Who’s to blame?

The media are suddenly interested in the blame game, after remarks by various prominent actors trying to lay the blame on someone else.

The government has three villains in its storytelling. There are the Conservatives of the 1980s for deregulating (lie); the bankers (they didn’t do it on their own); and the world (apparently the UK government has no power to make things better here).

The Conservatives did not deregulate the supervision of banking capital and liquidity. In our day in government banks were far more constrained in the amounts they could lend than they became under Labour, and their balance sheets were much smaller.In 1997 UK banks had liabilities around 23 times their core capital. Labour allowed this to expand to a massive 34 times by 2008. I was calling for tougher regulation of capital and liquidity in the Conservative’s Policy Review in Opposition. The regulatory system was changed in a major way by Gordon Brown in 1997. It was this system which failed to supervise the banks properly.

Yes, the bankers made large errors, overextending their loan books, helping fuel an unsustainable property and share boom, and building ever larger investment banking arms that took on too much risk. Now the UK government owns a couple of banks, why isn’t it changing the business model and sorting out these obvious mistakes? Why doesn’t it say no-one at RBS will be paid more than a Cabinet Minister, until the bank returns to sustainable profitability? If people don’t like that, let them leave. Why doesn’t it run off and run down the trading activities in futures, options and other financial instruments, to cut the risks?

It is true that there are downturns in many countries around the world, and true that the US, Iceland, Ireland, the UK and some other countries have banking problems of a greater or lesser degree of difficulty. This does not mean that the UK government and regulatory authorities did well, and that our problems were imported. Northern Rock was a British business under British regulation lending British money to British borrowers. It needlessly went under thanks to bad management and bad regulatory supervision. The British and European authorities allowed RBS to acquire ABN Amro without seeing the potential competitive and capital adequacy issues the acquisition posed. More recently the UK authorities have strangely allowed LLoyds to acquire HBOS, a move which has weakened LLoyds and reduced comeptition in the market. The British downturn is a nasty one, and owes a lot to the misconduct of UK monetary policy by the Bank over the last few years.

So let’s summarise the ten worst mistakes of the UK authorities so far:
1. The government was wrong to take powers of daily bank supervision and the duty to raise money for the government away from the Bank of England. This made it difficult for the Bank to conduct a sensible monetary policy.
2. The government was wrong to change the inflation target at the end of 2003, leading to lower interest rates than were safe.
3. The government was wrong not to chair decisive meetings in August 2007 with the Bank and FSA to make the markets more liquid to prevent the run on the Rock.
4. The government was wrong not to find a banking solution to the problems of the Rock, relying instead on an expensive and damaging nationalisation.
5. The authorities were wrong to scupper a private sector deal for the Rock, partly owing to their interpretation of EU rules
6. The authorities were wrong to keep interest rates relatively high for as long as they did
7. The authorities were wrong to tighten capital requirements last autumn and to propose tightening liquidity requirements at the turn of the year when the crunch was well advanced
8 The authorities were wrong to put equity capital into banks towards the end of 2008, without doing proper due diligence and without demanding prior write downs of bad and doubtful debts
9 The government was wrong to cut VAT, adding needlessly to the government deficit
10 The government was wrong to follow a policy of benign neglect of sterling, and to make the last cut in interest rates.

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45 Comments

  1. Roger Hird
    Posted January 23, 2009 at 9:55 am | Permalink

    Seems to end rather “in media res” . . . .

    • dr whitmarsh
      Posted February 1, 2009 at 8:53 pm | Permalink

      Uncontrolled tax avoidence and the medically damaging and morally insane cost of prohibition the pot-capone’s of new labour are the two other disasterous policies. There is over £100 billion there for us with a few simple overnight laws.

  2. Posted January 23, 2009 at 10:01 am | Permalink

    Exactly. It was the Conservatives in the 80’s who stopped the inflation plaguing our economy, and Gordon Brown benefited as a result, crafting a false legacy of being a great Chancellor. Monetarism is about controlling the money supply, not letting it spiral out of control, which has happened under Brown.

  3. SteveS
    Posted January 23, 2009 at 10:10 am | Permalink

    I’m more interested in the crash of the Pound.Why did it start it’s decline from 2$ in July before all the Lehman’s trouble if we’re ‘best placed’ to weather the storm? It’s now 35% off those highs and people don’t seem to realise that it’s their real buying power that’s being slaughtered.

