I honestly don’t even understand how anyone can link “greed and recklessness” to a possible cause for an increase in the national debt or the deficit. That’s a complete non sequitur.

NAO accounts about 10bn for the current cost of bank bailouts.

The UK had a *strucutral* deficit of almost 10% – meaning a deficit that would have been there regardless and in additional spending on bank bailouts etc. A deficit created by too much government spending.

All this poll tells us is:

a) voters really aren’t very clued up about what caused the financial crisis and where the deficit comes from

or

b) the poll was asked in such a way to generate a certain set of answers (pick 2 out of 8, 3 being related to banks, and a couple of answers unlikely to illicit large amounts of votes when it comes to the specific question of *gvoernment* budget deficits).

yet there is 21 trillion sloshing round in offshore tax havens Alex…

The fact that you get this result from a public poll does not make it right but it’s not surprising. I think the problem lies in three areas a) Investment banking, b) public over spending and c) easy credit and too much private debt. The first mistake by the then government was to bail out the banks and building societies when they could have let them go into administration and ultimately planned bankruptcy instead we are carrying zombie banks with still untold toxic loans and mortgages. Second mistake has been effective low interest rates and QE carried on by the coalition which has trashed the currency for no tangible gain. Who has one of the highest rates of growth in the Europe area today and that is Iceland that did not bail out it’s banks. Throwing money into non jobs is not going to help, nor is borrowing more and pissing it up the wall. We need supply side reforms and deregulation to ramp up the economy and and government to stop stealing the citizens money (high taxes) and squandering it.

Of course you are fully aware Dissident that money never “sloshes” around in offshore accounts per se, it’s put to use in investments in equity markets, fixed income etc. etc., I assume you were just being obtuse.

Regardless, still doesn’t explain how the greed of banker’s could have possibly caused an increase in the national debt. If this poll does one thing it shows how clueless people are when it comes to economics.

I don’t know why LC have these what the British public thinks threads as they only demonstrate the same public are a bit dense. It is like the regular who should pay more tax surveys? Somebody else is invariably the most popular option.

So, on the subject of the great British public and their carefully considered deliberations on the source of the fiscal deficit this quote seems quite apt.

“our convictions on important matters . . . are pure prejudices in the proper sense of that word. We do not form them ourselves. They are the whisperings of ‘the voice of the herd.'”
http://grammar.about.com/od/classicessays/a/On-Various-Kinds-Of-Thinking-By-James-Harvey-Robinson.htm

The default position of the public on most issues is someone else is to blame. Of course they will not blame spending as the cause of, er, spending. That would implicate themselves and they will not have that outrageous thought. Strangely enough we had a deficit before we had a banking crisis. Who then would they have blamed for the deficit if we never had a banking crisis? The fat cat in the City or the fatter cat in 11 Downing Street?

The deficit consists of a cyclical element and a more relevant structural element. If we are feeling uncharitable we could blame the entire cyclical deficit on the banking crisis. Strictly speaking it would not be entirely true but it would not be a flagrant abuse of the data. Evil coke-fueled, stripey-shirted overpaid barrow boys causing a nasty cyclical deficit that steals the bread from the mouths of babes and sucklings. However, the structural deficit can’t be caused by banks because it is structural. Since the structural deficit has nothing to do with banks, it must be the politicians to blame. Guess who elects them with their promises that causes a structural deficit? Yep, the people you are asking who is to blame.

* I think your third question is not the best and has negative connotations.

” Overspending on benefits and immigration ”

You are connecting two different issues that implies that spending on benefits is much the same thing as immigration.

@ 1. Alex

Greedy and reckless bankers invested in high risk areas and encouraged risky deals to try and make a short term profit to earn their banks fees and themselves large bonuses. Things like the 110% mortgages brought in a lot of money while everyone assumed that the housing boom would go on forever.

Once the boom stopped the banks found themselves out of pocket after their risky strategies failed. They then needed a financial stimulus to prevent themselves collapsing like a house of cards. The government stepped in at this point to provide the money but seeing as they didn’t have a few hundred billion on hand they had to borrow the money to bail out the banks. The interest on these bailout loans but a further strain on the budget.

This is the link between greedy bankers and the budget deficit. I’m not an expert on the details of what the city gets up to but I think that is a fair generalisation. Whether or not you agree that it is (one of) the cause(s) isn’t the point. All the article says is that lots of people think that it this the case.

It’s true though. The over spending occurred after the banks went down. The state overspent bailing out the banks. If the banks hadn’t gone bust then we wouldn’t be having this overspending argument.

Steve m
Which shows we should not have bailed the banks and buidling societies out the but let them go bust. Retail depositors were semi protected and the banks would not be allowed to go to all systems normal after the taxpayers were forced to bank roll. Now when’s the next bonus ? Business as normal!

