WoW!

And there was us thinking it was Gordon Brown . . .
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KIDDING !
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He was the one who BROKE IT!

Let’s ignore the fact that lefties were arguing for ages that public debt was not at unprecedented or dangerous enough levels to bankrupt the economy. Let’s ignore the fact that Osborne and his crew got it completely wrong over nationalisation and had to humiliatingly accept that later. Let’s even ignore the economy is only bouncing back so quickly because of a stimulus the Tories argued against and Labour nevertheless pushed through.

Your first fact is irrelevant, your second is…irrelevant and your third is debatable. So, yes, let’s ignore them.

Their own treasury secretary was still arguing yesterday that our credit rating was going to be downgraded even though it wasn’t. Let’s ignore all that to give this sorry shower of shadow ministers full credit for making rubbish arguments throughout shall we?

No, he wasn’t. You are either misreading or misrepresenting him. He was saying that the ratings agencies were warning that, unless steps were taken to reduce the budget deficit, the UK was at risk of losing its AAA rating. Which, co-incidentally, is what the ratings agencies were saying yesterday.

“We assume that the adjustment to the U.K.’s public finances that is likely to take place in the context of the forthcoming elections, probably through cuts in spending, will keep the debt trajectory within Aaa boundaries,” the Moody’s report said. “Broad acceptance among the public of the inevitability of cuts in government expenditure and tax increases suggests such consolidation is at least possible.”</blockquote?

There is a general assumption that the Conservatives will win the next election. It is this assumption – that the budget deficit will be reduced – that is instrumental in maintaining the AAA rating. If it were assumed that Gordon Brown's 'there will be year on year real terms increases in spending' policy was likely to hold sway for the next five years then the situation would be different – as Standard & Poor's said a few months ago.

Wriggle all you like, but in this specific area, it is Conservative economic policy that is impacting the medium-term financial markets. That's because, except for those in the bunker, everyone thinks that the Conservatives will be in power in the medium term.

the same right-wing media that was recently claiming we were on a path no different to Zimbabwe’s. All that hysteria around quantitative easing will be forgotten as Tories rush to scrub their memories and start fresh.

too true!

“Let’s even ignore the economy is only bouncing back so quickly [...]”

Wow, and you accuse Brogan of being unrealistic. Did you miss the fact that other countries are now officially out of recession and that we are having to plead with them to keep spending money because we’ve run out?

Don’t kid yourself. If Eyebrows hadn’t told Obama Beach to shut up about spending more then the markets would be very concerned. As it is, both Labour and the Tories are saying the deficit is coming down, so the markets are happier. But why are Labour saying that? Because Eyebrows knew they were losing the argument.

@1:

It was a global economic downturn. You can’t realistically blame the British government for a crisis that affected the whole damn planet.

If Britain manages to claw its way out of recession, it would likely be thanks to the stimulus package that kept so much afloat. Credit where it’s due. Even when France and Germany clambered out of recession earlier this year, they had been imitating Labour’s proposed stimulus. Please, let’s give credit.

“Wow, and you accuse Brogan of being unrealistic. Did you miss the fact that other countries are now officially out of recession and that we are having to plead with them to keep spending money because we’ve run out?”

But that’s a different argument altogether. And in fact I don’t buy this green shoots bollocks that we’ve been reading about day in and day out for the past 6 months at least.

Back to the OP though. to say that the UK’s AAA credit ratings are courtesy of Cameron and Osborne is just pure parody.

Others are out of recession but they were also in recession officially before the UK. There is a time lapse between countries because of how data is collected. Maybe the UK will be out of recession when official figures are published.

To say the Tories saved the economy then please take this as codswallop. Osbourn hasn’t a clue and the world knows it so don’t get to worked up about it but fight back at the Tories if they continue to decieve.

Back to the OP though. to say that the UK’s AAA credit ratings are courtesy of Cameron and Osborne is just pure parody.