  4. THE ESSEX BOYS
    Posted January 23, 2009 at 10:19 am | Permalink

    This piece stopped at the 5th of the 10 worst mistakes but the flow is clear and emphatic.
    It’s healthy to summarise mistakes and to do it quickly rather than in an enquiry published years later.

    However just having heard the PM trying to talk over and talk down Evan Davies on ‘Today’ one has to despair. What was the point of going on if he intended to repeat only the same old mantras?
    The man is in denial and we seriously question his state of mind and capacity to tackle this crisis. Is Minder Mandy still grovelling in Mumbai trying to smooth over the Foreign Secretary’s indiscretions? Are the wheels coming off in every part of government?

    • Sarah H
      Posted January 23, 2009 at 3:00 pm | Permalink

      If it was not for the fact that I cannot bear to listen to Brown’s voice for any longer than I have to, I would have re-played this on the net to count the number of times he used the words “Global Financial”. What a pathetic man and unfortunately he was up against Evan Davies, not quite strong enough!

      • THE ESSEX BOYS
        Posted January 23, 2009 at 8:50 pm | Permalink

        Sarah – We also find it difficult but a man’s gotta do what a man’s gotta do – otherwise we might have to listen to him forever!

        However we rather enjoyed this blog today about his henchman Campbell’s footballing thoughts – coded message indeed!

        ****************************************

        A coded message from Campbell?
        Peter Hoskin 10:44am

        I wonder what Downing Street made of Alastair Campbell’s plea to Spurs manager Harry Redknapp in the Thunderer column this morning:

        “Redknapp at least had the good grace to look embarrassed as he shook [Burnley manager, Owen] Coyle’s hand, and the post-match phone-ins were flooded with Spurs fans saying that they didn’t deserve to win. In which case all that remains to be done – a long shot, I know – is to appeal to their sense of fairness. If Harry truly wants to concentrate on avoiding relegation, if he really is a man of the people, surely he has to do the decent thing. Stand aside.”
        Quite.

  5. THE ESSEX BOYS
    Posted January 23, 2009 at 10:35 am | Permalink

    We should just add that we have a Treasury contact from the Brown Years and he puts much of the current difficulties down to the traits that GB displayed on the radio this morning…an unwillingness to listen to alternative opinions…an inability to admit errors, even the tiniest ones… and a complete lack of charm in getting the best from a team.

    Mr Brown delights in getting his own name into the same sentence as ‘Barack Obama’ but does he, or anyone, seriously suggest that the new President would have conducted an important interview on a national flagship program in this crass, ignorant manner?

    Time to look in the mirror Prime Minister and, better still, listen to a tape of your effort at 8.10am today!
    DO LISTEN & LEARN – ALTHOUGH WE FEAR YOU HAVE PASSED THE POINT OF NO RETURN.

  6. david
    Posted January 23, 2009 at 10:55 am | Permalink

    From the Conservative Campaign guide 1989

    Removing Controls. Immediately after taking office the Government removed many of the damaging controls and restrictions – on prices, dividends and incomes – that limited the wealth-creating capacity of the British economy. The abolition of exchange controls in 1979 opened up a whole new range of investment opportunities for those who wished to invest abroad; and, by improving the rate of return on investment in the UK, it also encouraged foreign investment in this country. The ending of controls on banks and building societies, particularly those governing consumer credit and the composition of banks’ assets have widened consumer choice and brought an end to mortgage ‘rationing’. ‘Big Bang’, the deregulation of Britain’s financial markets in October 1986, has given our financial services sector the freedom it needs to maintain and enhance London’s role as a world leader in this field (see p. 108).

    Karl Marx

    Reply: Conservatives left in place controls on capital and liquidity. In 1997 the average bank lent 23 times its capital. Labour expanded this to 34 times for no good reason.

    Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism”

    comments John!

  7. Posted January 23, 2009 at 11:23 am | Permalink

    HIS policies have led to this crisis.
    HIS job is to get us out of it by giving the British people a choice through a general election.

    It’s inevitable Brown will go to the IMF – Or he’ll pass the job to the Tories after an election.

