The morality of the bond crisis – should anyone go to prison for that?

 

          As we listen to a new round of banker bashing, with demands for bankers to go to prison, we need to ask who is to blame for the current serious sovereign debt crisis. Should they also be in line for prison?

           At the heart of today’s crisis is  Greek debt. There are dangers that the problems surrounding the Greeks could spread to Italy, Spain and Portugal.

            The crisis is brought on by one simple fact. These countries have borrowed too much.

             Is it the Greek government who are to blame, for borrowing more than they can afford?

             Is it the Greek people, for seeking to stop the Greek government cutting its spending so it can afford it?

            Is it the banks who have been prepared to lend money to Greece on poor figures?

          Is it the bank regulators who have actively encouraged the banks to lend more to sovereigns, as they regard sovereign loans as no risk loans that count as part of the bank’s liquidity?

           Is it the European Central Bank, that has encouraged sovereign borrowing by bond issues, and has bought up sovereign bonds itself to artificially inflate their market price?

          In the case of mortgages that go wrong because the poor borrower can no longer afford them, more people are inclined to blame the bank as lender than the borrower for the default. In the case of sophisticated countries with armies of clever people in their finance departments it is more difficult to blame the banks for the excessive borrowing of the sovereigns, and for their eventual reneging on the debt  if that is what they do.

           I suspect the enthusiasm for putting people in jail for their part in the Credit Crunch will wane as we move decisively into the sovereign debt phase. I do not expect to awake to calls from BBC programmes for leading politicians and government officials to go to jail for taking the system to the edge of bankruptcy by overspending and overborrowing in the state sector. Their morality is lop sided. Putting a banker in prison for a dud mortgage is one thing. Putting a left wing Minister in prison for overspending would be quite another. Arguably the latter has done more damage than the former.

             The Greeks today are protesting loudly against the demand for more public sector cuts as part of the package to lend them more money. As few think they can pay back what they have already borrowed, isn’t borrowing more a case of seeking money with no thought for the lenders?  How moral is a further Greek loan? 

               If a country defaults on its borrowings, how does that differ from theft?

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70 Comments

  1. lifelogic
    Posted September 19, 2011 at 6:42 am | Permalink

    Most of the blame does indeed rest with left wing “tax and waste” Ministers and EU officials, the absurd EURO structures and poor bank regulation systems. Something that seems to be continuing under socialist, pro EU Cameron.

    What exactly to they do to the brains of people on the Oxford PPE course to to make them think and say such stupid things as Danny Alexander yesterday below?

     “Sadly, eurosceptics on left and right fail to understand Winston Churchill’s central insight that sharing sovereignty strengthens influence and isolation weakens us. Sottish Nationalists make the same mistake. We will never let the anti-Europeans or nationalists frustrate our national interest. They are enemies of growth. Deepening, strengthening and deregulating the single market was a central aim of Britain’s European policy because it would bring jobs and growth, he added.”

    Has he actually looked at world growth and unemployment figures recently? The only growth we get from the EU is growth in absurd, negative regulations in employment, energy, gender neutral insurance laws and all the other insanities. Has he read much history in relation to Winston Churchill? How does he work out the “Scottish Nationalist mistake” he refers to?

    It is so depressing just listening to him. His words alone are perhaps enough to take 1%+ off UK growth – just by filling business people with doom and gloom over his absurd views and lack of vision. Persuading them all to invest outside the UK/EU instead I imagine.

    • lifelogic
      Posted September 19, 2011 at 2:20 pm | Permalink

      I am please to see that a group of 30 scientists, including Richard Dawkins and Sir David Attenborough have signed a petition calling on the government to combat Creationism in the classroom. Let us hope the government acts on it. Perhaps they could also extend it the absurd green, religious exaggerations such as the “An Inconvenient Truth” DVD and similar that is also regularly pushed into young minds at school through by charities, the syllabus, teachers and the examination system.

      Alas I rather think the, excellent in most things, David Attenborough does not have very clean hands in this particular area of religion. Hopefully he is now changing his mind on the AGW exaggeration – (Perhaps as Max Hastings finally has on the EU.)

      • lifelogic
        Posted September 19, 2011 at 7:30 pm | Permalink

        To be fair to Sir David Attenborough he probably could not have worked at the BBC for that long without being on message or absorbing slightly the exaggerated BBC Anth. Global Warming line and he is far less annoying than his over theatrical brother.

    • Disaffected
      Posted September 19, 2011 at 6:50 pm | Permalink

      Alexander and Huhne, if they had their way, would have introduced the UK in the single currency. The UK would be bankrupt as a consequence. PPE courses at Oxbridge need to be stopped they are producing too many MPs who do not have a simple grasp on basis economics. MPs would be better served to read a business studies degree at a third rate university.

      Instead of keeping the 50p tax rate Cable and co would be better served addressing the welfare lifers where 370,000 households where no family member over the age of 16 yrs has ever worked. Osborne would be better served by referring to these people as leeches or parasites rather than people who are protecting their money from politicians incompetence who continually attack working people’s living standards (through inflation, taxation and wasteful spending) who have the ambition to increase their wealth by their hard work.

      Alexander now seeks to increase tax collector positions by 2,000 when he and his party claim there is a need to cut public spending and in contrast cut the number of teachers, police officers and nurses together with their respective pay and pensions. Quangos were also going to be cut as part of the cuts to the public spending drive; to date very little has changed (cogently highlighted by Mr Redwood). However, Alexander could help HMRC by paying tax on his expenses (personal allegation left out-ed)(MPs are exempt from paying tax on their expenses unlike everyone else), pensions cut for public servants but not for MPs- they also have second homes to bolster their pension pot by rental income or selling the house which was paid for by the public ie taxpayers’ money.

