SIMON WATKINS: How bankers mesmerised the politicians

Shameful: The fact that the HBOS trio lambasted by the parliamentary committee included a peer and a knight is indicative of the eagerness of the political classes of the day to laud these types

The excoriating attack on the bosses of HBOS who led the bank to disaster is shaming, not just for the executives, but also for a generation of politicians, mostly of the Labour era, who swallowed the unbridled arrogance of bankers during the boom years.



The fact that the trio lambasted by the parliamentary committee included a peer, Lord Stevenson, and a knight, Sir James Crosby, is indicative of the eagerness of the political classes of the day to laud these types. But lest we forget, Crosby was actually a director of the Financial Services Authority through the crisis.



He became a non-executive director at the FSA in 2004 while still chief executive of HBOS. He left the bank in 2006 – handing over to his hapless protege Andy Hornby – and just over a year later was given the job of deputy chairman of the City regulator.



Crosby held this position until February 2009 when the shame of HBOS’s rescue takeover by Lloyds Banking Group was too much even for him to bear.



But this was not all. In 2008 he was commissioned by the Government to investigate how the struggling housing and mortgage market could be rescued. The Crosby Report that emerged in November 2008 recommended the Government inject money to guarantee mortgage lending.



By this time HBOS had agreed a rescue by Lloyds – one we are now told was needed because of the sheer incompetence of Crosby and others.

Even at the time it was bewildering that Crosby was granted such importance, or his views given such credibility. With hindsight it is clear that politicians had become so mesmerised by the glamour of banking that even as the house of cards was collapsing they turned to the architects of the chaos for wisdom.



Back in December, when HBOS business banker Peter Cummings was fined and banned for his part in the Bank of Scotland failure, I argued that while Cummings bore a lot of blame, others were culpable. At last this has been recognised.



What is the connection between the Central Bank of Japan and the online phenomenon known as the Bitcoin? The answer is that they are both making money out of nothing.



If you haven’t heard of the Bitcoin, you soon will. It is an alternative currency – a type of money that exists only on the internet. The idea is that it is a type of money free from the tyranny of central banks that can be used to buy things around the world, as long as the person selling accepts Bitcoins and, like you, has a virtual Bitcoin wallet.



Of course, you have to buy Bitcoins with real money and if you want to use it in most normal circumstances – such as in a shop – you will need to turn it back into normal money.



The amount of Bitcoins in circulation is set by a complex mathematical formula that is constantly creating new Bitcoins. If this sounds to you like some unholy offspring of economic theorists and computer nerds, you would be right.



Now let us consider the Central Bank of Japan. Last week it announced the most radical new monetary policy of our times. It plans to inject billions of newly created yen into its economy in a bid to create a little bit of inflation.



The idea is that this will encourage people to spend and kick-start Japan’s economy, which has been moribund for more than two decades.



It is a controversial plan – a kind of quantitative easing with knobs on – and some warn that it will bring disaster.



But I for one would rather trust the economists at the Bank of Japan than the unknown creators of Bitcoin.



If anyone is going to conjure money out of thin air, I would rather it were a living, breathing human being whose motives and judgment I stand some chance of understanding, rather than an anonymous computer formula.



Bitcoin has already made some speculators some money, of that there can be no doubt. But the value of this virtual currency is extremely volatile.



On Friday, one Bitcoin was worth about $140, up from less than $100 a mere week ago.



What is more, the criteria on which it is being summoned into existence are likely to remain a mystery to most of us for ever.



Bitcoin or yen? I’ll take the yen every time.