    David Cameron gave a speech to DEMOS yesterday where he warned Britain faces a real risk of needing a humiliating 1970s-style bailout from the International Monetary Fund.

    In his strongest remarks to date on the financial crisis, the Tory leader said if the Government continued on its present course, ‘then money will run out’.

    I recall we’ve been here once before under Jim Callaghan. Indeed like many others I lived through the 70’s, which saw mass strikes and picketing on docks and ship yards, lorry drivers, nurses, council refuse collectors and even grave diggers where the dead could not be buried because of the Labour Government’s policies which were not economically sound. In fact far from being sound, they were perilous and led this country into seeking a humiliating loan from the International Monetary Fund which brought with it, its conditions. “Conditionalities” as they are officially called.

    Now once more, we’re staring into an economic and political abyss which Brown’s Borrowing will lead to topple Britain into if he’s not stopped. Once he has no other choice but to go cap in hand to the IMF, then that will be the end of Britain because it will impose its conditionalities upon our nation. One of these conditionalities will be a requirement to fully engage with the European Union both monetarily, economically and politically, and thus we will be tumbling head first into globalisation with big government, big bureaucratic control, and another big lie yet again will have been foisted on to the British people without them agreeing to any of it.

    Make no mistake. A loan from the IMF comes with a very high price. It must also be sanctioned by America, our partners within the IMF. It doesn’t take a big grain of thought to see why for the last 40 years, Britain has developed along American lines with its economy and socially divisive privatisation policies. For these policies, conditionalities of the IMF, led us into the hubris and excessive debt laden country we have now which stands its people aside for the benefit of ‘business’, and made it impossible to retrench ourselves as an independent isle, a sovereign nation, and a real democracy, simply because they don’t figure in the plan to dominate global politics and economics through the dastardly developing globalised policy programs which have led to the current global financial crisis.

    David Cameron talks of “progressive conservatism”, and reaching the same destination socially but by different means. He says we basically all want the same things, and he speaks to DEMOS the public funded political think tank which gave us Tony Blair and was once affiliated with Julia Middleton now head of Common Purpose and one time head of staff for John Prescott whilst he was Deputy PM at number 10 Downing Street.

    Many are sick of this (word removed-ed) Brown and we need rid of him. He’s the guy who removed the Bank of England’s oversight from financial markets and British banks. We’re also sick of his ideological Fabian dream which is set in its plan to trample our independence and to remove our ability to choose our future as a sovereign nation by inculcating the British people with its liberal aim to bring about revolutionary changes without revolution. Of course if Gordon Brown was not part of the Fabian Plan then he would call an election now for the country’s sake in order for the British people to exercise their own choice on the way forward, but since his Fabian ideology comes first, then he doubtless won’t, and we’ll end up a ruined nation going cap in hand to the IMF, and we’ll come to be an intractable ‘partner’ of the globalised world which combines the plans of America as manifested inside the European Union through globalised economics, globalised foreign policies, globalised politics and globalised laws which will create one big global heap of excrement underneath the banner of America’s UNIPOLARISM.

    I’d choose not to fall into the abyss with Brown or into the trap of unipolarism which by any other name is the New World Order and is the very essence of what the financial crisis is actually about in the first place.

    People might want to remember this when they read Gordon Brown’s reaction to David Cameron’s speech, which was given this morning, as follows by the BBC, which is itself a contributor to and employs many ‘graduates’ of Common Purpose.

    Do you trust Gordon Brown ?

    Brown’s story goes like this:

    The government will fight the recession with “every weapon at its disposal”, Gordon Brown has said.

    Speaking before figures showed the steepest quarterly fall in economic growth since 1980, Mr Brown said the recession was “different” to past ones.

    He told BBC Radio 4’s Today programme its length would depend on the effectiveness of GLOBAL co-operation.

  8. Adrian Peirson
    Posted January 23, 2009 at 11:26 am | Permalink

    Destroying our Industries, Farming and Fishing has left us vulnerable to global events, if we had held on to fishing and told the EU to leave our farming alone we could at least have been able to feed our people.
    Gobalisation is destroying this country and indeed all countries, it aint such a good idea after all, think of protecting the National interest as having watertight bulkheads on a ship at sea.
    We need a Governement that will put the National interest first.

