Clearing up someone else's mess

If you were driving along minding your own business and saw an accident between two other cars, you might feel sorry for the people involved.
Your sorrow might well turn to anger if you later got a letter from their insurance companies asking you to make a contribution to the repair costs – merely because you were also driving a car.
That's pretty much what has happened to The Nottingham building society.
It has seen UK and foreign-owned banks rack up horrendous losses by racing away with profit-driven high-risk lending which it has religiously steered clear of.
That high-risk lending ended in a spectacular financial car-crash in which The Nottingham played no part.
Yet it has now been presented with a multi-million pound bill by the Financial Services Compensation scheme, which has decided that all savings and loan institutions should contribute to a pot on which claims have sky-rocketed in the space of only two years.
Though it won't say so publicly, The Nottingham is spectacularly unhappy about this. So are other building societies, as retail director David Marlow (pictured) hinted here.
They fail to see why they should have to surrender such a significant proportion of their profits, especially when they never engaged in the kind of boy-racer lending that the banks did.
The big problem with the scheme is that contributions to it are based only on the money financial businesses make - not the risks they take in making it.
Yet as we all know to our immense cost, the failure to put a proper price on taking financial risk is right at the heart of what went wrong with our economy.
The scheme clearly needs to be changed.
The Nottingham is never likely to run into the kind of problems that banks like Northern Rock and Bradford and Bingley did because it never takes that kind of risk.
Despite all the heat currently being generated about bank bonuses, the temptation to put banks in handcuffs and stop them taking any financial risk would backfire disastrously.
If banks were not allowed to take risks, you'd never get a loan to buy a banger, never mind a business. The economic damage of limited lending is all around us, and handcuffs would only make it worse.
The issue is making sure you have adequately covered off the risk taken when a loan is agreed. This is what banks didn't do when they effectively bet mountainous sums of money on the property market while maintaining molehill-sized cash reserves.
The question which is now being asked is whether the amount of money you have to put upfront into a compensation fund could be a legitimate way of making banks ask more questions before they start acting like loan-pimps again .
If they knew they would face a big compensation bill if things went wrong, they would almost certainly increase the cost of the lending in the first place – making both lender and borrower think harder about the logic of what they are getting themselves into.
Building societies like The Nottingham rarely get into this kind of mess because they are not profit-driven organisations.
Hence their bitterness at the limited profits they do make being hijacked in the name of someone else's excesses.
Having spoken to Paddy Tipping, the MP for Sherwood, my hunch is that the Government may well address The Nottingham's concerns in the forthcoming Budget.
Its savers will certainly hope so. If The Nottingham is unhappy, they should be furious.