Responses to the coming crash of 2008

Labour are reissuing their old lie that the Conservative party in Opposition backed Labour borrowing plans and advocated light touch regulation of the banks or even deregulation of the banks. They have always wished to duck responsibility for the great crash that occurred on their watch in 2007-8.

There are strong grounds to reject these allegations. I have dug out the relevant quotes of the Opposition Economic Policy review, written early in 2007 and published in the August before the banking crash. The Policy Review included Simon Wolfson, Andrew Feldman, Greg Hands and myself on its steering committee.

1. We warned that there could be a crash as Labour had allowed far too much debt to build up in the system…
P3 “…there is considerable uncertainty in world markets about how far the Fed, the ECB and the Bank of England may go in raising rates to squeeze inflation out of the system. They must know there are huge pyramids of debt throughout the system, and inflation will not be killed unless the appetite for more debt is blunted. They also know (apparently they did not!) that if they push interest rates too high for too long they could bring the debt structures crashing down, as we have seen with the sub prime mortgage collapse in the USA, leading to falling asset prices, rising unemployment and even recession”

2. We opposed in Parliament Labour’s regulatory reforms for banks at the time they put them in in 1997 and reminded people why in 2007:

P14 “We are concerned over the division of responsibility between the FSA and the Bank over banking and market regulation….We think it would be safer if the Bank of England had responsibility for solvency regulation of UK based banks, as well as having the overall responsibility to keep the system solvent. Otherwise there could be dangerous delays if a banking crisis hit, with information having to be exchanged between the regulators and there might be gaps in each regulator’s view of the banking sector at a crucial time, when early regulatory action might have spared a worse problem.”

3. We advocated better control of debts and deficit, and itemised the wider state debts which Labour did not report.

P15 said “ We believe that governments should not as a rule borrow to pay for current spending but instead should run healthy current account surpluses in the good years of an economic cycle, so that some latitude is possible in weaker years. We also believe there should be a limit on the total borrowings of the public sector as a percentage of national income……..borrowing is simply deferred taxation, which ultimately will have to repaid by taxpayers with interest.”

P14 “Under Labour there has been a rapid build up in debt, and official figures show the UK’s public sector net debt at £497.7bn (April 2007)….the true extent is almost three times this stated amount”

4. We advocated strict controls over reporting and capital adequacy for all banks, the opposite of saying we wanted to deregulate deposit taking institutions.

P59 “We agree that institutions which take clients money and place it on their own balance sheet or mix it with other funds, should have to meet capital adequacy requirements, and strict reporting requirements. “ Our deregulatory proposals were elsewhere “there is not necessarily a good reason why a regulator should have to be involved in product design and marketing for rich and sophisticated investors”

We decided to use understated language as a responsible opposition. On this site I myself used stronger language to explain how the Bank of England and government could bring on a crash if they did not change policy, and pleaded with them to take action to stop the crash.

On July 5th 2007 I wrote: “So far the general view is that the sub prime mortgage market (in the US) will continue to be in distress, but these problems will not spread. However a similar pyramid of debt has built up around company borrowing….The Central Banks can literally go for broke and hike rates substantially. They will trigger a major decline in corporate debt as well as sub prime lending. …The worst case would be that they do to the USA and the UK what the Japanese authorities did to Japan in 1990, leading to a decade of recession or little growth”

and on July 26th : “On 6 July I warned about the debt mountains built up on both sides of the Atlantic during the decade of easy money, and forecast that the central banks would carry on tightening, leading to further collapses after the sub prime crisis……. I assume the Central banks will back off quite soon. If they don’t it could be quite a collapse”

There were many other blogs along these lines explaining how to stop the crash by intelligent central banking and government intervention.


  1. Peter a
    June 14, 2015

    “The problem with socialism is that you eventually run out of other people’s money.”

    Magic- money tree economics. People like to frame the bankers (somewhat culpable) but capitalism is survival of fittest for economics, should’ve let bad banks die not socially engineer them. Also personal debt was and still is huge in this country. New Labour created a ‘something for nothing’ culture which in turn created a cost of living crisis (life would be great if no one called in debts). John Howard’s Australia followed fiscally sound economics; fixed the roof etc.. and weathered the storm. We got Brown and PFI.

    Fortunately for Labour the BBC agrees with them!

  2. Margaret Brandreth-J
    June 14, 2015

    I was wondering whether these quotes were or were not a reflection of a trend which could in actual fact be seen very much earlier than 2007 and at this point it was too late anyway.

    Reply The Conservative party gave official warning over the build up of too much debt well before 2007. By 2007 the aim was to stop a disorderly collapse of all the debts.