    We can still be friends and trading partners with other countries.
    But we cannot help other countries unless we ourselves are in good shape.

  9. Posted January 23, 2009 at 11:38 am | Permalink

    Still blaming Thatcher clearly hits an ageing leftie’s G-spot.

    It is nonetheless, pathetic. If something was a bad idea, and you have a decade of supplicant back-benchers who will vote through anything, merely repeal the legislation.

    Similarly, if they were unhappy with any banking practices post 1997, they could simply have outlawed them.

    Simply getting nostalgic and humming to themselves “Maggie, Maggie, Maggie…out, out, out” isn’t going to solve much, no matter how comforting they may find it. But then when you are out of ideas and money, the last desperate act of a government is to look for someone to blame. Mugabe does it and now Gordo is taking a leaf from his play book.

  10. Colin D.
    Posted January 23, 2009 at 11:39 am | Permalink

    The government was also wrong to postpone the building of the aircraft carriers. This would have been be a big boost to British industry and to their long term confidence.
    In addition, it would help these industries to export. It is noticeable that the balance of trade has got worse despite the fall in the pound. The high technology suppliers to the carriers are also our key exporters.
    Instead of the carriers we got a VAT cut which had only a little effect on the high street but probably a greater benefit to Chinese exporters – what’s the point of that?

  11. The Watcher
    Posted January 23, 2009 at 11:44 am | Permalink

    Something else to consider when apportioning blame. Yes the banks were reckless in lending but what about the people they lent to? Did anyone have a gun put to their head and was forced to sign on the dotted line for a mortgage or credit card? The rise in personal debt was mainly down to people on average incomes who still wanted the Posh ‘n’ Becks lifestyle with fancy cars, plasma TV’s and designer clothes and the buy to let brigade. The bankers merely satisfied a demand that the public created. The government and the regulators should have put more stringent requirements on the banks to prevent such lending becoming the norm.

  12. a-tracy
    Posted January 23, 2009 at 11:50 am | Permalink

    Hopefully some of our reporters and interviewers will read your excellent summation and start to ask the government some of these issues and pin them down on them. I don’t understand why the governments being allowed to have taken all the glory from the Boom in the ‘global economy’ as though UK made by Blair and Brown’s management, yet now we’ve experienced a big bang it’s someone’s elses fault – even though you’ve set out quite clearly above the hand they had in making things worse for taxpayers.

  13. Posted January 23, 2009 at 12:43 pm | Permalink

    Were all of these thigs what you advised here at the time.? I know most of them were.

    I still think you are not paying enough attention to the underlying weakness of the productive economy & the way that it is caused by big & over regulatory government driving industry off shore. This is the foundation on which finance stands, or doesn’t.

    Reply: Yes, I opposed or warned on all these things. I agree we need to make it easier for people to make things here

  14. Sarah H
    Posted January 23, 2009 at 12:46 pm | Permalink

    Was it the Tories or Labour which allowed all the flotations and thus the High Street became flooded with new banks who tried to sell you all sorts of insurance ans flooded you with request for credit cards etc. Up until fairly recently Royal Mail had a prosperous time delivering all these offers through your postbox whether you wanted them or not. In my humble opinion it seems that those years, when there were just around 4 main banks and the well respected building societies who were just that, is where we should have stayed. I used to become infuriated by the staff in my own bank who would continually try and sell me something or other. I am no economist and am sure others will scream at me for saying this!! However, there are just too many financial institutions and insurance companies, many, of course, being the same company and advertising under different logos.

  15. Adam
    Posted January 23, 2009 at 1:17 pm | Permalink

    You forgot these:

    11. The government was wrong to run ever-growing public sector deficits during the boom.

    12. The government was wrong to instruct the Bank of England to follow a definition of inflation that excludes housing costs and asset prices, thus causing them to keep interest rates too low during the house price bubble.

  16. APL
    Posted January 23, 2009 at 1:29 pm | Permalink

    JR: “Who’s to blame?”

    That’s simple, the one who claims to be in charge.

    That is Blair & now Brown.

  17. Posted January 23, 2009 at 1:36 pm | Permalink

    John – will you e-m this to your front bench or shall I?
    Reply: Be my guest!

