure that someone would be happy to meet him to discuss this in more detail. The FCA is already looking at this general area as part of the thematic review it is currently undertaking into PPI complaint handling.
Financial Services (Banking Reform) Bill
Lord James of Blackheath Excerpts(11 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord James of Blackheath (Con)
My Lords, I have a reputation for introducing sidetrack issues which distract the House. However, I have just listened very intently to the noble Lord, Lord Eatwell, and I think that I disagree with most of what he said. I would like to cite a case history and then invite him to say how what he said would relate to it.
I was very concerned to read in recent weeks about the Royal Bank of Scotland being accused of deliberately pulling down companies. I believe that I have been involved in one of those cases as the person brought in from outside to engineer the kind of scenario that that bank has been accused of engineering. I shall explain what occurred and then ask the noble Lord, Lord Eatwell, how this relates to his perceptions of a duty of care and fiduciary responsibility.
Once upon a time in a muddy field in the Herefordshire area, a man who had come back from the war bought a caravan in which he lived with his wife. He hit upon the idea of a much more efficient process for aerating water for soft drinks and decided to go into production. He went from very small beginnings, with nothing more than his Army gratuity from the war, but by 1986 he was making £19 million a year profit and doing very nicely indeed. However, at that point his wife found him sleeping with his secretary and thought that that was pretty poor loyalty for nearly 40 years of dedicated support, so divorce proceedings were instigated but by this time they had a son. The son brought an action to prohibit his parents divorcing and dividing his asset between them. I believe that it is the only such action that has ever been brought.
He won his case so they had a settlement whereby the wife went to live in Monte Carlo, the husband stayed with the company and the son owned the company. However, the son now decided that his father had really not done very well with the company, although he had got it to £19 million a year, and that he could do a great deal better. So he went to Lloyds Bank. The company had nil borrowings at that time, not a penny. This is where I disagree with the noble Lord’s analysis, because it is not a question of what you do with the deposits—there is no cash being used from a bank at all here. He said, “Give me £75 million of borrowings and I will create a much bigger and better company out of this, in which we can all have a vast amount of earnings”. Lloyds Bank looked at his plan and his options and said yes. I challenge the noble Lord, Lord Eatwell, on this. The first breach in fiduciary responsibility was that the bank said yes. It was not a question of what happened with the deposit, but a question of an ill advised loan, because the company was quite adequate as it was.
Lloyds gave him the £75 million and he went out and bought the plushest factory and upgraded every bit of engineering he could to put into it. Finally, after two years he re-opened and immediately found that he was losing £600,000 a month, at which point Lloyds sent for me. I found that the company was not losing £600,000 a month. It was losing more than £1.5 million a month and at that level we would be way out. All that the bank wanted was to get its money back. One might say that it did not deserve to get it back—in some respects I would agree with that—but we got it back in the end because we were able to break the business up into its various components. The splendid factory could be sold to Mitsubishi for quite a lot of money, the business streams could be sold for another £30 million or £40 million, and then we discovered that the company had the most valuable crop of freshwater springs in the Lake District of any British company. We sold it for tens of millions of pounds and got the bank out 100%, whereupon the son decided that he wanted to sue the bank for failure of fiduciary responsibility for lending him the £75 million in the first place. He said that the bank had engineered to bring the company down so that it could strip it out, take all his money and ruin his family and descendants for all time.
This is the reality behind what noble Lords are hearing about the Royal Bank of Scotland at the present time. Banks are pressured into making bad decisions to lend and they then take appropriate defensive action on behalf of their shareholders and depositors. That is discharging their fiduciary responsibility, but they have been put under pressure by other market forces to invest in businesses which really do not know what they are doing and when the time comes to dismantle, dismember and unbundle them, we get the sort of consequence we have had here. This individual failed in his action against the bank for having stolen his company, as he put it. He is now very ill, I am sorry to say, and is unlikely to last long in this world. His family is ruined completely—it has lost everything. Is that a fiduciary responsibility? Yes. The bank should have looked much more closely at the options that were available to the business at the time and should have looked to see what expertise was going to be brought in, and it did not. As to whether there is a duty of care, that is a very simple and separate issue running alongside. I think that there is and that that is where the concentration should be.
Lord Eatwell
I should point out to the noble Lord that the case he has described would come, under the terms of my amendment, under duty of care, not fiduciary responsibility.
