Yes, it’s noticeable that the debate seems to swirl around two poles – on the one hand, a larger group who put forward their own pet nostrums (usually about the size of the public sector) as being particularly relevant in the present circumstances (irrespective of what they happen to be) and those, like Chris, who see the complexities and are mindful of the old saying about steering the economy being like driving a car with only an accelerator, a brake and a rear-view mirror.

I think Brown can be blamed for having in effect taken the moral hazard out of banking and I’m sorry to say that the Tories, who know bankers better, might have handled that side of things more effectively. On the other hand, they would almost certainly have allowed the recession to get even worse – and more than likely will when they get in. The current problem is to balance a responsible attitude towards public debt with the danger of an economic collapse so deep it tears at the social fabric – and the rear-view mirror is of dam’ all use, frankly.

I agree that the crisis would have occurred regardless of which political party was in power (and the whole debate about the regulatory system is a red herring). However, I do blame Brown making our national debt worse than I suspect it otherwise would have been.

Good post ,I rather agree with that . I doubt any other regime would have averted much of this although it is less obvious than in the case of the ERM debacle where the Conservative Party were the only ones with doubts. I think it is reasonable to suppose that a Conservative administration would have been more concerned about the money supply which New Labour have ignored and it is also certain that a lower tax regime would have ;left the country fitter to face the problems we do .
A better immigration policy would have landed us with less costs and had we not allowed 2,000,000 to rot on a sickey . 800,000 to join the state payroll we would not be seeing the ballooning debt that we do now. Had he not largely borrowed to fund this splurge and instead raised taxes then we would have far more scope for direct help.
Its also a feeble point in that it relies on his ignorance and for a man whose career has been based on the presumption of omniscience the defence that he was actually a little silly cork bouncing on a stream of events he did not understand is not much help.

However as far as it goes this is a balanced post if the political rights and wrong are somewhat different . If the Conservative Party had been acquitted of the ERM stigma and Labour not proofed from an Illusory debt driven boom then it would have an additional political truth but that is not the way it works .

Even now Brown is claiming have been a voice in the wilderness crying for better Banking regulation world wide . Could have started on ours coudln’t he .

I also agree the crisis is not that bad . In many ways now is eassy bit ..When the stories are gone and the taxes have to be raised and inflation caught is in the system and services are cut and unemployment stuck up at 3,000,000 then you will see the true fall out . The legacy of Brown for Labour has not even begun .

On the other hand, it was London, and its lax regulatory regime (so often praised by Gordon Brown for its light touch that was the base for AIG Financial Products, which was at the heart of the meltdown with the credit default swaps it could not cover, and which has made it so difficult to clean up the mess, being involved with so many other financial institutions.

And the thing is, the polls agree with you! People generally don’t blame Brown for the economy. The only people doing that the right-wing commentariat.

Americans re-elected Bush on the basis that he had got them into a mess so he might be the one to get them out of it, and it’s only that ‘logic’ which will keep Brown in power.

People who are scared already are also scared of change in general.

http://another-green-world.blogspot.com/2009/03/bank-of-england-now-controlled-by-major.html is my thoughts on printing money, a policy straight from a crank economist from the 1920s but desperate times require desperate solutions.

Printing cash was considered too radical by Hugo Chavez I am told but not M King.

“But he’s not responsible for the crisis.”

But equally speaking he has yet to articulate any vision of recovery beyond hoping a fresh dose of keynesianism will get the economy to where it was a few years ago. Cameron appears to be doing a little better with his ‘we can fix broken britain’ rhetoric, which at least has some form of acklowledgement that things weren’t that good for the 80% of people working in the real economy during the boom years.

But I fear the penny has yet to drop amongst the political establishment. We don’t want to return to 2005 capitalism where the gains are distributed amongst the few, with the costs to be spread amongst the many when times are tough. Frankly I doubt it is even possible to return to that if we try – the financial system is too fucked, and the underlying environmental problems cannot be ignored.

The winner of the next election will be the party that best outlines a vision of where we go from here. And Brown shows no sign of having any ability to concieve of such a vision.

Chris – from your link, re: Canada;

RETURN TO DEFICIT

Compared with the third quarter, gross domestic product declined 0.8 percent in the fourth quarter.

Growth for the year fell to 0.5 percent from 2.7 percent in 2007. Statscan revised its third-quarter annualized growth estimate to 0.9 percent from 1.3 percent.