  18. Colin Hart
    Posted January 23, 2009 at 2:13 pm | Permalink

    Thank God someone understands the difference between regulation and supervision.
    Regulation is about box-ticking bureaucrats checking numbers have been filled in the right place on the form without knowing why they are doing it.
    Supervision is about those who have been there having a quiet word with the new bugs and making sure they don’t get too carried away.
    John, I am sorry Dave has not called you back but on the other hand I am glad you will still be doing the blog and speaking your mind rather than having to spout ‘settled policy’.

  19. Nick
    Posted January 23, 2009 at 2:48 pm | Permalink

    Let me add some.

    They were wrong to threaten nationalisation. The consequence was that private money would not invest, given the risk they lose the lot the next day when they make a socialist grab. Witness Railtrack and other deliberate attempts to nationalise on the cheap at the expense of shareholders. Investers learned the lesson.

    Preference shares at 12%, but you have to lend it back to the government at 4-5% because of capital.

    Nick

  20. Sava Zxivanovich
    Posted January 23, 2009 at 3:29 pm | Permalink

    I agree with most of the presented points and I was of a same opinion for a long period of time.

    I disagree with the the notion that the cut in the interest rate affected pound.

    If that was a truth, 0-0.25% for US$ and similar for Japanese yen would have spelled a death knell. Yen is for a decade at 0-0.3% but it is still very strong, in deed, it is getting stronger with each day passing.

    The reason is economy. The UK economy is … brick economy as everything whirls around housing market, even banking sector. Before housing market is stabilised, nothing would be possible to do.

    So, the first step should be to stabilise housing market. Second halve banking sector expenses. Third – halve state (public) sector expenses. Second and third could be done simultaneously.

  21. mikestallard
    Posted January 23, 2009 at 5:04 pm | Permalink

    Labour List has some very interesting ideas today. Interestingly, they all focus in personalities. There seems to be no discussion about the sinking pound, high taxation, bloated government which is still recruiting, or any consideration of the ten excellent reasons (above) to blame the current government. It is all a matter of how to present themselves and score points off the opposition.
    “Stop repeating tired lines about the Conservative party being a “do nothing” party, clearly they have ideas they’re just not the right ones.
    The Cameron / Osborne team is so inexperienced that it is not worth taking a risk on – that has to be the message. The public will listen to a criticism of the Tory party so let them hear some rather than simply dismissing them out of hand.
    I’d focus on the glee with which George Osborne welcomes financial bad news, it reminds me of the way in which Labour employment spokespeople in the 1980s used to appear to relish news of the growing dole queues. Talking down the economy is very unattractive, Labour ministers should hammer the Tories whenever they do this.”
    I think this is rather depressing; I would like some real discussion of really important matters instead of politicking. If Labour do not get their act together, they will end up in the wilderness, maybe for ever.

  22. Matthew Reynolds
    Posted January 23, 2009 at 6:19 pm | Permalink

    The VAT cut was stupid ! I would have not done any of Labour’s stupid stimulus plan. Rather from January 2009 all basic rate taxpayers would have been given a £1,000 cheque and from April 2009 basic rate tax would have been cut by 3p to 17p while the basic personal allowance & age related allowances would have been raised by £1,500 p/a and £4,000 p/a respectively over & above prices. This would boost peoples incomes at a time when it would pay to boost productivity & help people make ends meet and repay debts.

    From 2010-11 onwards reforms would be phased in to end the £100 billion p/a of waste as highlighted by the Taxpayer Alliance – I would consult Ruth Lea about this ! By shrinking the state and slashing public borrowing you would improve economic confidence and would obviate the need for higher taxes.

    I would get John Redwood & Michael Fallon to identify how to overhaul monetary & banking policy to ensure economic stability.

    Then I would talk to the CBI about all the pointless rules that small & medium sized business hate and would legislate so that such firms no longer had to comply with such red tape.

    Finally I would again talk to to John Redwood about using private funds to improve our infrastructure so that it is modernized to sustain an economic recovery – by doing this now you save and protect jobs which during a recession which makes sense. By using private money you help keep state spending down.

    Looking at all Brown’ failed ideas – surely this set of policies could hardly make things any worse ?