FSA Investigation into LIBOR
Lord James of Blackheath Excerpts(12 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sassoon
My Lords, I completely agree with my noble friend Lord Marlesford that the reputational consequences here are very serious. I stress the point that this is not simply a London or a UK banks’ issue as it appears. The inquiries clearly cover other regulators and other banks and we will see where they go. However, it is precisely because of the significant reputational damage that the Chancellor has come forward immediately with his response, which I repeated this afternoon.
On the question of Lloyd’s of London, without repeating the tortured and difficult history there, it is worth saying that after a long and difficult period for that market, Lloyd’s of London is at the forefront again of the world’s specialist insurance market. It has a critical position and is, I believe, stronger than ever. While we certainly do not want to go through a long and difficult period, as Lloyd’s of London did, it does show that well-regulated markets in London are capable of leading the way in innovation and value-adding in financial markets.
Lord James of Blackheath
I make one observation, perhaps as a correction of the comment made by the noble Lord, Lord Marlesford. I speak as the former chairman of the committee that created Equitas for the solution of the Lloyd’s of London problem and put in place the Equitas solution. The difficulties with Lloyd’s of London were caused, to a very large extent, by another great failure of regulation by a parallel market in America. It was not wholly a United Kingdom problem. The problems of Lloyd’s of London were exacerbated to an alarming extent by the failure of the US authorities to regulate the clubs that were put together for litigation purposes on a group class action basis relating to asbestosis, which allowed open, free entry to anyone who wanted to join, regardless of the fact that they had never been near a scrap of asbestos in their whole life. This is what created the enormity of the problem. It was a massive failure of regulation by the USA authorities that undermined a major institution, and we should not forget that. These things are never isolated.
Lord Sassoon
My Lords, I am always interested by my noble friend Lord James of Blackheath’s sometimes remarkable interventions. I think we are a little off the LIBOR case at the moment.
Comprehensive Spending Review
Lord James of Blackheath Excerpts(14 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord James of Blackheath
My Lords, I do not know what you have done to deserve me this late in the evening but I am afraid that is where it is. It has been a fascinating day. I particularly enjoyed the comments of the noble Baroness, Lady Browning, on the subject of “Brigadoon”, which was the first play I ever saw in the West End. I do not think she delivered the punchline. The whole point about “Brigadoon” was that it came out of the mist for only one day in every 100 years. That is a lovely idea for the Opposition.
We have heard today a great many tales of woe and dismay about the future, and some of optimism from this side. I am concerned about where the common ground is in that. One of the lessons of what is now quite a long life is that nothing is ever quite as bad or quite as good as you expect. It is probable that there will be a little more common ground between us than we might foresee at the moment. We might assist that process because growth will be what brings the two sides together. The more growth we can achieve, the more scope there will be to deal with some of the greater calamities that might occur unforeseen—since everything is unforeseen in politics.
I will talk a little about some of the growth opportunities that we might be able to harness and what we can do. As I have mentioned before, one of my great messages is a lesson from Sir Kenneth Cork, who taught me most of what I know about corporate rescue. It is that you cannot rescue a business that does not have a successful past. Anything that does not have a successful past is a failed start-up. Get rid of it and concentrate on the businesses that have a successful past. Where, today, are the businesses with a successful past? They are languishing in the intensive care units of the banks. They cannot get out because most of them have been the victims of expanding their capacity beyond the demands of the marketplace. That is a very expensive situation to get out of once you are in it. It was done with some dexterity and considerable success in the early 1970s through the initiatives that were forthcoming from three Is: investment in industry. One of the great tragedies of our economy at present is that we do not have three Is functioning in that form today. Boy, do we need them.
I am very much a believer in the principle of the collective collapse of generic groups of businesses as entities. Let me give some examples. At the present moment this year, we have probably lost half a million cars in our British export market. They would have been a very big additional factor to the economy, both in production—the wages that would have gone to the people who built them—and in the export value they would have had. Why? It is because the banks played their usual dirty trick a year or two ago: they saw that there were big markets outside—big back-orders—so they let the businesses have the money that they needed to fund the delivery of the order books that they had. The orders came in; they took the cash, reduced the facilities and the automotive component industry did not have the working capital to gear up for the massive turn to the diesel engines, which were demanded, and the British export market could not maintain the export requirement necessary to maintain its position on the international scene.