    1. Richard1
      June 14, 2015

      Indeed, the Comservative party fought the 2005 election saying Labour were over-ending and wasting money. The piece above makes very clear that there was clear recognition and criticism at the time of the 2 core errors of Gordon Brown and the Labour govt: (1) they allowed an explosion of debt and massive build up of bank leverage which the Labour-created convoluted regulatory system did not pick up (and did nothing to protect the taxpayer from this build-up of liability; and (2) 15 years into a period of strong economic growth they were running one of the highest structural deficits in the OECD. Labour can’t escape, despite their denials and despite attempts by occasion apologists even on this site – Labour were front and centre in creating the conditions for the crash, and their over-spending and foolish bailout made the effects far worse than they needed to be. It will be interesting to see whether the more sensible Labour leadership candidates such as Ms Creagh and Ms Kendall decide to admit this.

  3. Mike Stallard
    June 14, 2015

    Every party needs a mythology and the Labour mythology is simply not a true one. That is why they lost the election. Go on any left wing blog and see that the mythology states that all Tories (never Conservatives, note) are in it for the money and they are all toffs who rip everyone off at the slightest opportunity.
    Their job, as nice people, is to change everyone into ordinary folk as nice as they are themselves.
    And, of course, being the party of the workers, they represent the poor, the needy and the vulnerable. (Not including the immigrant population who round here at least are not unionised.) And although they live nowhere the poor etc, they insist that they get hand-outs which will get Labour permanently elected for ever.
    No wonder Mr Miliband forgot to mention either the debt or the deficit!

  4. Peter a
    June 14, 2015

    On European negotiation:
    My colleagues and friends in Europe suggest that European leaders were bracing themselves for ultimatum based, strong arm demands and were willing to give in to a few to keep British money flowing. Leader’s in Germany also apparently understood the negative reaction that would’ve occurred among the British public if none of these demands had been met or compromised upon.

    Our European Masters, no doubt, greeted the news that CMD, whilst hosting at Chequers; had polished The Unelected Emperor’s shoes. Attempting to sate his near unquenchable thirst for alcoholic beverages and national sovereignty he promised to fight for YES come what may. CMD agreed to ‘negotiate’ in the manner of Heath not Thatcher.

    I have to admit that I rather admire the way that Osborne especially, and CMD have masterminded a Tory resurgence at home. But this is tempered by the knowledge that Brown and Milliband were two of the most incompetent and telegenically awkward figures ever to lead an opposition.

    The terrible thing for me is that I honestly believe that if Osborne (who I regard v highly in strategic- political terms) had actually wanted substantive renegotiation then we could’ve had a very decent result. Instead, worryingly, he is masterminding a Wilsonian Bluff and the consequent media campaign.

    I would’ve liked to see you John or another of fire and experience, holding our chips. When they looked across the table we should have projected conviction and iron will, not weakness. It is utterly, utterly dispiriting that CMD has folded with such a strong hand.

    1. Sandra Cox
      June 14, 2015

      On the subject of the EU referendum, and a credible negotiating stance, there was an interesting article in the Spectator recently – John King: The left wing case for leaving the EU.

      A few snippets:

      …. Supporters of the EU sneer “Little Englander” at those with a different opinion, but most of the arguments against membership are left-leaning and liberal.

      …… It is essential to understand where the EU is heading. The mission? To create a centralised superstate. As the former European Commission president José Manuel Barroso said in 2007: “. . . I like to compare the EU as a creation to the organisation of empire. We have the dimension of empire.” While there have been idealists involved and progressive laws made along the way, at its core it is undemocratic and distant, a threat to all those living in its shadow. However sweet the propaganda, it is a tool for multinationals, another part of the globalisation process.

      … However, decades of pro-EU spin have failed to convince the mass of working people of its worth; the only reason their opposition has been so restrained is the secrecy and speed of the takeover. This has occurred across generations, a slow-motion transfer of control, driven by the rich and powerful. Our leaders are complicit, know where their futures rest. There are careers to protect and promote, fortunes to be made. The feelings of the wider society are ignored.

      ….. Negotiations to bring in TTIP have been taking place in secret. There is no voting involved, no pretence at democracy, little proper coverage by the media. The main parties are broadly supportive. With TTIP comes the Investor-State Dispute Settlement (ISDS) system, whereby business can take governments to court if its profits are infringed upon. This is mind-blowing stuff, but our politicians say nothing.

      …. Last year saw the death of two genuinely left-wing figures within a matter of days in Tony Benn and Bob Crow. These were honest men who refused to bend to the group mind. They were idealists and knew where the EU was leading us. In later life Benn was patronised as a well-meaning crank when he tried to talk seriously about the EU. Crow died young and his dream of a left-wing, anti-EU party will be harder to achieve now he is gone. But this is what Britain needs. Urgently.

      …. The EU offers us little. It costs billions to belong to a club that interferes in our affairs and has created needless divisions, one that will ultimately lead to our removal from the map.

