Mr Cable’s lack of foresight

Mr Cable and his friends keep saying he saw the dangers of too much credit in 2004-7. So did the Conservative party and so did many of us watching the build up of the bubble. He was not unique.

What matters is the response to the crash of 2007-8, when Mr Cable failed to forsee the way public intervention and bank nationalisation would make things worse and damage the future recovery. There should have been earlier and private intervention with banks short of cash, and use of lender of last resort, not share purchase. He has not spoken out against boom and bust regulation, nor does he seem to understand the way tightening the regulations at the bottom of the cycle has made things worse.

Promoted by Christine Hill on behalf of John Redwood, both of 30 Rose Street Wokingham RG40 1XU

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

23 Comments

  1. John Q
    Posted April 14, 2010 at 2:59 pm | Permalink

    It amazes me how many do not grasp this concept. If we want growth, if we want money to move around the economy now, the banks must be allowed to lend on terms similar to those we had leading up to the bust. House prices have dropped enough that many more first time buyers could afford a mortgage, if only they didn’t have to stump up thousands of pounds of deposit. We ought to be encouraging people to buy now. Once the economy starts to grow again, then we can start placing tighter restrictions on bank lending.

    • ManicBeancounter
      Posted April 14, 2010 at 8:01 pm | Permalink

      The reason that banks ask a large deposit is two allow for two big risks.
      1. That house prices will fall again.
      2. The there will be a double-dip recession and unemployment will again rise.

      When house prices were rising at 5% to 20% year on year, with no end in sight, it was quite prudent to make 100% mortgages. If the borrower could not meet repayments, then they could sell at a profit quite quickly.
      Will falling house prices in a thin market, the same borrower becoming unemployed could have to sell at a huge discount.
      To force banks to lend would mean exposing them (and the taxpayer) to high risks.

      • Michael Read
        Posted April 15, 2010 at 10:39 am | Permalink

        True enough.

        And I suspect banks have looked at Spain and Ireland and decided house valuation is a relative art.

        Prices are much too high. The government has shepherded this catastrophe into an election. There is a day of reckoning, however.

        Low interest rates, teaser rates, 125% deals, ninja deals – this is how we got in the mess in the first place.

    • Simon
      Posted April 15, 2010 at 12:20 pm | Permalink

      House prices are still monumentally overpriced.

  2. Brian Tomkinson
    Posted April 14, 2010 at 4:08 pm | Permalink

    Cable is totally overrated, especially by the media. He is however very ambitious, and thinks nothing of making misleading or inaccurate statements whilst making the most of the easy ride he is always given when interviewed.

  3. Jonathan
    Posted April 14, 2010 at 4:25 pm | Permalink

    It's become this self perpetuating legend that Saint Vince foresaw everything that came the UK's way; which is obviously rubbish.
    The sooner he gets some tough interviews the better.

  4. Stuart Fairney
    Posted April 14, 2010 at 5:22 pm | Permalink

    Why do you continue to waste your time on non-entities like Cable? He was wrong, wrong and wrong again on the financial crisis ~ indeed as the BBC saw him as the great Panjandrum, we could be reasonably sure he was wrong. I can't believe there is an electoral threat from Cable and Clegg (who sound to me like dodgy estate agents!)

  5. Robbo
    Posted April 14, 2010 at 6:45 pm | Permalink

    Isn’t the constant referring to ‘tight’ or ‘loose’ regulation a misdirection ? Surely it is critical that the regulation is working in the right direction ? ‘Tight’ regulation that tends to undermine stability is actually worse than ‘loose’ regulation that tends to increase stability.

  6. Acorn
    Posted April 14, 2010 at 7:07 pm | Permalink

    One of the tenets that make me one of your Disciples, is that you still have an ideology that embraces liberty. This is very old fashioned. I suspect that my fellow posters on this site also have these unfashionable values. That is, we have been brought up to have values and standards. We are castigated as old fashioned perfectionists. Social Services would never allow us to be foster parents or adopters unless we disguised these facts.

    We are currently being presented with party manifestos that are a pick-'n'-mix from the last twelve months of media headlines. I don't see an "ideology" anywhere. I may be wrong but, I think Redwoodians are well aware that Labour have spent thirteen years building their client state of benefit junkies; Soviet style; about £170 billions a year worth. This will buy a lot of votes.

    As Tony E said previous, how do we solve that problem. If this election does not do it, I fear for the future of the likes of us.

    • alan jutson
      Posted April 15, 2010 at 12:45 pm | Permalink

      Acorn

      Good points well made.

