Sir, The financial sector has done it again: set the world up for a major slump (news, March 18) Bankers will always, sooner or later, forget all caution and stoke up a boom through excessive lending, for that is how they earn the most money for their company and for themselves, through their bonuses. The job of the authorities is to restrain them, but this time the banks managed to hoodwink the regulators with complex new financial products, all designed to increase the amount of lending that could take place. In the past such a credit boom has always led to inflation, but this time the exceptional flood of cheap goods from China kept inflation down so the inflation-targeting mechanisms designed to protect us did not swing into action, and interest rates remained too low to hold back the surge in lending. The authorities should instead have taken note of the other classic signs of overheating economies: huge trade deficits and booming asset, especially house, prices. It is now abundantly clear that a simplistic inflation-targeting approach is not enough and we should begin thinking about new ways of restraining credit creation for the next time there is a finance-led boom - even though it is, sadly, likely to be a very long time before that even becomes a remote possibility,

Adrian Cosker
Head of Economics,
The Knights Templar School,
Baldock, Herts

Sir, Because of the banks' overriding need to make greater and greater profits they have lent enormous sums of money in an irresponsible, cavalier manner. Now all those dubious decisions are biting back at enormous cost.

Why then is there such relatively muted criticism of the banks, the former Chancellor and the FSA over the "credit crunch"? We are all now learning of a financial instrument called securitisation, which in basic terms means that the banks have hidden extremely poor quality debt among other financial instruments. This whole process must be bordering on fraud, if not fraud itself. So why did the banks, the then Chancellor Gordon Brown, and the FSA allow this irresponsible level of lending to continue?

I would really like to know how the FSA could allow vastly overstated income multiples to be used for mortgages, how it could allow securitised products to be designed and worse still bought and sold by institutions and finally how it thinks it was protecting the public by doing absolutely nothing to stop these dubious practices. Has that really protected the general public, which is the FSA's principal remit?

The FSA is happy to fine others for their wrongdoing, now it is time for someone independent of the Government or the banks to put the FSA's own house in order.

David P. Barnett
Edgware, Middx

Source:http://www.timesonline.co.uk/tol/global/article3577743.ece