  23. "East Anglian Troy"
    Posted January 23, 2009 at 7:07 pm | Permalink

    The Government has made many mistakes in regard to the economy and public sector finances.
    The Government have made several major foreign policy mistakes and mishandled its relationship with the EU.
    The Government has proved ineffective on law and order – now rapists, burglars and child sex offenders just get cautioned.

    Only rational conclusion is that this Government is totally not fit for purpose. The sooner they are replaced the better!

  24. Joe Mooney
    Posted January 23, 2009 at 7:33 pm | Permalink

    Excellent article. I am browned off with Brown. He is running the country like a giant ponzi scheme. I hope he calls an election soon and that the people will chuck him out.

  25. Sean Morris
    Posted January 23, 2009 at 9:47 pm | Permalink

    Comrade Mason over at Newsnight, does make the occasional contribution to the worth of his pay packet.

    this is very interesting.

    http://www.bbc.co.uk/blogs/newsnight/paulmason/2009/01/shortly_after_labours_2005_ele.html

    • Alan Wheatley
      Posted January 24, 2009 at 11:24 am | Permalink

      Thanks for the tip – a good read.

      It led me to the Adair Turner speech. In it he identified one of the failures of regulation to be “…central banks too focused on monetary policy tightly defined, meeting inflation targets”. But in the case of the Bank of England, it was doing what it was told to do by the government, which is, surely, where he real failure lies.

  26. Atlas shrugged
    Posted January 23, 2009 at 10:10 pm | Permalink

    John I know why it all happened. The question is WHO made it happen.

    If there is anything in this world as inevitable as death and taxes, it is economic cycles or more accurately, deliberately conspired and highly planned ‘Booms and Busts.’

    If this is not a crime against humanity, then it certainly should be. It has the potential to result in the deaths of literally BILLIONS around the world. Or at least many millions more then died during the entire last World War.

    As even just a crime of straight forward crass corporate incompetence, the people responsible within the International Banking System, are worthy of the death penalty or life imprisonment at least. However as VERY VERY obviously NONE of ANY of this could possibly have happened without a Ruling elite conspiracy at the very top. It is surly a crime worthy of a public hang drawing and quartering , at least.

    People are now and are in the future going to get very angry this time John. Very angry indeed. They no longer trust not just the Labour Party they don’t trust The Conservative Party either. With I believe good cause. They clearly do not trust The Lib/Dems, The UKIP or The BNF either. Add to that explosive little mix of dissatisfaction and utter despair. The British and European middle classes trust the EU even less then the unemployable classes do, and you have a very potential societal apocalypse on our hands.

    I warned David Cameron and many others within my constituency Party in the past, that the electorate will not forgive us for letting Brown bankrupt the country. It will be a plague on both houses, and so it will now be.

    Yes of course Cameron will win. That was clear from the day the establishment moved in to get him elected Party leader in the first place. However, who in their right mind would now want to be Prime Minister of this country, unless they must have known all along where exactly the British economy was going to be by Jan 2009? Because unless they know the real reasons why this has yet again happened, they clearly can not possibly have a useful clue as to how to dig us out of it.

    The British establishment has within the civil-service the best economic minds available to mankind at any price. If you did not know this John, then you have clearly been talking to the wrong civil-servants. These are the Real experts, working at places such as The RIIA, not the type that go up for election every few years, to our so called representative parliamentary democracy.

    Whether you believe these people know less, and can successfully predict still less about economics, then my 100 year old deaf grandmother, who left school at 13, matters not much.

    Our true reality is; these people understand absolutely everything about economics, and so can predict just about everything about economics very very successfully indeed. They can do this not only because they are EXTREMELY well educated and experienced in the SCIENCE and ART of economics. They can do this because the people they really work for, make all of the really big economic and social things happen themselves, in the first place.

  27. Tim Skinner
    Posted January 23, 2009 at 11:46 pm | Permalink

    0. Return to sound non-inflationary money. In fact to a gold standard.

    There should be a 0% inflation target, not 2%.

    And governments should balance their budgets.

    A policy of perpetual inflation is a policy of perpetual credit expansion and hence of ever increasing debt. Inflation degrades money as means of economic calculation and is one of the reasons people misread the signals of the boom leading to this bust.