  7. Ian B
    Posted April 14, 2010 at 7:37 pm | Permalink

    "There should have been earlier and private intervention with banks short of cash, and use of lender of last resort, not share purchase."

    There should have been recognition that the bubble was created by deliberate credit expansion by central banks, and loud public denunciation thereof. If you pump up the banking system, it will eventually go off pop, and hoping that that can be averted by handing more money around on the quiet, however it is done, isn't a solution.

    A limited degree of credit in a free market aids investment in new prodution. Profligate credit, in excess of real savings, simply parasitises the productive economy, as production is diverted into the repayment of loans which are not themselves creating more production, and which are thus not "investment" in any real sense- house price inflation is an example of this, a house is usually a *cost* to the owner, not a productive investment.

    Pyramid schemes collapse. Until we grasp this at the national and ineternational economic level, we cannot fix anything about the economic system.

  8. ManicBeancounter
    Posted April 14, 2010 at 8:55 pm | Permalink

    One of the problems of political involvement to this crisis, is that the comments are made on the basis of knee-jerk response, media exposure and ducking responsibility.

    What is lacking, is an understanding of the true nature of the crisis, how government policy may have made things worse and a detached assessment of regulation. The experts in the field have all got vested interests – the Banks, the Central Banks, The regulators and the governments who cheered on the boom and added to it by deficit spending.

    Vince Cable could claim to be detached from all of this. As a Liberal Democrat, he certainly has an expectation of permanent detachment from the actual business of Government. But as a minority party, it is especially important to convey weighty, sensible but moderate opinions, in tune with the popular mood. Otherwise, views will not be heard. This is something quite different from providing solutions that will get the balance between regulation that heads of future potential crises and heavy-handed rules that prevents the financial sector ever again being a strong growth sector in the economy. This is especially true of Britain, where we had the world’s leading financial centre.

    It is why, Mr. Redwood, I hold you as an honourable exception. Your vision of a regulator with great powers, but normally moderately applied. An approach that will encourage banks to identify issues early on, and enable quiet action to counter the issues. At the same time, not requires reams of forms to be filled in that are of little meaning and read by those without the ability to analyse the data.

  9. BillyB
    Posted April 15, 2010 at 1:20 am | Permalink

    Cable looks good because Osborne is a lightweight.

  10. Lindsay McDougall
    Posted April 15, 2010 at 4:03 am | Permalink

    Let us look at Conservative policy on banking as given on P29 of our manifesto, under the heading "Safer banking system that serves the needs of the economy". A key bullet point is:

    – Increase competition in the banking industry, starting with a study of competition in the sector to inform our strategy for selling the government's stakes in the banks.

    There is just a hint there that we might force RBS and Lloyds/HBOS to break up when we sell our shares in them, but it isn't explicit. It should be and after the sell off we should also be able to say that there is now no such thing as a bank that is too big to fail.

    Once it is accepted by all that the normal rules of capitalism apply to banks, then they will be falling over themselves to co-operate with the new regulator, the Bank of England.

    Reply:More than a hint- it's exactly what I've been argyuing for.

  11. Richard
    Posted April 15, 2010 at 10:32 am | Permalink

    The LibDems generally & Mr Cable in particular get a very easy ride in the media, especially from the BBC. The BBC uses Cable almost as an independent eminence grise on economic issues. He is never challenged on his views and policies – I've never heard a BBC interviewer even question whether the bank nationalisation strategy which he supports has been right. Paxman's interview with him on Newsnight yesterday was very feeble and contained no challenge whatsoever to the LibDem programme (perhaps Paxman is grossly over-rated as well?)

  12. Simon
    Posted April 15, 2010 at 12:48 pm | Permalink

    I'm sorry but Vince was the only prominent politician I know of who was regularly sounding warnings on debt levels and the massively overheated housing market.

    Please tell us who in the Tory party was warning about debt and house prices and who was calling for credit controls?

    I asked a question on WebCameron about house prices and lax lending a few years ago before the credit crunch while it was obvious to many of us that things were out of control. It was the top rated question and hence got a video reply, the response was that credit controls and taxes on Buy to Let are not the answer – it's now clear that they were the answer, you can find the video on the web. As far as I'm aware the Tories just followed similar housing policies as Labour, such as silly house price inflating and grossly unfair shared ownership schemes which are about boosting the housing market rather than helping young buyers.

    The Tories also talk about keeping rates pinned down, even though they were at the root of the problem and are going to cause another problem in future. I don't think the credit crunch would have been averted by the Tories at all.