      No more bail outs paid for by the UK we were told. Last week the BoE stepped in to help the ECB pot.

      A dose of integrity is required by MPs when speaking to the public and it would also help if they led by example rather than exempting themselves all the time. Part of this might be attributed to their poor education at Oxbridge while reading their PPE courses or the lack of emotional intelligence required when making decisions- a good education clearly has not helped develop our leaders’ emotional intelligence, hence the poor decisions, lack of transparency and the lack of integrity to the public. Is it any wonder why public figures like MPs, who should act as role models, have gone to jail or disappointingly why the institutional corruption at Westminster has led to so few being jailed.

      Reply: MPs expenses have to be properly incurred and for work purpsoes to qualify for tax relief, like anyone else’s. If you work for a company and they pay for you to travel or stay overnight you do not pay tax on the repayment of your costs. Taxpayers did not buy second homes for MPs – MPs used their own capital to buy their second homes, or raised a mortgage and made repayments of the loan over time out of their own taxed income.They could then claim the mortgage interest, which was often less than if they had rented and claimed the rent. The new scheme does not allow mortgage interest, so some MPs are switching to rented accommodation as they can claim the rent.

  2. norman
    Posted September 19, 2011 at 7:07 am | Permalink

    I read a few months back a comment, perhaps in Christopher Hitchens autobiography but I can’t be sure, that when the author was a young man / student he met with one of the great men of state, a Minister of some renown.

    He explained that he was in awe of this powerful figure and expected to be blown away by the conversation. Instead he found someone who wasn’t really different from any other man in the street, confused about issues, not sure of the facts, not really inspiring in any way.

    We need to realise that politicians, and by extension the government bureaucracy, are not some all knowing oracle who will spend money well, if anything the opposite is true.

    So I put the blame with the public for allowing what are a group of unexceptional individuals, a lot of whom are in their current position not on merit, so much control over so much money.

    That politicians (who know better than us) want to hoard power and hold dominion over us shouldn’t surprise us any more than that bankers want to enrich themselves. The trick is to stop both from happening.

    We’ve failed on both counts.

    • Mike Stallard
      Posted September 19, 2011 at 7:21 am | Permalink

      Congratulations on a super comment.

    • Ralph Musgrave
      Posted September 19, 2011 at 7:24 am | Permalink

      Or in the words of Dean Baker, director of the Centre for Economic Policy Research in the US, “In elite Washington circles, ignorance is a credential”.

    • Electro-Kevin
      Posted September 19, 2011 at 8:29 am | Permalink

      In the 50s parents and censors worried about the effects of influences such as Elvis Presley, The Rolling Stones and even Sir Cliff Richard on their children. The most insidious happened to be John Lennon of the Beatles as it happens.

      Those parents thought that this was the end of Western civilisation.

      Well here we are. Worried about what seems to be the end of Western civilisation.

      Those Flower Power hippies went through our best universities and ended up in charge of our countries.

      (I follow MUSE btw – have seen them in many places. Possibly the best guitarist ever. Matt Bellamy. Is he worth the price of Western civilisation ? I’d have to think hard about that one.)

    • oldtimer
      Posted September 19, 2011 at 9:14 am | Permalink

      Your comment has the ring of truth.

      • Electro-Kevin
        Posted September 19, 2011 at 11:36 am | Permalink

        Thank you, Oldtimer. With a name like that I didn’t expect you to be a fan of Matt Bellamy too.

        • oldtimer
          Posted September 19, 2011 at 11:51 am | Permalink

          Who is Matt Bellamy? Never heard of him. I was replying to norman!

          • Electro-Kevin
            Posted September 19, 2011 at 1:13 pm | Permalink

            His father was in Johnny and the Tornados who performed Telstar.

            You must be a fan of The Clash by the sounds of things. Alas our differences may never be reconciled.

  3. Mike Stallard
    Posted September 19, 2011 at 7:19 am | Permalink

    In my marriage, I make it a rule (OK, I’m not perfect either) never to blame my wife or family. It creates self defence and, the worse the penalty, the more the self defence.

    What is needed is calm reasonable discussion (OK that is even more maddening, especially when the computer plays up) so that the problem can be identified and the results be cleared up and the trap avoided in future.

    Just sending people to prison on a 30 year sentence and then releasing them from an Open Prison after 3 weeks is not going to do any good to anyone except the ghastly red tops.

    • Electro-Kevin
      Posted September 19, 2011 at 8:33 am | Permalink

      The secret to a successful marriage is equally forgiving partners.

  4. Amanda
    Posted September 19, 2011 at 8:17 am | Permalink

    There is no ‘morality’, as we know it in this country today. What passes for ‘morality’ is based on hate and envy, and the worship of the Gods of ‘Equality of Outcome’, and ‘it’s not fair he has more’, the Church of this religion is the diverse Tower of Babel.

    Yesterday, I read that children as young as four have been reported for rascist and hate ‘crimes’ by schools. And, if a school does not report children, then inspectors force them to. This is just degenerate !! That the laws of this woe begotton land require this is sickening. But there you go, there is the new morality for you – you cannot sent a thief to jail, or stigmatise a riotier, but you can brand a four year old a racist, it is your ‘civic duty’. !!!!!!! Same thing as jailing a banker for lending money, and rewarding the politican who bent the rules and miss spent the money with a seat in the house of Lords and a permanent slot on the Today programme.

    • lifelogic
      Posted September 20, 2011 at 3:17 pm | Permalink

      I see in a recent case you cannot even move squatters possessions, that they have abandoned in your house. I assume you have to wrap them in cotton wool and store them at your expense for ever more lest they return.