That has largely been corrected now but a similar problem may well happen. The next big crisis is going to come in the second week of February next year when the huge crisis that comes cyclically every year afflicts the retail sector worse than ever. It is already bereft on the high street—with shuttered shops and redundant staff, and a very dismal sight it is. What happens in the banking industry is that it knows that in the first two weeks of February every year, all the credit cards that have been used to buy goods going into Christmas pay, and the retail industry has the lowest borrowings of the year. The banks lie in wait and they grab them. Remember Woolworths? Who is coming next?
So we need someone who can take a grip on a general strategy to save the retail industry from another calamity. One of the great regrets I have at the moment is that the person who would best be able to do that is Sir Philip Green, and he is doing something else. I hope that the Government will hold on to him, and once he has actually finished his present task, he will be told to go and cherry pick the entire retail industry languishing in the hands of the banks, and put together the next version of British Home Stores as a government subsidiary which needs funding and which can be imposed on the banking industry by grabbing each bit, despite the fact that there will be minority bank interests that will not want to sell out for the benefit of the major bank interest, which will get the cream of the equity conversion. That is what three Is should exist to do, and what it did so brilliantly before, and that is why we need it back now.
Another element of the world out there at the moment which is potentially waiting for the pratfall of a massive collective bankruptcy is the food processing industry. The more the accent is moved from the small corner shop to the big grocers, the more production has been stepped up by the food producers to satisfy the ever-increasing demands for cheap food coming through the grocery chains. Of course, they have fallen into the trap again of funding themselves to too high a capacity for the market demand with the result that the grocers can rub their hands with glee and say, “We can screw the margins down so tight you won’t be able to breathe” and the suppliers are going to go collectively “pop” at some point in the next few months, because they will not be able to keep up and there is a big social factor coming. We will have the present dependence on cheap food to keep some sort of society structure fed, but we will actually end up being forced up on prices as the industry goes out of business in terms of its ability to keep supply going and prices are forced up in the grocery chains. This is going to be another calamity coming, and we need to have a top-down view as to what to do with it.
I have given your Lordships three examples of why I think we need something, but the creation of the three Is along the lines that I have been talking about would be of the order of a £5 billion cheque required to do it. However, we do not have £5 billion; we do not have half of £5 billion to put in to the creation of this at the moment, so what do we do about it? At this point, I am going to have to make a very big apology to my noble friend Lord Sassoon, because I am about to raise a subject that I should not raise and which is going to be one which I think is now time to put on a higher awareness, and to explain to the House as a whole, as I do not think your Lordships have any knowledge of it. I am sorry my noble friend Lord Strathclyde is not with us at the moment, because this deeply concerns him also.
For the past 20 weeks I have been engaged in a very strange dialogue with the two noble Lords, in the course of which I have been trying to bring to their attention the willing availability of a strange organisation which wishes to make a great deal of money available to assist the recovery of the economy in this country. For want of a better name, I shall call it foundation X. That is not its real name, but it will do for the moment. Foundation X was introduced to me 20 weeks ago last week by an eminent City firm, which is FSA controlled. Its chairman came to me and said, “We have this extraordinary request to assist in a major financial reconstruction. It is megabucks, but we need your help to assist us in understanding whether this business is legitimate”. I had the biggest put down of my life from my noble friend Lord Strathclyde when I told him this story. He said, “Why you? You’re not important enough to have the answer to a question like that”. He is quite right, I am not important enough, but the answer to the next question was, “You haven’t got the experience for it”. Yes I do. I have had one of the biggest experiences in the laundering of terrorist money and funny money that anyone has had in the City. I have handled billions of pounds of terrorist money.
Lord James of Blackheath
Not into my pocket. My biggest terrorist client was the IRA and I am pleased to say that I managed to write off more than £1 billion of its money. I have also had extensive connections with north African terrorists, but that was of a far nastier nature, and I do not want to talk about that because it is still a security issue. I hasten to add that it is no good getting the police in, because I shall immediately call the Bank of England as my defence witness, given that it put me in to deal with these problems.
The point is that when I was in the course of doing this strange activity, I had an interesting set of phone numbers and references that I could go to for help when I needed it. So people in the City have known that if they want to check out anything that looks at all odd, they can come to me and I can press a few phone numbers to obtain a reference. The City firm came to me and asked whether I could get a reference and a clearance on foundation X. For 20 weeks, I have been endeavouring to do that. I have come to the absolute conclusion that foundation X is completely genuine and sincere and that it directly wishes to make the United Kingdom one of the principal points that it will use to disseminate its extraordinarily great wealth into the world at this present moment, as part of an attempt to seek the recovery of the global economy.
