In my Observer column today I say that a judicial review into the banking scandal would have achieved little unless the judge could have persuaded the politicians to change the law. As if on cue, Ed Miliband and Ed Balls popped up to demonstrate that they have no desire to change banking law in any way that might make a difference.

Their proposals to expand the number of banks and make it easier for customers to switch accounts, amount to more of the same. Instead of five big banks running on taxpayer guarantees, we will have seven big banks running on taxpayer guarantees. Neither Labour nor the Tories is willing to accept that the deregulation of finance from the 1980s on allowed bankers to take insane risks. Both refuse to return to the old division between high street banks and investment banks, which produced financial stability in the mid-20th century. They want to continue to allow investment bankers to leverage taxpayer guaranteed deposits and take them to the casino, secure in the knowledge that if their bets fail the public will bail them out.

Of course bankers abandon prudence in these circumstances. Of course they pay themselves fortunes. If your employer could privatise profits and nationalise losses, you might earn a fortune too. And of course they prefer high-risk and potentially lucrative financial instruments to the boring task of providing credit to businesses and individual borrowers. High risk is no risk when there is a state-supplied safety net beneath you.

Five years into an economic crisis, politicians are still  refusing to reform, and it is worth wondering why. The coalition commissioned the pathetic Vickers report. Instead of recommending dividing high street and investment banking into separate companies, it proposed building a &”firewall” between them. The record shows that chocolate fireguards are more effective than firewalls in finance houses. But even Vickers’ modest proposals were too much for Osborne. He watered them down to homeopathic levels and then said he would not implement then until 2019. As Liam Halligan says in a piece in today’s Sunday Telegraph that is worth reading in full, &”The manner in which the Tories have handled UK banking reform since coming into office has revealed not only a glaring leadership deficit, but shocking complacency and a lack of financial acumen.”  

I will leave it to my Conservative colleagues to explain George Osborne’s behaviour. I am more interested in Labour. Its feebleness must strike outsiders as mystifying. It is desperate to paint the Tories as the party of the rich. Yet Mervyn King’s ideas for bank reform are far more radical and sensible than anything Miliband and Balls are offering. When the governor of the Bank of England outflanks a Labour front bench on the Left, you should want to know why. Most people assume that the politicians are corrupt. They believe that even if leaders do not receive direct bribes, the politicians know that, like Tony Blair, they will enjoy a well-remunerated post at an investment bank on retirement. Yet say what you will about the Brownites now running the Labour Party, they are not corrupt. Unlike Blair, Gordon Brown has not gone off to work in Wall Street or the City. The Brownites knighted Fred the Shred, Allan Greenspan and James Crosby. They were the first centre-left government in history to let a financial mania rage unchecked. (The 1929 Labour government does not count, incidentally. It only came to power a few months before the Wall Street Crash, which, as it name implies, was in Wall Street not the City.) But however lustily they cheered high finance on, there is no evidence that the Brownites profited or hoped to profit from the larceny they tolerated.

Rather Miliband and Balls (like Cameron and Osborne) suffer from a fatal case of nostalgia. In the bubble, Labour let the City rip and used the taxes to fund handouts to the poor and social improvements. The tax bonanza they enjoyed was an illusion. Every penny in tax  the City paid between 2003 and 2008 was wiped out in the bailout. But Labour still yearns for the old world of speculative booms and leveraged deals because they see no other way of funding a centre-left government. They cannot accept that Britain must find new and less dangerous ways of making a living. The old world is dead but none of our leaders knows how to guide us to the new. That is why, I humbly suggest, they seem such small and shallow politicians, and Britain feels such an abandoned country.

T.S. Eliot wrote in 1925:

We are the hollow men

We are the stuffed men

Leaning together

Headpiece filled with straw.

He would have made an excellent Westminster correspondent.

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