      • Bazman
        Posted September 20, 2011 at 8:50 pm | Permalink

        Source? Man in pub or Daily mail?

  5. Thomas Ec
    Posted September 19, 2011 at 8:44 am | Permalink

    I think, with respect, that the law is not a morality play. We don’t put people in gaol because they are immoral. We put people in gaol because they have been proven to break the law.

    The argument that the Greek government has behaved immorally may be true or not true. (In essence what happened to the Greeks was that they significantly over estimated their growth, in line with their trend rate of growth over the last fifty years. Then, they had the deepest recession in their history, worse even than the great depression. No one was predicting such a recession in 2008).

    But no one has explained what law (as supposed to moral code), any politician in Greece broke. Unless we are to live in a country with a fascist legal code, you need someone to have broken a law before you can bring them to justice.

    The real question is, did the banks invest money in loans, knowing they would not be repaid? If they did, that is a criminal act. My own conclusion is that in very many cases, they did, but predominantly these acts were in other countries (specifically, America.)

    reply: How then does a bank investing in loans it knows cannot be repaid differ from a Minister borrowing money from savers which he knows his government cannot repy? Indeed, isn’t it more criminal to borrow knowing you cannot repay, than to buy a loan which you doubt may not be repaid?

    • Thomas Ec
      Posted September 19, 2011 at 9:06 am | Permalink

      It doesn’t. But, in the case of the bankers, you can prove that they knew the loan would not be repaid, and you can show very many cases where bankers explicitly told people to commit fraud (specifically in the US, not within the UK).

      Can you prove that the Greeks knew they could not repay?

      I’d argue that you can’t. Almost no one even considered, just before the banking crises broke, that the current sent of circumstances would happen. As I said, prior to the recession, and even a few months ago, it was creditable that these loans would be repaid.

      reply: But the Greek governemnt is still borrowing when very few people think these loans will be repaid in full.

      • Thomas Ec
        Posted September 19, 2011 at 10:03 am | Permalink

        They are borrowing, but not on the market. They are borrowing within the IMF scheme, and before any money is loaned via the IMF scheme the debtor must provide all financial information they have available.

        It is a given that within the IMF scheme, loans that are given may be defaulted on. It only lends to governments in deep trouble, and is fully aware of the status of the Greek economy.

        No dishonesty is involved… the IMF has available all the same facts as the Greek government.

        Where is the fraud? Even under the theft act, there needed to be some dishonesty proven… and yet, the IMF explicitly know that the Greek government is in decided financial difficulty.

      • Mark
        Posted September 19, 2011 at 3:34 pm | Permalink

        Time to get your head out of the sand, Thomas.

        http://www.bbc.co.uk/pressoffice/pressreleases/stories/2003/10_october/29/money_programme_mortgage.shtml

        It was happening right here in the UK. It was widespread (self-cert accounted for 45% of all mortgages granted at one point). It was publicised – even on national TV, but the politicians and regulators turned a blind eye. Shortly thereafter the BBC was emasculated by the Hutton report – after which I can’t recall it having cast a serious critical eye on the actions of the Labour government, who chose the placemen to run the BBC in the wake of Hutton induced resignations.

  6. Nick
    Posted September 19, 2011 at 8:57 am | Permalink

    You’re up for fraud them.

    Where are the pension liabilities in the government accounts?

    Reply: the public sector liabilities have been quantified and published by this government. The state scheme has always been and remains pay as you go, like benefits and other state payments.

  7. Brian Tomkinson
    Posted September 19, 2011 at 8:58 am | Permalink

    Is it politicians falsely claiming that a currency union was not merely part of a process designed to lead to political union? The problem is that there are no real sanctions against irresponsible actions by politicians. Before people tell me about the power of the ballot box, it may have escaped their notice that because politicians are so well connected they seem to make more money outside politics. There has to be the prospect of some unpleasant personal sanction to make them stop and behave more responsibly.

  8. Nick
    Posted September 19, 2011 at 8:59 am | Permalink

    What about the people who incite crime?

    Clinton passed a law forcing banks to lend to people who weren’t going to pay it back.

    Brown incited the banks to do the same.

    Councils are now making the same sorts of loans.

    What is needed is personal financial responsibility and the ability of the public with class actions to sue politicians. Make politicians personally liable.

  9. alan jutson
    Posted September 19, 2011 at 9:04 am | Permalink

    John the answer seems simple.

    No government should be able to spend more in one year than it has recieved in tax revenue from the previous year.

    Most households work this way and keep within their budget, if they do have borrowings (for house purchase for example) then their spending includes such repayments. Its a very simple accounting system that most understand.

    My business used to run in exactly the same way, we always spent less than we got in, in revenue (sales) and kept a cushion of money in the bank to cover for troughs or unexpected purchase of equipment.

    Seems so simple. I cannot understand why it s not a legal requirement of Government never to spend more than it earns in any one year.

    Aware that you can have a national emergency like defence/war, earthquake, floods etc, but if you run a yearly surplus, even only a small one, then funds build up over the years to cover for most of such events.

    The problem is politicians love to promise things we (the taxpayer) cannot afford, for votes, and the power of social engineering has no cost limits in their minds.
    So commonsense and commercial sense then go out of the window an they then try to bribe the voters with their own money and future debt.

    What a crazy system.

  10. Javelin
    Posted September 19, 2011 at 9:22 am | Permalink

    On Sunday I thought that the negative conequences should be felt more by borrower for a sin of commission than the bank or the regulator for a sin of ommision.

    In the case of over spending by the Government I would see the Government take the consequences – not the voter – because the Government is borrowing more than they could afford. The parallel is not one of individual and institution (i.e. mortgage borrower = voter, bank = government) but one of actor and responsibility. But the voter should also receive smoe of the negative consequence, if it could be shown that they could have forseen the over borrowing. Which of course really only happened in the the final years of the Blair Government when Gordon Brown was is office – and he was kicked out.