Nominal GDP, a key indicator for determining tax revenues, fell 3.5 percent, or 13.4 percent annualized, in the fourth quarter. That was the largest decline since at least 1961, Statscan officials said. The slide was partly due to the decline in oil and metals prices in the period.

The nominal GDP signals the return to government budget deficits in 2009 after 11 straight years of surplus, a development already well flagged by Flaherty.

The quarterly report revealed wide-ranging weakness in the economy, including a collapse of personal spending after 13 years of expansion.

Canada has strong regulation and has for years.

http://www.bankofcanada.ca/en/about/financial.html

Consequently, borrowing this fiscal year will inevitably rise above the £78bn forecast in the pre-Budget report, and I have seen a forecast of £140bn from Global Insight for the coming fiscal year. The Item Club estimates it will be £130bn. If that proves the case, it would be by far the largest deficit, relative to GDP, ever run by a British government in peace-time.

Above comment by Hamish Mcrae of the Independent.

Chris Dellow . Our decline in GDP may be lower but our debt is high.

1. Brown only asked the Bof E to control inflation not debt and the price of assets. A former Chairman of the Federal Reserve said the job of a central banker was to take then punch bowl away just as the party started to get going – this is to prevent an asset bubble.

2. Brown started to borrow from 2001 and V Cable warned of debt in 2003.PFI was used to keep this liability off the government books- bit like Enron. UK enters the recession in debt, Germany entres recession with savings equal to 8% of their GDP . Which is better to be made unemployed when you are in the red of have savings equal to 1 years salary? We are danger of our debt being redued below AAA rating. Our ability to borrow in part depends upon our rating. If the international markets no longer trusts us to be able to pay back our debt then at the very least the cost of our borrowing will increase- we may be forced to borrow from the IMF. The problem is national debt, corporate debt and personal debt- mortgages, credit cards and hire purchase agreements.

3. Brown could have passed laws which meant that mortgages could only cover 90% of the value of property, a maximum of 4x a single persons salary, the mortgage had to include all other borrowings such a credit cards and hire purchase agreements and self certified mortgages to be based upon the average of 3 years income certified by an accountant, and limited buy to let motgages to 2 or 3 properties per owner. In France mortgages are not normally more than 70% of the value of a property. The more money there is chasing assets the higher their price- especially property.

4. The only countries in Europe entering this recession without debt is Germany and the Netherlands .

Brown created a massive debt problem , did not create an adequate supervision capability between B of E, FSA and Treasury and ignored the massive increase in personal debt. If anyone thinks allowing low and middle income families to take on debt which they have great difficulty or find it impossible to pay back, reduces inequality then they do not understand basic finance. The owner of Foxtons the estate agent sold out for £330M in 2007 . Perhaps no other estate agent has been so successful at creating the London property boom. If he could see the writing on the wall ,then it was predictable. An owner of one of the house building companies soild out for £2.5B, half in cash in 2006-07. These people knew property was a bubble which was about to burst.

Brown is guilty of creating a massive debt burden before the recession hit. He is also guilty of allowing a massive property asset bubble to occur with a large sub-prime component. We have hardly any N Sea oil left and there is far more competition in the global market.

Yes there will be winners from this fiasco, a few very wealthy people who who put there assets into cash no later than 2007. This could create the sort of financial inequality we have not seen
since the 1870s. Those people with cash will be king. Many people will spend the next decade paying off their debts.

The kind and reasoned words above haven’t stopped those dastardly eeeevil Tories from making political hay.

http://www.sorryfromgordon.com/

1) “Brown put the wrong regulatory regime in place in 1997.”

I entirely accept the point that you make that another regulatory regime may not have worked either – although you put it rather stronger than that … but …

At a meeting of the Chancery Bar Association (which I attended) as the FSMA was being debated, the risks of a ‘purposive’ regulatory structure for financial services were exposed.

When one adds the cross-polination between the banks and the FSA, the decision to change the regulation of banks from the Bank to one where the control was to be shared between the FSA, the Bank and the Treasury, and the picture of ‘blamelessness’ which you paint begins to blur.

Part of New Labour’s problems with the City was that they depended (and still depend) on a very narrow clique of advisors who come from a particular perspective – indeed, they largely come from one bank and a few Hedge Fund companies. The result is that the regulatory structure appears to have been fashioned in a manner that helped that bank and that industry.

