30 July 2010

Two Out of Three Ain't Bad

We’re pretty quick to stick the boot in to central bankers and politicians on many of the innumerable opportunities that they give us, so we should also give credit where it’s due- M&G UK’s head of retail fixed interest Jim Leaviss, recently raised the suggestion that ex- Chancellor of The Exchequer, Alastair Darling could and should be remembered as a good Chancellor.

In his Bond Vigilante blog, Leaviss says of the three huge tests that Darling faced, he passed two “with flying colours” –

“I’ll tell you something that you won’t want to hear: the last Chancellor Alistair Darling did a very good job,” he says.

Leaviss says, Darling’s decision to prop up Northern Rock in 2007 was the right one and saved the whole UK banking sector: “It’s sobering to look back at how close we came to a full scale run on the UK’s banking system at that time - and perhaps how close we would have come to civil meltdown had the ATMs stopped working. Alistair Darling’s decision to support Northern Rock was a game changer, and set a global precedent for the correct response to a run on a retail bank,”

The second huge challenge was Darling’s decision to not allow Barclays to buy Lehman Brothers hours before its failure. Leaviss admits that we will never know whether the acquisition would have destroyed the UK bank but says its subsequent ability to cherry-pick Lehman’s assets for a fraction of their price was a huge boon for Barclays. He says: “Again, a big call, and one that turned out to be the right one.”

The third test, which Leaviss admits that Darling failed was managing and attempting to reduce the deficit. Leaviss basically sees Darling as a very good player of a very bad hand.

“Whilst he didn’t become Chancellor until 2007 when things had started to go bad, the New Labour project did loosen fiscal policy when times were good, giving deficits nowhere to go but up when the economy turned.”

Not too many politicians emerge from the wreck of the GFC with credit and with their reputations enhanced but Leaviss believes that Darling is one a very tough act for baby-faced newboy George Osborne to even try to follow.