    So I do see more consequences for Labour when the Government spending bubble breaks. I do think the Conservatives HAVE a responsibilty to explain how this mess was caused by profligate spending – not for political reasons – but as part as a duty to inform the public about the dangers of voting for profligate political parties.

    I think some kind of objective review needs to be set up by the OBR or ratnig agencies to warn the public about political party promises at general elections. The OBR or ratnig agencies needs to act as a government regulators.

    • Mark
      Posted September 19, 2011 at 2:32 pm | Permalink

      Read up on the Milgram experiment – it might shock you!

      Whilst I think that those who took on unpayable mortgages should not be rewarded for doing so (as they are at present) and should indeed suffer some penalties – including repossession, most of them were simply following professional “advice” from the media, their mortgage broker, their estate agent… they are the patsies of the scheme. The largest penalties should be reserved for those who designed and orchestrated the whole charade, with intermediate penalties for those who went along with promoting it. We got it right in 1720. The Chancellor was deemed the chief culprit, and banished from the Commons to the Tower and stripped of his entire estate (there were no welfare payments back then).

  11. oldtimer
    Posted September 19, 2011 at 9:24 am | Permalink

    Rogue MPs, who dishonestly claimed and received expenses, have been prosecuted and sent to prison. There has been talk in Parliament of defining “corporate manslaughter” and enabling the law to charge and prosecute corporate executives for that reason; it may even be law, I cannot recall. What is sauce for the goose should be sauce for the gander.

    A Bill should be drafted to require ministers and officials to be responsible for their actiuons in so far as they relate to management of the national debt. It should start with defining the limits of that debt followed by the penalties for exceeding it. At present I believe that Permanent Secretaries are responsible as accounting officers for their departmental spending. Their ultimate sanction is to resign if asked by their minister to do something improper. I cannot recall any instances of this happening. So maybe we do now need the sanction of the law and not merely rely on the honour of office holders, be they ministers or Permanent Secretaries.

  12. Geoff not Hoons
    Posted September 19, 2011 at 9:25 am | Permalink

    Mr.Redwood, If there is a guilty party over the Greek situation it is whoever was in charge of its government at the time ‘kidding’ euro auditors the books were straight regarding pensions and tax. Through friends living in Greece for 30 years to me it was common knowledge very few paid tax if at all and pensions seemed to be paid to some from their early 40’s. Brussels surely carry’s a lot of blame for introducing a new member who had not fully prepared. We see the result of that today.

  13. matthu
    Posted September 19, 2011 at 9:56 am | Permalink

    There is a question of legality about all of the bailouts because they were made under Article 122 of the Lisbon Treaty which was inserted into the Lisbon Treaty to deal with natural disasters or events beyond a country’s control.

    So at the very least payments to prop up Greece or Ireland or Portugal should all be tested in court. If they are found to be illegal, then people who authorised these payments should face severe penalties.

    The only reason these bailouts could be authorised on a nod and a wink is because no-one in government pays more than lip service to the electorate.

  14. zorro
    Posted September 19, 2011 at 10:00 am | Permalink

    Talking about theft, in case people’s wealth…..http://www.telegraph.co.uk/finance/financialcrisis/8772445/QE-saved-Britain-from-double-dip-recession-says-Bank-of-England.html……..hahaha here we go…the report on cutting tax takes a bit longer it seems.

    Zorro

  15. zorro
    Posted September 19, 2011 at 10:04 am | Permalink

    Talking about theft of other people’s wealth… http://www.telegraph.co.uk/finance/financialcrisis/8772445/QE-saved-Britain-from-double-dip-recession-says-Bank-of-England.html.

    Hahaha here we go….It’s a shame that they can’t get the report on the benefits of lowering tax so quickly!

    Zorro

  16. Viv Evans
    Posted September 19, 2011 at 10:13 am | Permalink

    Strong words indeed, Mr Redwood.
    These questions need to be asked of the public sector Trade Union bosses as well. Do they really think that their strike actions will put one penny more into the Treasury coffers, to pay for their demands?

    They, and the whole of the left spectrum, would do well to reflect on the tax burden already placed on us, and reflect that ‘TEA”, as in TEA Party, stands for ‘Taxed Enough Already’ …

  17. Iain Gill
    Posted September 19, 2011 at 10:25 am | Permalink

    The reality is that life is not fair in all sorts of ways
    You are more likely to get a speeding ticket on a clear bright day in perfect driving conditions on an empty road where your speed is perfectly safe than you are on a rainy poor visibility slippy road conditions where the posted speed limits is too fast to be safe, because the police will be far too busy dealing with crashes in the second scenario and will have time on their hands in the first
    This is no different, when the powers that be are busy and maxed out worrying about bigger problems there is lots of scope for getting away with dodgy practises

  18. john east
    Posted September 19, 2011 at 10:28 am | Permalink

    It may be impractical to prosecute left wing for overspending, but it might be more straightforward to hold politicians accountable for their lies and broken promises, particularly when they promise the earth during election campaigns, and then do 180 degree u-turns on manifesto pledges.

    However, I can’t think of a single politician with the integrity to support legislation to enforce the above so I guess your are correct John. Politicians will never be brought to account for their sins. Even those who blatently fiddled their expenses generally got away scott free, or with little more than a slap on the wrist.

    So it is safe to say that Blair, and Brown will never suffer for their treachery, and that Balls, Milliband etc., will feel free to repeat the sins of their forebears.

  19. StrongholdBarricades
    Posted September 19, 2011 at 10:37 am | Permalink

    Is your comment really a call for a witch hunt through the halls of the EU?