    If money values changed uniformly and simultaneously inflation would have no effect other than to add zeros onto nominal money values. It is only to the extent inflation’s course and effects cannot be catered for or seen clearly by economic actors that governments utilise it, to the detriment of those down the inflation chain.

    If the banks had not expanded credit in the particular way which led to this crisis, they would have done so in some other way, leading to equally unforeseen but disagreeable results.

    I know a gold standard is considered passé today, but it has the advantages of making money independent of government whim; allowing money better to act as a store of value; requiring more honesty and certainty in long term contracts; and allowing interest rates to serve their proper market function of harmonising present and future wants.

    Britain’s greatest economic growth and prosperity was under the gold standard: I am sure the world would benefit from its reintroduction.

    • Bazman
      Posted January 24, 2009 at 11:05 am | Permalink

      Black cabs and their parts would also do. A London Taxi is one of the few vehicles that can be completely disassembled into its component parts, thus any part can be replaced. An engine would be worth so much. The smaller parts such as the nuts and bolts could be used for small change. With larger parts such as the clutch or exhaust manifold being used for bigger purchases. Individual parts would be valued by what that part is and it’s condition at time of sale. A complete cabs value would be decided by the market to include such things as the labour and cost of assembly. It might be cheaper to save up your parts or buy a pre built one. Parts could also be earned driving or renting the vehicle.
      That’s the Houses of Parliament. I once had John Redwood in the back of this cab. That will be a flywheel to you Guv. You don’t get many of them to the pound.

      • Tim Skinner
        Posted January 24, 2009 at 10:44 pm | Permalink

        Yes, I like it!

        Almost fungible, London cabs could play their part, and give a new meaning to black gold.

  28. Posted January 24, 2009 at 12:11 am | Permalink

    No, the underlying mistake was the over-expansion of the public sector.

    It all reminds me of the downfall of the Hapsburg Empire where the head (Vienna) was too big for the body (austria-Hungary) to support.

    And I wish people would stop talking about the IMF being called in, because available IMF funds would only tide the UK over for a maximum of a few weeks.

    I don’t know where we go from here. I really don’t.

  29. GH
    Posted January 24, 2009 at 7:52 am | Permalink

    Can we add –

    The government was wrong to seize Icelandic assets (by a combined dubious use of anti-terror legislation and powers of banking direction), thus pushing their surviving banks into default, spreading the disease across northern Europe and administering a shock to the British retail sector.

  30. GH
    Posted January 24, 2009 at 7:54 am | Permalink

    … which was another attempt to pass the blame to others, regardless of cost, of course.

  31. Bazman
    Posted January 24, 2009 at 7:58 am | Permalink

    This ain’t rocket science.
    The bankers where allowed to do what they liked under a weak regulatory system put there by fawning politicians. Any attempts at regulation where fiercely resisted. The bankers made massive casino gambles with other peoples money knowing, yeah! they Knew. That whatever happened their own cash was safe, and ultimately if this sham of private capitalism that was nothing to do with the state collapsed, then the taxpayer would pick up the pieces. The said people ran the whole game for themselves. What can we get away with and and how long can we get away with it?
    It’s ironic that all these middle class bankers apologists, who so hate trade unions and the working classes will soon be joining their ranks, put there by the very people and the system they support. It all failed because we did not believe enough huh! I take it all these apologists saved enough money and paid off their mortgages/debts during this scam.
    Who is to blame then? The greed of a few and the collective stupidity and/or lack of memory of previous recessions believing these lies. Tee he! House prices up again! I’ve got loads of money me. Lets get a daft car on finance! Two years later. No job, can’t keep up mortgage payments on the car, so no house. Work harder next time suckers.

  32. david
    Posted January 24, 2009 at 8:08 am | Permalink

    One of the backbenchers fronting calls for the party to support expansion, David Wilshire, the MP for Spelthorne in Surrey, has met Mr Cameron and Ms Villiers to try to change the party’s position. He has promised not to start a high-profile campaign.

    “Provided that the environmental conditions can be met, which the Government has introduced, expansion should be supported,” he said.

    Mr Wilshire will ensure, along with the other leading pro-expansion Tory MP Ian Taylor, that he is not in the chamber when the vote takes place on Wednesday. The number of Tories planning to abstain or vote with the Government is said to be well into double figures, which should help the Government win the vote narrowly.