Interesting, but the poll is structured in a flaky way. What about those who did not know, or thought it was caused by other things, what was the sample size, and what’s the standard error?

Whilst some options are rather abstract – industrial decline – Many of the options to choose have quite ambiguous but pejorative wording – “government failing to run big surpluses during years of big economic growth”

– This poll would have us believe that 22% of Tory voters really believe that one of two things to do most to cause the current crisis, was government gathering taxes and not spending them.

and 38% of Tories think that immigration and benefits spending CAUSED the budget deficit

This is really a poll about which statements make you most angry.

If the survey had fewer categories to choose from, then more people would have blamed greed and recklessness. If they had more categories, then fewer would have blamed greed and recklessness.

Whilst I would not be surprised if the headline statement were true, this is a shabby bit of polling.

@5 Alex

I think you meant “greed of Bankers” not “greed of Banker’s”. It is more than one Banker who is greedy, so an apostrophe would come like this: “Banker’s” – but you would only use the apostrophe if you omitted the “of”, and moved “greed” to the other side, thus: “Regardless, still doesn’t explain how the Bankers’ greed could have possibly caused an increase in the national debt”.

I only really wanted to pick this up, as I wanted to emphasise Banker’s Greed, which no one is querying as a fact.

Banker’s Greed.
Greed of Bankers.

@ 7 Chris / @ 8 Steve M

Yep, it’s pretty clear you aren’t an expert. Indeed, you didn’t even bother to read my first post.

The TOTAL cost of bailing out banks to the UK government is about 10bn. There was a lot more in short term loans to provide liquidity, but they have all been paid back. What is left is the money used to bail out Northern Rock (which now has been sold for more than expected) and RBS.

That’s it.

Labour left the UK with a 10% budget deficit, or in cash terms, 150bn a year.

It doesn’t take a genius to work out that bank bailouts didn’t cause the massive budget deficit.

£150bn anual deficit, £120bn lost due to tax evasion and avoidance (legalistic evasion for the rich)

Running an advanced civilisation THAT ALLOWS THE RICH TO MAKE MONSTER PROFITS costs money. I have to pay tax to pay for everything from roads to schools & hospitals etc. Without all of that infrastructuure of our civilisation the rich would be poor. How grateful are they? I see them either laughing at me from those tax havens or acting as if they are somehow superior JUST BECAUSE THEY ARE RICH. Why is that acceptable?

“I honestly don’t even understand how anyone can link ‘greed and recklessness’ to a possible cause for an increase in the national debt or the deficit. That’s a complete non sequitur.”

– In the BBC Today interview on 4 November last year with Bob Diamond, ex-CEO of Barclays, he said the banks were responsible for what went wrong. In the interview – which I listened to – he repeatedly said that banks must work towards a situation where banks could fail without taxpayer support and without causing systemic instability.

– In Alan Greenspan’s testimony on 24 October 2008 to the US House of Representatives Oversight Committee, he said:

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
http://online.wsj.com/article/SB122476545437862295.html

– In 2007, general government spending as a percentage of national GDP was lower in Britain than in Denmark, Sweden, the Netherlands and France and only slightly higher than in Germany.

– What primarily caused the budget deficit to grow post-2007 was the collapse in tax revenues.

– Britain’s national debt as a percentage of national GDP at 66 pc is modest as compared with many other west European countries and with Britain’s past.

@ Bob B

It’s a *structural* deficit. I.e. spending not dependent on growth. Mr “No more boom and bust” was essntially betting on exactly that – no chance of a recession. ever. Then the biggest one since the great depression hit, exposing said deficit, which till then had been fuelled by massive credit growth rather than real productivity. What does government spending as a ratio of GDP look like now, compared to other countries?

At 66% debt/GDP doesn’t look too bad, but remember it’s growing by a significant % each year, and looks set to top out at about 90%. Which is high.

You might also like to compare apples with apples – once you include off balance sheet liabilities (like PFI) and unfunded liabilities (pensions predominantly) debt/GDP looks more like 250%, which puts the UK on par with Japan, whose debt/GDP ratio includes such things.

Essentially you are arguing that everything is not the governments fault, but the recessions fault, and in turn the banks. I’m sorry, but it’s the government’s job to at least be prudent and prepared for recessions (which after all do occur quite regularly) even if they can’t predict them. As it was Labour under Brown weren’t even attempting to be prudent, and were betting the proverbial farm on endless above trend growth to fund and hide the extent of their largesse.

Tyler

Bankers and banks have substantive reasons to obfuscate and lie about their responsibility.