    Or is if simply more rhetoric, and political distraction?

    If the country defaults should we not be prosecuting those who made it legal for Greece to actually put those indelicate issues that are now causing the issues “off balance sheet”?

  20. sm
    Posted September 19, 2011 at 10:43 am | Permalink

    Why are Senior members of the ECB resigning? and when will its money run out?

    Would it not be more honest to resolve the issue at the banks who own the bonds- haircuts,bail-ins and liquidity support to the banks with the losses. Those banks with a solvency problem should be re-structured with the pain being felt by the risk-takers. Its going to happen, just a matter of time and who pays and how much and what time frame.

    The banking subsidies to date may blunt the problem but probably not quickly enough, that’s where the lost decades come in.

    We may need to nationalise and restructure all the banks, if the ATM etc stop working , it will be cash only.

    ICB improvements and changes may be too late in any case.

  21. Mark
    Posted September 19, 2011 at 11:11 am | Permalink

    My object all sublime
    I shall achieve in time
    To let the punishment fit the crime
    The punishment fit the crime

    from “Memoirs of Extraordinary Popular Delusions and the Madness of Crowds”

    The following Bubble-Companies were by the same order declared to be illegal, and abolished accordingly: …
    For purchasing lands to build on. Capital, two millions.

    For buying and selling estates, and lending money on mortgage.
    For carrying on an undertaking of great advantage; but nobody to know what it is.
    (Surely the definition of a modern bank??)

    Mr. Aislabie [Chancellor of the Exchequer], whose high office and deep responsibilities should have kept him honest, even had native principle been insufficient, was very justly regarded as perhaps the greatest criminal of all. … It was finally resolved, without a dissentient voice, that Mr. Aislabie had encouraged and promoted the destructive execution of the South-Sea scheme with a view to his own exorbitant profit, and had combined with the directors in their pernicious practices, to the ruin of the public trade and credit of the kingdom: that he should for his offences be ignominiously expelled from the House of Commons, and committed a close prisoner to the Tower of London; that he should be restrained from going out of the kingdom for a whole year, or till the end of the next session of Parliament; and that he should make out a correct account of all his estate, in order that it might be applied to the relief of those who had suffered by his mal-practices. …

    The next consideration of the legislature, after the punishment of the directors, was to restore public credit. …taken from the company, and divided among the proprietors and subscribers generally, making a dividend of about 33l. 6s. 8d. per cent. This was a great relief. It was further ordered, that such persons as had borrowed money from the South-Sea company upon stock actually transferred and pledged at the time of borrowing to or for the use of the company, should be free from all demands, upon payment of ten per cent of the sums so borrowed.

    I leave others to research the public disorder that accompanied John Law’s paper livres and the bubble in Mississippi scheme shares that was contemporaneous in France. Suffice to say, author Charles Mackay noted:

    In a constitutional monarchy some surer means would have been found for the restoration of public credit. In England, at a subsequent period, when a similar delusion had brought on similar distress, how different were the measures taken to repair the evil; but in France, unfortunately, the remedy was left to the authors of the mischief. The arbitrary will of the regent, which endeavoured to extricate the country, only plunged it deeper into the mire.

    Deja vu?

  22. wab
    Posted September 19, 2011 at 11:21 am | Permalink

    Although the various Greek governments (of both left *and* right persuasions) are mostly to blame, you fail to mention that Goldman Sachs (probably amongst other bankers) were the ones who instructed the governments how to fiddle the books.

    Reply: it was the government, employing higly paid sttaff and consultants, who fiddled the books, if that is what they did.

  23. MajorFrustration
    Posted September 19, 2011 at 11:52 am | Permalink

    I would see theft as a deliberate action whereas default is not something that a country initially sets out to achieve. “Events dear boy” Thats not to say that I would excuse the PIGS
    What I would like to know is how much, as a country, we are committed to in terms of bailing out EU countries – AND – if the government is going to make it clear to voters that we are also committed to picking up a share of any loses – thro EU bond purchases – by the ECB and its agencies.
    Not providing the facts is frankly a form of theft.

  24. Peter Campbell
    Posted September 19, 2011 at 12:13 pm | Permalink

    The blame for the debt crisis is difficult to apportion however the effects should be felt by the correct parties. If a bank lends recklessly it should suffer bankruptcy and not be bailed out by taxpayers. If a home buyer takes a loan that they can’t pay back they should lose the house and possibly suffer bankruptcy. If politicians borrow excessively that is theft from the future and should at least lose their jobs if not their liberty. At the moment banks are bailed out, mortgage holders are protected with artificially low interest rates at the expense of prudent savers and politicians strut around pretending to know what they’re doing and because most voters know little about economics they get away with it.

  25. matthu
    Posted September 19, 2011 at 12:15 pm | Permalink

    JR argues that it was the (Greek) government employing highly paid staff and consultants, who fiddled the books, if that is what they did …

    The question I ask is whether this was so opaque that no-one else in the EU recognised what was going on?

    Same as when they carry on with business as usual despite not having had their accounts signed off. Did no-one recognise why their accounts had not been signed off? Of course they did.

    And I would expect the UK government to have made a stand on this signle issue if on no other. Otherwise we are equally complicit.

    The UK bribery and corruption act is pretty all-encompassing and it seems that for too long our own government has turned a blind eye to what is going on in Europe.

    Reply: it was clear at the outset of the Euro that several countries had missed the requirements by a mile. I and others pointed it out at the time.

    • lifelogic
      Posted September 19, 2011 at 7:51 pm | Permalink

      If the UK had a good government with JR type of small state policies it could be one of the most pleasant, low crime and wealthy places in the world to live.