No it isn’t. The ratings agencies will be looking to the medium-term for evidence of what the UK’s financial policies are likely to be following the next election. As in:

“We assume that the adjustment to the U.K.’s public finances that is likely to take place in the context of the forthcoming elections, probably through cuts in spending, will keep the debt trajectory within Aaa boundaries,” the Moody’s report said. “Broad acceptance among the public of the inevitability of cuts in government expenditure and tax increases suggests such consolidation is at least possible.”

The markets (and everyone not in the bunker) generally assume the Tories will win the next election. Therefore what is driving the rating agencies’ views on the UK economy is what Tory economic policy is likely to be after the election, not on what Labour plan to do for the next nine months or so. Statement of the bleedin’ obvious really.

@7 – yes, though now that idiot-boy Brown has been forced to change tack the cuts will come whoever wins

@8. He hasn’t changed tack. If cuts come now, they could undermine the regeneration. That’s what Labour are arguing, and it’s a valid possibility.

Agree with Joel, and Tory Shadow policy for this recession has been truly dreadful: read the Martin Wolf column yesterday about how we might end up with MORE debt if recession-ending policies had not been vigorously pursued. The Conservative policy has been all over the place (we put more details in “A balancing act”) – opportunitistic, alarmist, plain contradictory at times. My favourite example of the latter is when DC warned of the possibility of a default. Since he was assuming he would be in power in 1 year, who exactly was he thinking would be ordering a default?

http://www.freethink.org/index.php/news-blog/4-news-blog/465-if-britain-defaults-ill-eat-a-copy-of-the-tory-manifesto

I think the markets are reasonably phlegmatic about Britain’s defaultability because:

1. we have a record of being able to fiscally consolidate in a tight spot. This was done nicely by Jenkins (1969, Labour), Healey (really spectacularly, 1977), Lawson (though easier in a boom), Lamont-Clarke (painful but right), Brown (easy in a boom, Tory spending plans).

2. There is a real demand for safe places to put our savings. Dillow pointed out way back that we are only requiring 2% of global savings

3. 80% debt/GDP is not that much – interest costs of 2-3% of GDP are not a total killer

4. UK wealth is abotu £7tn = about 5 times our future debt

5. Debt has some other assets against it – the banks are not looking that expensive now.

6. Some is being monetized.

So relax, and for pity’s sake, agree with Sunny – it is totally daft to act as if Osborne, with his pre-1918 understanding of fiscal policy, is our saviour.

The biggest sinlge issue for me is that the Tories should have the gall to attack Labour on the basis of the judgment of International Credit Rating agencies, who are in large part responisble for the financial crisis and ensuing need for govt debt increases in the first place. Here’s an example of Standard & Poor’s incompetence/self-interest in the way they use their ratings:

According to US blog The Exile (and also covered by Sarah Mulholland at Bloomberg):

‘On July 14th Standard + Poors downgraded a whole class of 2007 vintage CMBS (Commercial Mortgage-Backed Securities) from AAA (the highest rating, what institutions like Harvard and the Treasury get) to BBB-, the lowest grade for something considered ‘investment grade’ i.e. not speculative. Bond nerds nationwide thought for a second that Standard + Poors might actually be doing their job for the first time in years. However, one week later they changed their minds and re-rated the bonds back at AAA again, prompting everyone where I work to refer to S&P as Laurel & Hardy.’

Full story at http://www.bickerstafferecord.org.uk/?p=1206

High leverage is what is in “large part responsible” for the credit crisis. If leverage had been half the level it would not have happened. On the other hand, even if the credit ratings agencies had possessed perfect skill and foresight, the high levels of debt would have caused a disruptive collapse sometime. They belong to the category of “things revealed when the tide turned”, like financial scandals, ex post overly high bonuses, etc

More specifically, there is no sensible extrapolation from their inability to do 1000′s of different tranches of RMBS and CDO’s correctly and their putative ability to intelligently reflect upon the political and economic constraints on an economy repaying its debt. It’s a bit like a lazy ad hominem attack on a blogger, say: “you were really stupid to back the Iraq War so now I think everything you write on health policy is b***Cks”.

