Adding to the lexicon of liquidity (From The Northern Echo)

Adding to the lexicon of liquidity

12:47pm Friday 16th December 2011 in Ray Mallon By Ray Mallon

IT MAY have wrecked our hopes but the economic crisis has certainly widened our vocabulary.

Terms like quantitative easing now trip off everyone’s tongue. Eavesdrop a pub or busstop conversation and you’ll probably hear a know-all bringing the wisdom and insight he used to save for Capello’s team selection to the question of Greek government debt.

One kind of organisation we hear a lot about now is the credit rating agency, usually one of the big three: Moody’s, Fitch or Standard and Poor’s. They’re often in the news threatening to downgrade a spendthrift government’s credit rating – in other words make borrowing more expensive – if they don’t rein themselves in.

Now, I know and meet quite a lot of people.

It’s part of my job. But I’ve never met anyone who works for a credit rating agency.

I’ll go further.

I’ve never met anyone who has met anyone who works for one. And unless there are some high-powered people from the financial world reading this, I bet you haven’t either.

Nor am I wholly sure how to explain their role. I suppose they’re a bit like the personal trainers the wealthy employ to look after their diet and exercise routine. The difference is that it is elected governments that they lecture, not pampered superstars.

That might not be a bad thing. Politicians will spend their last penny – sorry, our last, penny – to make themselves popular. They need someone to pull them up every now and again, someone to offer impartial, robust advice about financial stability.

But the quality of that advice should concern us. The agencies may be all powerful.

But they aren’t all wise.

It was these agencies that did nothing to prevent the crash of 2008, and who gave a Triple A credit rating to the toxic sub-prime mortgage packages that started the crisis.

They also failed to spot the disastrous goingson at Enron and Lehmann Brothers.

This is not a record to inspire unconditional trust. It is a bit like walking in on your personal trainer and finding them swigging whisky and smoking a cigarette.

I am fond of quoting Einstein’s definition of madness: doing the same thing over and over again and expecting a different result.

Sometimes, I think our reaction to the economic crisis is like that. We overspend wildly as nations and individuals and then, full of remorse, buy into brutal austerity measures.

Again, it’s a bit like eating all the wrong things, never exercising and then going on a crash diet. It will shift the pounds, but it won’t cure the bad habits that caused the problem in the first place.

So I was interested to read about the Coop’s potential takeover of 600 branches of Lloyd’s, making it a huge force in banking.

The Co-op is the biggest organisation still run as a mutual, its profits shared by its members or used for long-term investment.

In other words it’s a bit like the old building societies used to be before they swapped boring, old-fashioned values like rewarding saving and thrift for the exciting world of binge and bust commercial banking.

Perhaps the success of the Co-op is a sign that we should learn that short-term fixes aren’t the solution to the deep-seated problems in our economy. To learn too that we don’t need organisations like credit rating agencies to keep us in financial good health.

We can do the job ourselves. Self-help is the best help, after all.

It could just work. Anyway, I’m sure Einstein would approve.