      But alas we have to listen to Cable and the equalities nonsense of Lynne Featherstone all echoed by Cameron. Do we still have to listen to Huhne too?

    • matthu
      Posted September 19, 2011 at 11:12 pm | Permalink

      John – you have missed the reference to the bribery and corruption act. Was it ethical for the UK government to carry on funding the EU with taxpayers’ money in circumstances we both recognise for some immediate undefined gain knowing that this was likely to devalue future pensions and effectively rob future taxpayers of money? if this was not ethical, then was it legal?

      Reply: The lawmakers will say it is legal

  26. Winston Smith
    Posted September 19, 2011 at 12:27 pm | Permalink

    I’m getting a little bored with your expressions of exasperation at media coverage of our economic woes. This is the underlying reason for this and many posts on your blog. Frustrated by the anti-bankers, anti-business, high taxes, pro-EU, pro-mass immigration stance of much of the media, you publish alternative views on here.

    You have been told countless times that the media is infested with quasi- Marxists and the BBC, which controls 70% of news digestion, is institutionally infected with Leftist ideology. You’ve done nothing, but show tacit support for the likes of the BBC. The Socialist have infiltrated and been placed by the last Govt into every facet of our State institutions. You’ve been a Minister, an MP for many years. You are in a far better position than the rest of us to do something about it.

    • Kenneth
      Posted September 19, 2011 at 9:24 pm | Permalink

      What do you suggest? I am not being flippant or sarcastic: I have some ideas myself, but this is a thorny issue.

      What do you suggest?

      • Winston Smith
        Posted September 20, 2011 at 10:51 am | Permalink

        The BBC should be broken up and privatised, with the State retaining a small community/cultural section to placate the snobs and the luvvies. The BBC archives alone would sustain several digital/satellite channels. Its all just sitting there in storage doing nothing. I was speaking to a Sports broadcaster consultant recently and he said the BBC football archives are worth a fortune. With the nation on the verge of an economic national emergency, never has there been such an opportunity to break-up the powerhouse of socialist broadcasting and capitalise on the assets of the BBC. We cannot continue with an organisation that controls half of all broadcasting in the UK, operating as a fiefdom of the metropolitan middle-class, left-leaning elite. Its waste, cronyism and nepotism is legendary.

        On the ground, I’d like to see us Prols organise a mass refusal to pay the licence fee. Direct action that the lefties at the BBC so adore.

        • Bazman
          Posted September 20, 2011 at 8:52 pm | Permalink

          About as likely as everyone stopping SKY subscriptions as they can cost nearly as much as a BBC licence every month.

        • Kenneth
          Posted September 20, 2011 at 10:28 pm | Permalink

          I agree with your sentiments but…

          “On the ground, I’d like to see us Prols organise a mass refusal to pay the licence fee. Direct action that the lefties at the BBC so adore.”

          And how do we organise this action and galvanise the People? Do we ask for a slot on the Today programme?

          I think the problem is that the BBC has the microphones and transmitters and can do a much better job at making their own case than any politicians can of making theirs.

          The BBC is the lifeblood of anyone in public life, including politicians who despise its bias. What are they to do? They will have one chance to call for the BBC to be broken up before they are cast into the wilderness or if they are really lucky, grudgingly given cameo walk-on roles as token right wingers.

          The dead bodies are out there as proof. The only ones that are allowed back into the BBC club are those who are suitably sanitized, like Michael Portillo.

    • norman
      Posted September 20, 2011 at 6:31 am | Permalink

      If John Redwood and a dozen other Tory MPs were to launch a broadside against the BBC (that a lot, if not the majority, of people in this country still cherish) they’d instantly be written off by all media as a bunch of disaffected Tories hankering for the good ole days when we proles had to touch our caps to our betters in the street.

      Cameron would be beside himself with glee as he started to lay into them – emasculate the right wing and boost his ‘modern’ credentials without having to lift a finger!

      The small scale sniping done from the sidelines might not be much but it’s hard to see what more can be done, especially gratifying is the large amount of attention and focus being give to the Eurosceptic cause lately.

      • sm
        Posted September 20, 2011 at 10:16 am | Permalink

        Make the (£4bn) BBC subscription only with encryption.

        Publicly required and funded content can be broadcast unencrypted. (This content can be tendered out.)

        A part of the BBC can be left funded by copyright on archive material can be used to fund new programs on subject area’s such as education,science etc. All other non core areas should be left to the market or paid for via subscription revenues.

        This would give more discretionary spending power to individuals and probably more choice.

  27. Conrad Jones (Cheam)
    Posted September 19, 2011 at 1:39 pm | Permalink

    Is the problem in Europe a result of a centrally controlled Interest Rate which sends out the wrong signals as it is lowered when money is short in the Economy which attracts malinvestment?

    When people save, Businesses should focus more on longer term Capital Expenditure on research, design and development for products which will not reach the market place for several years. Cheap money encourages short term sales so accelerating the debt.

    To blame individual Bankers or Even Politicians (who mostly do not understand economics ) will not solve the problem. The Financial System is the problem.

  28. Conrad Jones (Cheam)
    Posted September 19, 2011 at 1:47 pm | Permalink

    It is interesting to note that Countries such as Portugal, Ireland, Greece and Spain all have had deficits greater than Germany and France.

    Therefore, the money supply inflated and provided investment in dubious projects which failed when recession hit, sharply reducing the Credit Supply, and were therefore laiden with more debt problems than Germany and France.

    Spain – for instance; spent credit money on Fast Train Links between it’s major Cities. This Public Spending (Public Deficit Spending) got added to the GDP Figure fooling the Spanish into thinking that the Economy was doing well.