Makes for good, easy, polemic; tells us nothing.

Recovery?

Doubt it.

Unemployment keeps growing, and is going to keep on growing for years to come. It might be back to business as usual for the fatcats, but for the masses of workers losing their jobs, there isn’t a recovery and will not be one for a long time.

As for who or what is blame for the financial crisis, try the headline story in today’s FT:

“Lloyd Blankfein, chief executive of Goldman Sachs, on Wednesday admitted that banks lost control of the exotic products they sold in the run-up to the financial crisis, and said that some of the instruments lacked social or economic value.”
http://www.ft.com/cms/s/0/ffb670be-9d33-11de-9f4a-00144feabdc0.html?nclick_check=1

To be honest, I think if Britain’s credit rating was reduced that would be a very good justification for economic sanctions against the country where the agency was based.

Giles @!3

I don’t think giving an example the way a credit rating agency has rated creditworthines, and suggesting that might reflect a wider issue with its credibility in assessing creditworthiness is at all like an ad hominem attaclk on a blogger’s approach to two very different areas of policy.

That aside, the reason I link to my earlier article, which I accept you probably can’t be arsed to link to is that I go on to suggest that S&P’s ‘strange’ credit rating decisions on the CDOs in question were not in fact solely a product of incompetence (except in that they needed to change their mind so quickly) but that they changed their minds because it became clear the CDOs were open to government backing IF they gave a AAA rating. T

hat, I contend, is evidence of systemic corruption in the rating systems, not an ad hominem attack. Of course they could claim that they chaged the rating in order to facilitate government backing and thereby make them mroe creditworthy, but such an interventionist role, such that government largesse is pumped into markets who pride themselves on their independence, is not what S&P have in their job title, and is not what they said they would do in their own report on how credit agencies should self-regulate (report published March 2009).

As for who or what is blame for the financial crisis, try the headline story in today’s FT:

“Lloyd Blankfein, chief executive of Goldman Sachs, on Wednesday admitted that banks lost control of the exotic products they sold in the run-up to the financial crisis, and said that some of the instruments lacked social or economic value.”

Correct me if I’m wrong, but weren’t they shorting their own “exotic products” as they were selling them?

@4 Joel “It was a global economic downturn. You can’t realistically blame the British government for a crisis that affected the whole damn planet.”

Yes, you can. Both Britain and America failed to correctly regulate banks and allowed a massive housing bubble to form (remember “no more boom and bust”? The only way to do that is to prevent the boom). The banks that British and American governments were responsible for were lending all over the world, so when they started to go down they affected the world. That is why the crisis was global. Granted, the British government is not 100% responsible for the recession but it was not, as some people like to pretend, 0% responsible either.

#16: “Correct me if I’m wrong, but weren’t they shorting their own ‘exotic products’ as they were selling them?”

Clearly, clever stuff, if true.

On the role of the credit-rating agencies:

“Ben Bernanke, chairman of the Federal Reserve, has laid the blame for the credit crunch on the ratings agencies, the investors in sub-prime securities who believed them, and inappropriate incentive structures. . . ”
http://business.timesonline.co.uk/tol/business/economics/article3724349.ece

“Credit rating agencies could be banned or prosecuted under a draft European Union law aimed at making them more accountable for the advice they give. Firms that rate debt investments, such as Fitch, Moody’s and Standard & Poor’s, have been criticised for their role in the sub-prime mortgage crisis. The new law would replace a voluntary code of conduct.”
http://news.bbc.co.uk/1/hi/business/7535911.stm

Some, like Warren Buffett, were warning about the risks inherent in exotic financial products years ago:
http://news.bbc.co.uk/1/hi/business/2817995.stm

Mid the present decade, the battlecry of the Conservatives was for more deregulation, not more regulation. John Redwood was made shadow minister for deregulation in 2004 and then leader of the Competitiveness Group since December 2005.