    Peter Lilley, a former trade and industry secretary under John Major, also said he supported expansion of aviation at Heathrow and would consider voting with the Government. “It makes sense to have a hub airport in one place. I will need convincing from Theresa that our position is coherent,” he said.

    From the Independent.

    I do hope you’ll be making your position on this issue clear.

  33. Sean Morris
    Posted January 24, 2009 at 10:58 am | Permalink

    I think the most serious charge against Crash Gordon is abdication of the national interest.

    The is an economic problem behind all this, and that is the rise of China which is not the free trade loving nation we think it is, it is a mercentialist nation, or in other words “protectionist”

    The money that banks where lending one another was basically from SE Asia, we were not saving, no reason too, interest rates where low, and made artificially low by China buying up lots of USD. This also kept their all important exports protected and cheap.

    Lower interest rates at the beginning of the decade also drove banks to take more and more stupid risks.

    The Govt failed in its duty to understand and confront this problem.

  34. Alan Wheatley
    Posted January 24, 2009 at 11:44 am | Permalink

    A phrase appearing regularly is “too big to fail”; or in another form, “too important to fail”.

    In a properly regulated free market, is not “too big to fail” a definition that the institution is too big and should be broken up?

    Alternatively, such big institutions could be subject to regulation that requires that size/importance be inversely proportional to risk.

  35. TomTom
    Posted January 24, 2009 at 5:39 pm | Permalink

    Why Britain never used Monetary Base Control is clear – it is a society prone to inflation and could not permit effective credit control for fear of the weak economic base constraining consumption.

    By default we now have an extreme MBC whichis market-driven rather than central bank supervised. The B of E is powerless to unlock blocked credit lines and the whole system of monetary policy is off the rails with presumably Velocity dropping sharply leaving the bank to increase Quantity in the hope of shifting the price level.

    If only the British economy were not prone to boom and bust because of the Credit Cycle – all that has changed since the 1960s is the amplitude – and the country looks more and more like a banana republic

  36. Magelec
    Posted January 24, 2009 at 6:27 pm | Permalink

    I understand from a friend of mine who worked for some time in Figi that he had a lot of dealings with the Australian tax authorities. He told me that Australia doesn’t have the problems with dodgy bank liabilities that the UK etc have because their equivilant to our FSA actually did their job properly. We seem to have a lot of box ticking bureaucrats with no spine. The latest proposal by Lord Turner (Chairman FSA) that the banks should be required to build up their cash deposits seems to allow for the time when the banks take on more dodgy loans instead of stopping them from taking on the liabilities in the first place!

    I hope the above makes sense.

  37. adam
    Posted January 25, 2009 at 4:30 am | Permalink
  38. Bazman
    Posted January 25, 2009 at 7:30 am | Permalink

    This is not a repeat of the 1970’s It’s not the unions or the workforce that have caused this mess. It is the elite people like bankers and their apologists. They do not have a divine right to rule. Many people who read this site no doubt supported everything these banks and investment companies did and defended even the most ludicrous excesses. Getting people, especially the middle classes into massive amount of debt, then pulling the rug out from under them and credit card crunch is yet to come. Any policy by any government to make the rich pay more is not by definition bad for the middle classes and in many ways can benefit them. How’s your discount shopping going? Lidl Aldi. I’ve seen you walking around like you have discovered something. Fluorescent light bulbs bright enough now? Shameless.
    Just because someone works in an office does not make them middle class. Just la de da, and if you are middle class then that does not make you rich. Blind support of an elite has got us into this mess and now these rich bankers are tapping their pencils in the drawing rooms of their mansions pondering what went wrong. For everyone else of course. I would like to read just one person defend these peoples bonuses on this site.
    Go on, we could all do with a laugh! I suspect keeping the cash and not saying anything, or some nonsense about starving children in Africa is the name of the game. We all got turned over and few people saw it coming.

  39. Posted October 5, 2009 at 8:57 pm | Permalink

    What a great post! I really like the fact that you have expressed your opinion, but yet not forced it on anyone 🙂 You put out the information and let others make up their own minds. Keep up the good work.

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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