    Reply: The Shadow Chancellor before the 2005 election was warning about excessive debt, as was I.

    • Simon
      Posted April 15, 2010 at 2:13 pm | Permalink

      Thanks for the reply. What was suggested be done about the levels of excess credit and household debt as a result of high house prices?

      Reply : I recommended higher interest rates earlier to curb debt. Then I recommended lower rates sooner to stop the collapse. The authorities got them wrong both ways.

      • Simon
        Posted April 15, 2010 at 7:06 pm | Permalink

        Thanks again for the reply, higher rates were needed back when house price were rising 20%+ per year I agree, however I am against the 0.5% rates now as it is fuelling another house price boom – it's the same all over again except worse as we now have even lower rates and QE on top.

        What has happened is those with debts have seen their debt repayments shrink, especially those with tracker mortgages. This is being paid for by those who rely on savings for income.

        We can't continue with this lop sided debt economy forever, it's savers money which enables banks to lend in the first place. The message is borrow, don't save because the government bails out people who live beyond their means and penalises prudence.

        We need neutral rates of 5% for now and credit restrictions as I was saying years ago. I am amazed the renewed house price bubble isn't causing great concern, high house prices are at the root of so many of todays social evils. All we've had is more fuel on the fire with stamp duty cuts and tax breaks for multiple property owning buy to letters. It is beyond belief , especially so soon after the collapse of the last bubble.

        • Simon
          Posted April 17, 2010 at 11:25 am | Permalink

          John I've just read your blog entitled 'House prices drop 10% – more to come', it sounds like you also advocated artificially propping house prices up, is this really correct?. If they'd let the market correct it WOULD have made homes more affordable. Prices needed to fall by 40 – 50% to get them to anything resembling normality.

          Instead we've had the massive bailout and house prices have shot right up again, so taxpayers money has been used to keep the cost of houses prohibitive for taxpayers – utter madness as will be proven given time.

      • Mike Stallard
        Posted April 15, 2010 at 9:06 pm | Permalink

        I was reading this blog at the time. He is right!

  13. alan jutson
    Posted April 15, 2010 at 12:51 pm | Permalink

    Vince Cable

    Esay to promise the earth, when you do not have to deliver.

    Only policy I like from the Liberals.

    First £10,000 earned tax free.

    Think this should be £12,500 about half the National wage (we are informed) to encourage those caught in the benefit trap, to work, and to help the lower paid/pensioners out of (or reduce) personal taxation along with an ecouragement to all other workers.

    Can anyone explain why all benefits, no matter how much you get, are tax free, yet if you actually work it all (less allowances) gets taxed.

  14. Andrew Gately
    Posted April 15, 2010 at 2:55 pm | Permalink

    I was discussing the cult of Vince with a friend.

    He usually produces a decent summary of events and then comes out with a really silly solution on how to deal with them.

    It is disappointing how uneducated the press are with financial matters that he can get away with misrepresenting financial terms such as black holes (in Vinces terms a companies total liabilities not including assets) or bailouts (in Vince's terms a loan is a bailout).

    If you listen to Vince Northern Rock had a 100 billion black hole and the only way to enforce moral hazard was to wipe out the shareholders. He also claims that the taxpayer had paid provided funds to the bank and the problems were caused by casino gambling.

    The reality was that Northern Rock had a liquidity problems just the same as HBOS, RBS, the Derbyshire, the Dunfermline, Bradford and Bingley and Alliance and Leicester.

    The correct response was to provide liquidity from the bank of england at a penal rate (thus ensuring moral hazard) the banks would then have to sort out their problems by reducing the loans they issued and using the funds from maturing loans to repay the bank of england. The penal rate of interest would have provided the incentive to do this at the earliest opportunity.

  15. Mike Stallard
    Posted April 15, 2010 at 9:11 pm | Permalink

    This evening, the country will be judging the three candidates. What will they look for? Well, how about a cut chin during a bad shave? Or some wrong arm gestures? What about not being sexy enough? Or perhaps a crooked smile or a wrongly coloured suit?
    A country gets the politicians it deserves. Our Tony never put a foot wrong on points like this. Even when he got sweaty or lied about bernie Eccleston or when it was forbidden to make jokes about Mr Mandelson's boyfriend on "Have I got news for you", we stayed loyal.
    Now we are about to choose our next PM in the same way.
    So, no doubt, Nick Clegg will get his "balanced parliament" which, natch, its totally uncorrupt……
    And Vince Cable, pbuh, will become the new Chancellor.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page