Paul, sorry I wasn’t arsed to follow through on the link. Trouble with following through to every link on the blogosphere, is that you often just end up reading a lot of conspiracy theories that tend to reflect the personal political prejudices of the blogger, now gloriously released into the no-entry barrier world that is Blogging.

But thanks for that one. Reading Sarah M’s piece, and knowing the complexity of what they are trying to do (imagine: 10000 mortgages, summing to £3bn, split into different tranches, with different payment dates, priorities, the legal documentation 300 pages long, etc), the possibility of a clusterf*ck is quite high. And if you were wanting to sneak something into the AAA bracket, would you not choose something that was, say, AA-, not BBB-?

But I understand that fully 14.3676% of the internet is now absorbed with people trying to refute conspiracy stories, which it is, of course, impossible to do:

http://www.dailymail.co.uk/news/worldnews/article-1212543/Charlie-Sheen-demands-speak-Barack-Obama-9-11-government-cover-up.html

My “ad hom” point was just to say: if an organisation is bad at one thing, it may not be bad at something entirely different. And when you look more closely at it, valuing tranches and valuing governments are different – probably different personnel, different skills, different risks to assess, and so on.

Of course, if you think the whole thing is a political scam, and the same white-cat stroking, moon-landing faking, rigging the market against the worker types are behind everything, then my point dissolves. You’re right. The FT story proves that they’re all corrupt and therefore everything,everything is some sort of a scam, so doubt it all. You read it here first.

No it isn’t. The ratings agencies will be looking to the medium-term for evidence of what the UK’s financial policies are likely to be following the next election

That is not Ben Brogan’s argument though, is it?

Both Britain and America failed to correctly regulate banks and allowed a massive housing bubble to form (remember “no more boom and bust”?

It was primarily a US based bubble and debt problem that caused UK banks to fail.

Giles @20

V. amusing.

I understand totally about reading links. I don’t much either.

As you’d probably expect, I do in fact think that it’s all a scam of sorts. It’s called skimming surplus value, exploitation of labour, that kind of thing.

Your role is to say I’m just being a loonie leftie believing all that, while mine is to point to the evidence of the systematic manipulation of international finance in order to maintain the capacity of capital to accumulate at the expense of labour. On this occasion the evidence happens to be staring us in the face because of the ratings to and fro, with the lowest rating chosen when it was expedient to do so, the highest when it became expendient to do that because it helped garner government cash.

So I think we agree on pretty well everything.

22. John
“It was primarily a US based bubble and debt problem that caused UK banks to fail”

So our housing bubble had nothing to do with it? Also, our debt bubble was bigger as % of GDP than the US’s (~170% v ~120% in 2008). Our bubble was as much a part of this crisis as the US’s.

“Our bubble was as much a part of this crisis as the US’s.”

Compare:

“American house prices rose 124% between 1997 and 2006, while the Standard & Poor’s 500 index fell by 8%; half of US growth in 2005 was house-related. In the UK, house prices increased by 97% in the same period, while the FTSE 100 fell by 10%.”
Robert Skidelsky: Keynes – The Return of the Master (Allen Lane 2009) p. 5.

Of course, some economists in Britain, with influence, were denying that there was a house-price bubble:
http://www.nuffield.ox.ac.uk/users/murphya/Bubbles.pdf

There were previous house-price bubbles in Britain during the early 1970s and late 1980s when we had Conservative governments. The political problem for any government is that house-price bubbles tend to be popular with house owners so it needs a lot of political guts at the time to enforce regulations to restrain or burst bubbles, even assuming governments can tell what levers to pull. With open finance markets, those denied access to mortgage finance in Britain could probably raise finance abroad – which brings its own potential problems through raising liabilities denominated in foreign currencies: remember the roots of the Asian currency crisis of 1997/8?

