The lesson from Liz Truss. Why lenders require respect

Daniel Finklestein is one of the very best columnists in the national press. His most recent column (behind a paywall), cuttingly takes apart Liz Truss’s somewhat desperate claims from her very brief time in Downing Street. One paragraph in particular stood out for me (which also refers to the far left within Labour in the 70s and as proves that as ever, the similarities between extremists are more pronounced than the differences)

“It didn’t help that Truss had refused to seek a proper OBR review of her plans and so investors were reliant on a leak to the newspapers, reducing confidence even further.”It didn’t help that Truss had refused to seek a proper OBR review of her plans and so investors were reliant on a leak to the newspapers, reducing confidence even further.

When one borrows money it is absurd to complain about the lenders’ fear that they may not get their money back and to suggest that they are too stupid to understand forecasts. Yet this is the essence of the complaint of both the Bennites and the Trussites”

and…

“There are five points worth making about the idea of abolishing the OBR. The first seems entirely obvious. Forecasts are necessary. In order to budget sensibly and organise the public finances a view has to be taken about what the future might look like. Literally nobody does anything without making a forecast. When you open your front door and take a step out of it, it is based on a forecast of what will happen when you put one foot in front of the other”

It’s hard to argue with this and of course this applies on a micro level as well as on the macro level

Truss believed she could attract lenders without any verified plan. This is simply typical of the lunacy of naive idealists and the key here is the word “verified”. She believed that her rhetoric and idealism is enough to convince lenders

Wrong

Of course, just as in the world of SME lending, there will be complaints that lenders are being too cautious and frequently that complaint is justified but it doesn’t negate the fact that the it’s the lenders who hold the cash. They are the ones taking the risk.

Truss’s proposed solution was to abolish the OBR which is akin to a FTSE 100 company seeking to raise finance without an independent audit, let alone a forecast. On a smaller level I have seen too many proposals to buy businesses (MBIs) where there has been virtually no preparation at all. I couldn’t countenance wasting a lenders time on a prospect who simply shouldn’t be allowed to run a business, let alone purchase one.

And that brings us back to Truss.

Certainly she was the least qualified holder of the office in living memory and you can almost feel sorry for someone who cuts such a comical and delusional figure but business is business.

I will challenge lenders every step of the way. Its my role but also I need to have a degree of confidence in my client. Sadly that can be lacking and as with Truss, a loss of faith can end up with only one result