So, I do think there are questions to be answered about the relationships, and responsibilities for the legislation and structure itself.

2) “Brown’s lax fiscal policy in the good years means we can’t afford a sufficient stimulus now.”

We entered the recession in the early 90′s with debt at 24% of GDP – we entered this recession with deabt at 44% of GDP. The room for manoevre is less than it was in the early 90′s. And that is assuming that you accept the statistics prepared by the Treasury after all the tinkering that has taken place – and don’d consider the NAO figures which make the comparison worse.

Gordon Brown failed to control expenditure in the good years – he spent more than he got in in every year after 2001 – indeed, the deficits grew each year. So throughout the period of ‘unprecedented growth’ in the economy, the growth of Government expenditure exceeded that which we could senibly afford.

The next problem is that the current crisis is monetary and so there are real questions as to whether a fiscal stimiulus will have any significant impact at all … but I accept that that is not the argument being fought here.

3) “In pursuing inflation targeting without asset price targeting, Brown put in place a policy framework in which low interest rates allowed a house price bubble to emerge

Again, I accept what you say about manufacturers screaming about their ‘pain’, but …

In agreeing to change the calculation of inflation for the purposes of the Bank from RPI to CPI, the Governmnt conveniently allowed the Bank to ‘forget’ about the costs of housing – which is the main difference in the calculation.

Many commentators at the time said that this would be a risk – especially in the UK where, thoughout this period, we have been in an asset price (property) price bubble … the result of this decision was that infation was being calculated without taking into account the inflation in property and so debt lent on property was available at a price that was too cheap in any event – which in turn fed the bubble.

As to (4), in essence I agree that Gordon Brown was taking credit for something that he didn’t create and so I agree that there is difficulty with the criticisn the thing that he didn’t do … but the net effect of things that he did do, in my view, have fed and will feed into the difficulties that we face.

No-one sensible is saying that Brown is all to blame – the pithy and short messages that are used by all parties are necessarily couched in black and white terms (to deal with the atention span of the British press – rather than anything else) – this is a feature of politics down the ages – and all are equally guilty of exagerrating both the effect and the consequences of particular policies and actions. You don’t really think that the Tories would ‘do nothing’ any more than any reasonable person thinks that Brown is ‘all to blame’ – but it has been on his watch, as it was on John Major’s, that the UK economy has fallen ‘over a cliff’.

And the fall out from Black Wednesday is an interesting comparison – John Smith and Gordon Brown were keen cheerleaders for the ERM – and it was only in the aftermath of the fallout that they changed their tune. Plus ca change …

“ AIG Financial Products, which was at the heart of the meltdown with the credit default swaps it could not cover”

Not really. AIG was brought down by Lehman’s collapse, it didn’t cause it.

AIG didn’t cause Lehman’s downfall, but the unregulated nature of its credit default swaps has meant it has needed $180 billion of US taxpayer money to keep it going – some covered Lehman, and it issued so many others that it can’t be allowed to fail, or those who bought CDSs from it will go down too.

That AIG was issuing cover for Lehman in London, rather than in the US, points towards a desire to escape regulation, it seems to me.

I would suggest the insurance offered by AIG enabled Lehman to take ever greater risks. Over the last 10 years there has been a view that if one can obtain insurance one has off loaded all risk. The problem is that risk has been under priced- hence the imprtance of the book ” Black Swan”. The problem is that with off loading risk is that the original source of the risk becomes lost in maze of financial transactions. This aspect Brown has totally ignored. We do not have sub prime in this country. What we have is self employed people taking out self certified mortgages often involving a multiple of 6 times grossly inflated earnings during boom years ignoring credit cards and hire purchase payments. I have heard of people with £100,000 on credit card cards on top of mortgages when they have earnt £100,000 a year during boom years. Even companies such as Rio Tinto , a mining company which should have a massive cash reserves has debts of £40B. When Weinstock left GEC( 15 years ago) it has cash reserves of £1.5B .

Brown ridiculed Cable warning over national , corporate and private debt in 2003. In order to bring assets back to reasonable prices they will probably have to return to 2003 levels. This will be a loss of third of our wealth.- read H McRae in the Independent on th destruction of wealth.

http://www.guardian.co.uk/commentisfree/video/2009/feb/26/vince-cable-capitalism-crisis

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