    Before the EURO politicians could have devalued the local currency and nobody would have really noticed. Price rises would be blamed on events outside the Country of the Government.

  29. Ben
    Posted September 19, 2011 at 2:03 pm | Permalink

    The bankers can only be locked up if they have demonstably commited offences. Grevious enrichment, while moally repugnant, appears the way they have persued it to be within the law.

    The best way to combat their attitude is through the tax system. Let them earn however much they would like but if it is greater than 20 times the average earnings of those in the comapny they work for (and I include sub contracted cleaners who are required to regulallry attend) tax the part that is greater than 20 times at 90%.

    They can boast of their earnings, house prices will reduce, tax take will be up and all will live happily ever after.

    Those that leave the country will be replaced. The really high earner earn through their connections not their talent. New connections wil be made.

    As a foot note I would exclude anyone who is risking their own capital form this new 90% rate

    • Mark
      Posted September 19, 2011 at 5:13 pm | Permalink

      I’m not too sure about that: here’s Orlando Gibbon (the author of Decline and Fall of the Roman Empire) talking of what happened to his grandfather Edward in the aftermath of the South Sea Bubble:

      “No sooner had the nation awakened from its golden dream, than a popular and even a parliamentary clamour demanded its victims; but it was acknowledged on all sides, that the directors, however guilty, could not be touched by any known laws of the land. The intemperate notions of Lord Molesworth were not literally acted on; but a bill of pains and penalties was introduced—a retro-active statute, to punish the offences which did not exist at the time they were committed.”

      • Mark
        Posted September 19, 2011 at 8:00 pm | Permalink

        In the first proceedings against the South-Sea directors, Mr. Gibbon was one of the first taken into custody, and in the final sentence the measure of his fine proclaimed him eminently guilty. The total estimate, which he delivered on oath to the House of Commons, amounted to 106,543l. 5s. 6d., exclusive of antecedent settlements. Two different allowances of 15,000l. and of 10,000l. were moved for Mr. Gibbon; but on the question being put, it was carried without a division for the smaller sum.

        i.e. over 90% of his assets were sequestrated.

  30. Conrad Jones (Cheam)
    Posted September 19, 2011 at 2:04 pm | Permalink

    Certain Fraud has – without a doubt; beem committed by some Investment Banks.

    But misappropriation of Funds given to Banks by their Customers is not only a National Legal Fraud, it is global fraud encouraged by ALL Central Banks. This misappropriation is a symptom of Fractional Reserve Banking. A system which magically allows money or “Credit” to be in two places at once. An Entry in both the Liabilities and Assets of a Bank Ledger. A Depositors money who is invested without the direct knowledge of the depositor and who expects that money to be always available – i.e. a Current Account.

    This has resulted from an error in the 1844 Bank Charter Act which – although preventing Private Banks from creating Coins and Notes – did Nothing prevent Banks from creating money from nothing in Demand Deposits through the clever Accounting Trick of Fractional Reserve Banking. Had they bothered to close this loophole, the last 150 years of economic instability would have been reduced drastically.

    The Blame for the Global Crisis is directly at the doors of Central Banks with Criminal Activity being Systemic, and Politicians for not understanding how Fractional Reserve Banking works – especially with Demand Deposit Accounts.

  31. Martin C
    Posted September 19, 2011 at 2:14 pm | Permalink

    Understand where the money is coming from, and where it is going, and you will soon see a reason to the apparent madness. The money is coming from European taxpayers (including us) and international taxpayers via the IMF, and it is going to French and German merchant banks and fund managers who have made very bad decisions over the past decade.
    For many years now yields on Greek bonds have been quite a few basis points higher than the european norm, because the markets (quite rightly) had misgivings about the stability of the Greek economy. But that didnt stop French, and to a lesser extent German merchant banks piling in to Greek bonds to enjoy the higher yields. The big French banks own about 60% of Greek debt.
    If Greece defaults now, the French banks, and therefore the French taxpayer are massively on the hook. What they need is for some fairy godmother to turn up and buy up as much of the Greek debt as possible, before Greece goes bust.
    And Yo! Along comes the ECB and the IMF in the nick of time for the French! When the Greek bonds become due, the Greeks can buy them back using ECB/IMF “bailout” money instead of defaulting. Then when Greece finally does go bust it’s the ECB/IMF taxpayer on the hook holding the baby and not the French bankers who made all the bad decisions in the first place; Socgen / BFCE etc get away scot free. Understand that Christine Lagarde knows damn well that the Greeks cannot pay the loans they have let alone any more, understand also that Lagarde is firstly French, and secondly head of the IMF, and then you understand exactly why Lagarde is pushing more loans, on any terms, onto the Greeks, knowing Greece will ultimately fail, for as long as possible.

    • Gary
      Posted September 19, 2011 at 4:28 pm | Permalink

      You have nailed it. This is the biggest theft from taxpayers to bankers in history. It is outright criminal and I am sick of hearing otherwise from bank apologists. We are fed every excuse under the sun, but the fact remains, the bankers have collapsed the western world economy. Maybe the world economy. Politicians should be in the dock with the bankers. They take is for fools.

      • sm
        Posted September 20, 2011 at 10:38 am | Permalink

        Sounds about right to me.

        Still austerity and high taxes for the rest of us. Who suspects relationships between banks and politicians/parties have always been too close and not always in the national interest.

        How much is UK on the hook for via the ECB

        I think banks ability to create money must be repealed as the price for being co-erced or forced to underwrite all these private debts. Forget individuals for now, look at the system and change it.

        The ICB partial solution is a long time coming.

