Not a policy failure?
- 18 Sep 07, 11:59 AM
"The system has worked". No really, it has. Or so says the chief executive of the . In four words he inadvertently captured the gap between the regulators and the public.
You might think that the sight of people queuing through the night to get their money out of the bank was a sign that the system had not worked. Or, indeed, you might point to the dramatic policy U-turn which produced a guarantee that every penny in every account in every single solvent bank would be underwritten by the government.
The regulator would reply that Northern Rock stayed open, no saver lost money and the integrity of the banking system was preserved. Sure, shareholders may have lost cash (though rather less if they sold today than yesterday). And, perhaps most worryingly the North East of England stands to lose not just jobs but a source of regional identity, pride and charitable funding if Northern Rock is lost as an independent institution. Ah, the regulator might reply, it is not our job to worry about share prices, job prospects or regional economies. Quite so.
However, if this was not policy failure it clearly wasn't a triumphant success. In the past few days Whitehall insiders have described the scenes of the past few days as illogical and irrational and called it a psychological or social problem. They have been baffled by the public's unwillingness to accept the Bank of England's guarantee that all would be well. Policy will clearly have to change.
What though will be the political fall out? My hunch is that it will be more like the fuel strikes of 2000 than Black Wednesday. In other words, a short term knock to confidence in the government's economic confidence. The thing that could change that is if voters associate falling real incomes and falls in the value of their house with the sight of queues outside the bank.
