Admittedly, I only saw the news reports last night, but I can’t help having the feeling that the Treasury Select Committee missed a great opportunity yesterday.  What the news reports showed was our legislators behaving like little more than adolescents, asking the four big nobs pretty juvenile questions, instead of getting to the heart of the issues.

We were treated to the spectacle of one MP reading out a definition of the word ‘bank’ and asking the four present whether they lived up to that definition.  What did that really achieve?  Did it actually show that our legislators are out of their depth, too?

What they should have done is ask a series of penetrating questions about the way decisions were made – such as asking how the banks came to the decision to securitise their lending, what potential downsides they identified, how those were planned to be mitigated.  They could have asked what rough percentage of their asset base was made up of loans granted by organisations other than themselves, and what analysis and decision-making process came to the conclusion that it was sensible to buy these, when they could not have known how good were the credit assessment processes of those organisations selling the debt.  They could have asked to what extent they parcelled up dodgy debt with good stuff to sell on and, if they did this, what made them think that others wouldn’t have done the same with the inevitable consequences for the quality of what they bought.

They could have asked them what checks were made as to the level of information in these parcels of debt they bought and why, if the stories of the opacity of these instruments were true, they thought it a good idea to ‘invest’ in them.  They could have asked searching questions about the mortgage market and why they thought it a good idea to move away from conventional wisdom on Loan-to Value levels and salary multipliers.  How did they expect people to repay these loans and why did they think it moral to lend to people who were clearly going to have trouble repaying?  They could have pointed out that the feeling generally was that rising house values had become seen as 'income'; what they thought about that and why they allowed their staff to sell the 'release of equity' when people remortgaged, instead of encouraging people to stary actually reducing their mortgage.  They could have asked why they sold interest-only mortgages with no instrument on the side to repay the mortgage eventually.

They could have asked each one of them to describe the amount of practical experience of lending they had and asked whether, if they had no experience of lending, why they felt qualified to run a bank.

By doing this, they would have a) got a far better understanding of the process and policy failures and b) painted a much more embarrassing picture of these men and thus achieved in a far more graphic way the public flogging that their infantile questioning did.

Hopefully, they did this, but it didn’t show up in the news reports.  If not, then if this is the best that our legislators can do, then we really are in trouble.

On the other side, if I were in the bosses' shoes I'd have expected the uncomfortable questioning above.  I would consider the fact that it didn't happen as a big let-off.