I made the phone call to my noble friend Lord Strathclyde on a Sunday afternoon—I think he was sitting on his lawn, poor man—and he did the quickest ball pass that I have ever witnessed. If England can do anything like it at Twickenham on Saturday, we will have a chance against the All Blacks. The next think I knew, I had my noble friend Lord Sassoon on the phone. From the outset, he took the proper defensive attitude of total scepticism, and said, “This cannot possibly be right”. During the following weeks, my noble friend said, “Go and talk to the Bank of England”. So I phoned the governor and asked whether he could check this out for me. After about three days, he came back and said, “You can get lost. I’m not touching this with a bargepole; it is far too difficult. Take it back to the Treasury”. So I did. Within another day, my noble friend Lord Sassoon had come back and said, “This is rubbish. It can’t possibly be right”. I said, “I am going to work more on it”. Then I brought one of the senior executives from foundation X to meet my noble friend Lord Strathclyde. I have to say that, as first dates go, it was not a great success. Neither of them ended up by inviting the other out for a coffee or drink at the end of the evening, and they did not exchange telephone numbers in order to follow up the meeting.
I found myself between a rock and a hard place that were totally paranoid about each other, because the foundation X people have an amazing obsession with their own security. They expect to be contacted only by someone equal to head of state status or someone with an international security rating equal to the top six people in the world. This is a strange situation. My noble friends Lord Sassoon and Lord Strathclyde both came up with what should have been an absolute killer argument as to why this could not be true and that we should forget it. My noble friend Lord Sassoon’s argument was that these people claimed to have evidence that last year they had lodged £5 billion with British banks. They gave transfer dates and the details of these transfers. As my noble friend Lord Sassoon, said, if that were true it would stick out like a sore thumb. You could not have £5 billion popping out of a bank account without it disrupting the balance sheet completely. But I remember that at about the same time as those transfers were being made the noble Lord, Lord Myners, was indulging in his game of rearranging the deckchairs on the Titanic of the British banking community. If he had three banks at that time, which had had, say, a deficiency of £1.5 billion each, then you would pretty well have absorbed the entire £5 billion, and you would not have had the sore thumb stick out at that time; you would have taken £1.5 billion into each of three banks and you would have absorbed the lot. That would be a logical explanation—I do not know.
My noble friend Lord Strathclyde came up with a very different argument. He said that this cannot be right because these people said at the meeting with him that they were still effectively on the gold standard from back in the 1920s and that their entire currency holdings throughout the world, which were very large, were backed by bullion. My noble friend Lord Strathclyde came back and said to me that he had an analyst working on it and that this had to be stuff and nonsense. He said that they had come up with a figure for the amount of bullion that would be needed to cover their currency reserves, as claimed, which would be more than the entire value of bullion that had ever been mined in the history of the world. I am sorry but my noble friend Lord Strathclyde is wrong; his analysts are wrong. He had tapped into the sources that are available and there is only one definitive source for the amount of bullion that has ever been taken from the earth’s crust. That was a National Geographic magazine article 12 years ago. Whatever figure it was that was quoted was then quoted again on six other sites on the internet—on Google. Everyone is quoting one original source; there is no other confirming authority. But if you tap into the Vatican accounts—of the Vatican bank—you come up with a claim of total bullion—
Lord De Mauley
The noble Lord is into his fifteenth minute. I wonder whether he can draw his remarks to a conclusion.
Lord James of Blackheath
The total value of the Vatican bank reserves would claim to be more than the entire value of gold ever mined in the history of the world. My point on all of this is that we have not proven any of this. Foundation X is saying at this moment that it is prepared to put up the entire £5 billion for the funding of the three Is recreation; the British Government can have the entire independent management and control of it—foundation X does not want anything to do with it; there will be no interest charged; and, by the way, if the British Government would like it as well, if it will help, it will be prepared to put up money for funding hospitals, schools, the building of Crossrail immediately with £17 billion transfer by Christmas, if requested, and all these other things. These things can be done, if wished, but a senior member of the Government has to accept the invitation to a phone call to the chairman of foundation X—and then we can get into business. This is too big an issue. I am just an ageing, obsessive old Peer and I am easily dispensable, but getting to the truth is not. We need to know what really is happening here. We must find out the truth of this situation.