        It appears the Swiss narrowly voted against risky investment banking.

        http://uk.reuters.com/article/2011/09/19/uk-ubs-idUKL5E7KJ0RQ20110919

  32. Richard1
    Posted September 19, 2011 at 3:01 pm | Permalink

    Its time to throw the Left’s cant back at them. Borrowing money which you do not think you can pay back is stealing & is immoral. Encouraging or inciting theft is immoral. Left wing commentators and politicians who advocate further deficit financing to the detriment of future taxpayers and of savers are behaving in a deeply immoral fashion & (if listened to) will make a worse world for all of us and our children.

  33. Elliot Kane
    Posted September 19, 2011 at 4:36 pm | Permalink

    If you borrow in the sure and certain knowledge you will never be able to repay what you borrow it’s hard to see any difference between that and theft, I have to agree…

  34. Iain Gill
    Posted September 19, 2011 at 7:38 pm | Permalink

    “the economic equivalent of war”…

    all the more reason not to be allowing our leading intellectual property to flood out of the country to our competitors

    all the more reason not to print ICT visas like confetti

    all the more reason not to waste precious resourcers on windmills

    boy oh boy has uncle Vince left himself wide open with that one

  35. zorro
    Posted September 19, 2011 at 7:52 pm | Permalink

    ‘If a country defaults on its borrowings, how does that differ from theft?’

    Substitute person for country, do you actually agree with that proposition. A person goes bankrupt, a country defaults. I don’t think that it is theft in any legal sense. The lender has taken a risk and must take the hit. It might make them be more prudent in their business dealings next time.

    I think that the ECB is positioning itself to save the day. As you know, Europe is a political project not an economic one. I still do not think that they will stop pursuing their aim.

    zorro

  36. Kenneth
    Posted September 19, 2011 at 9:21 pm | Permalink

    Whenever I see markets behaving on strange ways I smell the rat of government interference.

    Our housing market is constantly out of kilter as we see housing benefit and social housing impacting on the market not to mention planning regulations etc.

    The U.S. mortgage market has been lop-sided since the 1960s through the effect of Fannie and Freddie.

    Now we are enjoying cheap bonds (as is Germany and some other countries). Good news on the face of it. The trouble is, this is also a false position that has come about through a mangled bond market.

    All through this mess, the underlying culprit has been government interference. Some advocate yet more interference. When will it end?

    NB The calls for a tax on a eu quango financial transaction tax are getting louder. The French are speaking of bribing clearing houses with liquidity – only in Euros and ONLY if the clearing house is geographically based in Europe. How are we going to hold on to our own companies? Will the London Stock Exchange be based in Brussels soon?

    • Kenneth
      Posted September 20, 2011 at 12:11 am | Permalink

      Sorry…meant to say “ONLY if the clearing house is geographically based in the Eurozone”

  37. sjb
    Posted September 19, 2011 at 9:47 pm | Permalink

    Regarding how Greece was able to hide its true debt, because you have knowledge of high finance perhaps you would comment on whether cross-currency swaps with “fictional exchange rates” is common practice?

    Also, bearing in mind how much time was devoted to debating the details of the Maastricht Treaty, it came as a surprise to learn that “[t]he Maastricht rules can be circumvented quite legally through swaps […]”

    Source: http://www.spiegel.de/international/europe/0,1518,676634,00.html

  38. forthurst
    Posted September 19, 2011 at 11:29 pm | Permalink

    Who should go to jail? That has to be those politicians who have been pushing the EUSSR project with reckless disregard for the economic consequences of their actions on the people of Europe.

    As reported by AEP in the DT, the Chinese are culpable for facilitating Western governments’ borrowing at too low interest rates, thereby their building up unsustainable debt.

    What about banks and banksters? I am perfectly able to accept that ‘narrow’ banking is a legitimate business activity; however, when a ‘bank’ is able to lose $2.3M without noticing it, it retains no claim whatsoever to be a serious business or to one that any depositor should be prepared to entrust his money.

    JR has not understood the US mortgage swindle: a law was passed mandating the requirement to offer house purchases to those who were traditionally excluded on various grounds. Houses were built, houses were sold on tickler mortgages to the targeted groups, some on welfare. Mortgagees knowing that their accruing portfolios of mortgages would start to fail after a couple of years when the standard mortgage rates commenced, offered these mortgages to Investment banks. The Investment banks negotiated substantial discounts on these parcels of mortgages with the mutual understanding that they were of poor quality. The Investment banks then paid credit rating agencies to provide their packages of mortgages as CDOs with AAA ratings, sold them to clients and immediately shorted them etc. Fraud and conspiracy to defraud which would easily stand in court. Furthermore, there is a clear trail of motive and collusion right the way through and not the compartmentalised failure that JR has alleged.

  39. Matt
    Posted September 20, 2011 at 1:15 am | Permalink

    Nice thought, lock up all the guys who ran up this debt!

    Unfortunately a big percentage of voters seem to favour yet higher borrowing

    What I think is immoral –

    The 50% tax rate that combined with NI takes income from the individual that can’t be justified and works against a recovery.

    The government will rely on inflation rather than big cuts in expenditure to reduce debt, the government that amounts to me to a default in the governments duty.

    Just 4% inflation will lead to reduction in liabilities of 26% in a five year parliament.

    That pensioners, kicked out of defined benefit schemes and those on fixed income are being squeezed by low interest rates. Then inflation will further erode their capital

    Allowing young servicemen to continue to die in Afghanistan, when we’ve really chucked in the towel

  40. Electro-Kevin
    Posted September 20, 2011 at 1:30 am | Permalink

    Should anyone go to prison ?

    Probably not. But don’t we have the right to ask failed bankers for our money back ?

    If I took my car to a garage and the mechanic failed to fix it I wouldn’t expect to have to pay him. If he wrecked the engine during his diagnostic procedures I’d be seeking compensation.

  • 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.

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