“The worldwide volume of foreign exchange trading is enormous, and it has ballooned in recent years. In April 1989 the average total value of foreign exchange trading was close to $600 billion per day, of which $184 billion were traded in London, $115 billion in New York, and $111 billion in Tokyo. Fifteen years later, in April 2004, the daily global value of foreign exchange trading had jumped to around $1.9 trillion, of which $753 billion were traded daily in London, $461 billion in New York, and $199 billion in Tokyo.”
Krugman and Obstfeld: International Economics (2006) p.311

#25

“So our housing bubble had nothing to do with it?

I think that’s right. While it has contributed to making the crisis worse (as spending has been squeezed even further as households had large mortgage repayments to service after credit dried up) it wasn’t the cause.

How many UK reposessions have there been and how much have banks lost as a result? It’s a relatively low number (no time to find figures, but I’m sure you won’t deny that). And Northern Rock’s key problem was credit markets drying up rather than mortgage repayments drying up.

The key problem underlying the crisis was banks purchasing sub-prime debt without understanding a) the lax lending; b) the incentives in the US system to walk away from houses if theire value goes down as there is no bankruptcy, only repossession

Aren’t both sides being a bit premature in declaring victory?

So far we have had a stimulus and there are signs of a recovery. This doesn’t necessarily mean that recovery could not have been achieved in any other way.

As yet all that may have happened is that the government, through quantitative easing and heavy borrowing, has created another bubble to replace the now popped housing bubble. In which case a ‘double-dip’ recession is possible. Equally the stimulus may have negated pain in the short term only for it to be felt over a longer period as recovery is stunted under the weight of public debt. Whereas a less proactive approach may have meant a deeper recession but enabled a more fruitful recovery.

As for QE, I’m not so sure that we can be entirely confident that the economy has come through unscathed by inflation. The whole enterprise is a plunge into the unknown.

#28: “So far we have had a stimulus and there are signs of a recovery. This doesn’t necessarily mean that recovery could not have been achieved in any other way.”

The news on Saturday is that OECD is now taking a more buoyant view of prospects:

“The global downturn was effectively declared over yesterday, with the Organisation for Economic Co-operation and Development (OECD) revealing that ‘clear signs of recovery are now visible’ in all seven of the leading Western economies, as well as in each of the key ‘Bric’ nations. . . In the UK, the OECD said the leading indicators were pointing to a particularly strong recovery, with the measure showing a 1.3 per cent improvement during July, the British economy’s best performance so far this year on the organisation’s measure.”
http://www.independent.co.uk/news/business/news/oecd-calls-an-end-to-the-global-recession-1786221.html

“The National Institute for Economic and Social Research, one of the foremost independent economic forecasters, estimated that Britain had seen economic growth in the three months to August. . . The head of the International Monetary Fund also predicted that the world was likely to pull out from its economic slump earlier than expected.

“Economists said that the data and forecasts indicated that Britain’s economy was growing for the first time in more than a year and a half – and the recession was most likely over.”
http://www.telegraph.co.uk/finance/financetopics/recession/6159101/Britain-climbing-out-of-recession-as-economic-growth-returns.html

By reports, the scale of Alistair Darling’s fiscal stimulus package, announced in his Pre-Budget Report last November, seems to have been relatively modest compared with most other G7 countries. With central bank interest rates set at near zero in Japan, the US and Britain, and with ECB rates down at 1%, there are limits on how much more orthodox monetary policy methods can do to stimulate national economies should there be a double-dip recession downstream.

“Scarcely any rich country has stable public finances. America’s public debt is expected to double as a fraction of GDP by 2018. Britain faces many years of budget deficits and a rising debt burden. There is no end in sight for deficits in the rest of Europe either.”
http://www.economist.com/opinion/displaystory.cfm?story_id=14419200

President Obama is saying that when he walked into the Whitehouse in January, US national debt was already at $1 trillion.