I’ve many times here blamed New Labour and the Financial Services Authority for failings to regulate the banks and the financial services sector for the 100 pc and more loan-to-value mortgages, the ensuing house price bubble, the collapse of house building and the build-up of the consumer debt mountain of £1.3 trillion. But I’m refusing to blame bad policing for all crime. The bankers are largely to blame for what went wrong – as Diamond said.

As Greenspan observed in his testimony to Congress, bankers were no longing running banks in the interests of their shareholders – or their depositors.

Banks were run to pay out staff bonuses regardless even of whether their banking decisions went sour in the medium or longer term. What stymied the government – and the governments of Ireland and Spain – was not government overspending by the standards of their peers but bailing out banks that were too large to be allowed to fail. The collapse of tax revenues, not overspending was the primary cause of the UK’s budget deficit.

As for Britain’s national debt, why not try looking at the empirical evidence?
[Britain’s] Public sector net debt was £1,038.3 billion at the end of June 2012, equivalent to 66.1pc of GDP Source: Office National Statistics publications. For a historical perspective, try this:
http://falseeconomy.org.uk/cure/how-big-is-the-problem

@ Bob B

Right, the banks certainly have to share in some of the blame, but in that case so do regulators,government and the people who took on too much private debt themselves….no one forced them into 110% mortgages. By all means call the banks greedy, but at the same time do the same to those who borrowed much more than they could afford to fund a more lavish lifestyle.

Each country’s banking problem has it’s own hue as well. The UK had a couple of failures, but neither RBS or NR came anywhere close to destroying the economy. Ireland had a massive property boom which collapsed, and then rather than letting banks fail the government stepped in to cover bank debt – essentially increasing the government debt massively. Spain had a similar problem, but it wasn’t the commercial banks which caused the problems – it was the politically controlled Cajas.

Tax revenues collapsed in the UK – sure. That exposed the massive structural deficit. But why would a government be so foolish as to run relatively large deficits every year (from 2001 on) in times of good growth, run up debt in nominal terms, and plan for ever increasing public spending based based on the ridiculous notion that recessions were now near impossible and growth would be above trend basically forever. Any recession would have quickly exposed this and forced severe spending cuts given that Labour were running a roughly 3% deficit pre 07. That the recession was so big actually blew that deficit out to 11%. The biggest ever.

As for the debt/GDP ratio, 66% is high, given it was at 35% pre-crisis and even in the late 70s it didn’t get past 55%. Don’t forget of course that it is still inreasing at 8% a year at the moment. You do seem to have completely ignored what I said though.

The PSNCR indeed has debt/GDP at 66% of GDP, though the IMF has it at 87% and Eurostat at 86%. Precisely because the UK hides liabilities off balance sheet, which most independent analysts don’t allow.

Now factor in public pensions – which are unfunded in the UK (so come directly from tax revenues, which can’t otherwise be used for anything else). The scale of that liability is approx 1.4trn, if you account for it as debt – which it essnetially is. Some of the countries you mention above (Denmark, Sweden, Netherlands, Germany) have partially or fully funded public pension provision. I.e. the money required to service those pensions is already set aside and therefore is NOT funded from future taxation, so future liabilites are already covered to a greater or lesser extent. Whilst neither case is typically placed on a governments balance sheet (Japan is the oddity here, with their massive post bank savings accounted for on the govt balance sheet), public pension provision most definately is a liability and serious economists or analysts will always account for it when looking at a country’s long term fiscal situation. And when you take those factors into account, the UK fiscal sitution really doesn’t look rosy at all…..add in private sector debt (around 200% of GDP) and the UK is the most heavily indebted nation in Europe, and nearly the most heavily indebted nation in the world.

@11. davidh

Who shall I make the cheque out to? An English lessons like that cannot come for free, surely? That seems far too good of a deal.

@7. Chris

This is where the all-too-common conflation between national debt and budget deficit is made patently manifest. The national debt has indeed increased due to the bailouts (though I would argue if you look to the States the return on the bailout the gov’t got from Goldman et al. in terms of repayment is actually quite healthy, i.e. long-term the bailouts may have a net positive effect on the national debt). Regardless the DEFICIT has not increased due to the bailout, the deficit we currently have – which we can thank the previous Labour government for – is structural and thus the (minor) increase in interest payments the government would have expected to make would be negligible. Of course this ignores the fact that gilt rates are such that the government is paying less on it’s borrowings than pre-bailout. Overall the bailouts will not have changed the deficit.

Tyler: “Right, the banks certainly have to share in some of the blame, but in that case so do regulators,government and the people who took on too much private debt themselves….no one forced them into 110% mortgages”

C’mon. By accounts in the news, in the lead up to the start of the financial crisis in autumn 2007, mortgage applicants were being encouraged to lie about their incomes to qualify for mortgages. The sub prime mortgage debacle in America shows that there are a lot of gullible people out there who can be taken in by smart financial salesmen highly motivated by the prospect of bonuses.

The culpability of the banks in Britain is shown up by the billions that the British banks are now paying out in compensation for mis-selling Payment Protection Insurance (PPI) to borrowers and mis-selling interest rate swaps to small businesses who didn’t understand what they were buying. The banks aren’t paying out that compensation out of warm-hearted kindness towards their customers.

Greenspan’s Congressional testimony shows that bankers weren’t working in the interests of their shareholders. The FT did an analysis of what has been happening to the income generated by banks:

“What the analysis shows is that the lion’s share has been taken home by the bankers in the form of pay and bonuses, rather than paid out to investors or left in the business to support lending activity. The part represented by payroll has on average gone up from 58 per cent in 2006 to 84 per cent last year. Meanwhile, the share accounted for by dividends has slumped by two-thirds – from 15 per cent to just 5 per cent. . . Banks’ return on assets – an unleveraged measure of performance – has barely changed in decades.” [FT 5 June 2012]
http://www.ft.com/cms/s/0/4d5b3eac-ac0f-11e1-923a-00144feabdc0.html#axzz21I4RKthf

Sure, Brown was naive or worse in claiming that he was abolishing “boom ‘n’ bust” and HM Treasury’s growth forecasts were often over optimistic but come 2007, general government spending as a percentage of national GDP in Britain was lower than in a string of west European peers and only marginally higher than in Germany.

By comparison with Britain’s peers in Europe, the Brown government was not on a spending spree. In 2007, prior to the financial crisis, Britain’s net national debt as a percentage of national GDP was actually lower than it had been in 1997 when New Labour took over from the previous Conservative government. Link available.

“Now factor in public pensions – which are unfunded in the UK ”

Some are, some aren’t. Local government staff pensions are funded; civil service pensions aren’t but paid for on the basis of pay-as-you-go. There were and are millions more local government employees than civil servants.

The IFS assessment: “Public spending on public service pensions, having risen dramatically over the last forty years, is set to fall as a share of national income. . . . “

@ Bob B

So you are suggesting a great bulk of the population are interminably stupid and too weak willed to turn down offers of debt when some evil banker offers it to them?

Yes, banks did things wrong, but the entire blame doesn’t lie with them. Governments, regulators and the general debt-swilling populace have just as great a part, though it’s a lot easier for a lot of people to ignore the truth and just blame banks for everything.

Indeed, Alan Greenspan himself could easily be argued was a major part of the the problem – keeping interest rates too low for too long allowing the housing bubble to get out of control.

Why are you ignoring all the time after 2007 when it comes to government debt and spending? You are totally ignoring the *structural* deficit the government was building up by overspending.

Do tell me what the UK’s budget deficit and govt spending as a % of GDP looked like compared to our peers in 2010 and now? I’ll tell you for free – it’s a disaster because Labour pumped spending up massively, which can’t be easily removed, leaving the UK with a massive structural deficit.

Do also remember the ONLY time national debt was falling as a % of GDP was during the 97-01 period when Labour were following the previous Tory governments spending plans.

I wasn’t solely talking about public sector workers. I said “public pension provision” which can indeed include public sector workers, but generally is a catch all term which covers the national state pension as well. Which is TOTALLY unfunded in the UK, whilst being partially or fully funded in a lot of other countries.

http://www.ons.gov.uk/ons/rel/pensions/pensions-in-the-national-accounts/uk-national-accounts-supplementary-table-on-pensions–2010-/art-mainarticle.html

http://www.zerohedge.com/article/%C2%A348-trillion-total-debt-including-unfunded-liabilities-uk-debt-six-times-more-official-numbe

News update: In case this change announced in the August hols about the British Bankers Association escaped readers’ notice:

The British Bankers Association represents more than 200 banks and lobbies policy makers and regulators on behalf of the industry. Anthony Browne, who was previously head of European government relations at Morgan Stanley, will join the group on Sept. 1, replacing Angela Knight, the former Conservative lawmaker who’s held the post for the past five years.

Under Knight, the BBA defended bankers’ compensation as firms received government bailouts. It was also forced in 2011 to drop a court bid to prevent banks from having to compensate clients over payment protection insurance.
http://www.bloomberg.com/news/2012-08-13/libor-failures-neuter-bba-as-lobby-may-lose-oversight-of-rate.html

From the BBC website: The new chief executive of the British Bankers’ Association (BBA) has pledged to restore trust in UK banking.

Speaking on his first day in the job, Anthony Browne told the BBC: “I want to restore banking as a normal sector of the economy playing its part in economic growth.”

Mr Browne said the BBA, the leading trade body for the bank sector, would work to regain public trust.