      …. Leaving the EU would save Britain money that could (in the right hands) be ploughed back into the public sector to safeguard jobs and services. And yet, nearly every mainstream politician lifts his nose in the air and turns away, embarrassed at ideas he considers crass.

  5. agricola
    June 14, 2015

    Can you think of any time when Labour, at the end of a period in Government, ever left a vibrant thriving economy. Socialism spends other peoples money until for numerous reasons it runs out. End of story.

  6. Leslie Singleton
    June 14, 2015

    Never got close to understanding why the Labour Party decided to replace the very effective Bank of England with its accumulated experience and authority and well respected good judgement by mere rules on paper. Was it simply the usual Socialist hatred of anything elite? Or was it to homogenise with Brussels as usual? On the other hand I do not see anything this morning about the Conservatives squawking about “sharing the proceeds of growth” which was baloney of a high order through and through of course.

  7. Lifelogic
    June 14, 2015

    Indeed I agree fully. Furthermore the way Gordon Brown rescued the banks & their bond holders, but left bank borrowers unprotected from banks demanding their cash back, was totally incompetent. Hugely damaging to growth and the recovery too.

    I see Amber Rudd is proving to be the complete disaster that one would expect of a Cameron appointee to the Department of Energy and Climate Change.

    Might it not be an idea to appoint someone numerate, with at least a basic grasp of the physics, engineering and economics of energy production, just for a change?

    If one were to ask her a few basic questions about the costs and the advantages or disadvantages of different methods of energy production or on relative energy densities then I suspect she would not have the first clue.

    Would you want to fly on a plane designed by humanities, history or PPE graduates?

    1. Hefner
      June 14, 2015

      Oh yes, and the well numerate, physics and engineering versed genius Christopher Booker is the one you take your ideas from.

      Can’t you ever see how ridiculous some of your comments are?

      1. Ted Monbiot
        June 14, 2015

        Booker is an excellent journalist who has wrìtten many articles illustrating the simple flaws in the warmists theory.
        He is personally abused as a heretic by those who believe, but rarely do they ever attack the content of his articles.

        1. Hefner
          June 14, 2015

          Thanks for your comment. Do you happen to have the web address of this report?

          1. Ted Monbiot
            June 14, 2015

            What report is that?

        2. Peter Stroud
          June 14, 2015

          Absolutely correct about Booker. The entire CAGW hypothesis relies on an unverified assumption that the small increase in atmospheric temperature, due to CO2, leads to an increase in water vapour – a more effective greenhouse gas. Hence a larger increase in temperature, and so on. This positive feedback has not been verified by observation, yet it is accepted by the scientists in the warmist community. And remember, there has been a temperature hiatus for ten to fifteen years, though atmospheric CO2 has increased markedly in that time.

          1. Lifelogic
            June 16, 2015

            No only not shown, but all the indications are that there is no (run away) positive feed back. The temperature of the earth has, over the last few hundred years and recently, been remarkably stable. This despite the CO2 concentration increases.

            Anyway a little hotter and more CO2 is, on balance probably rather better for humans, crops & precipitation.

        3. Hefner
          June 14, 2015

          The only thing I could find from Booker on the GWPF web site is not about “Climate Change” but about “the BBC and Climate Change”, which is quite another cup of tea.

          And in the process, I found a post on on 2015/03/30 discussing and applying N.N.Taleb’s (The Black Swan) ideas to climate change. And it might be a tiny bit more complicated than what some people here keep on churning in their posts.

          1. Ted Monbiot
            June 14, 2015

            Still less than one degree rise in global average temperatures since 1900.
            It doesn’t alarm me.
            Do you think the temperature should be constsnt?

        4. sjb
          June 14, 2015

          Please Google “Christopher Booker prize”

      2. Hefner
        June 14, 2015

        Sorry to go on, but I just find incredible that a person (LL) who so often asks for more scientific takes on events only seems to be taking his references from newspapers and seems unable to go to proper sources. So we have it, a guy keeping on repeating the same opinions (so often biased, and rarely justified) over and over.
        As for Christopher Booker, he is the guy who in the 2000s claimed that the danger from asbestos is insignificant, and then had problems with the Health and Safety Executive in 2009. The same one, who does not seem to know there are such things as seasons and claimed that because there was more Arctic ice in January than in September, there was no impact of climate change in the Northern latitudes. And so on and so forth, the same who does not seem to understand summer vs. winter, production vs. consumption, heat vs. power, capacity vs. output, who has a varnish of science above what is essentially gibberish.
        And our beloved Lifelogic takes his references from such a guy: what a laugh!

        I cannot judge how relevant LL’s comments are on financial topics, but if they are as well-informed as his scientific comments, I would take them with extreme caution.

        And reading from a previous thread, how can LL spend so much time of this blog, between 5 and 12 posts per day, and also run businesses. Does LL have executives who do all the work for him?

        1. Ted Monbiot
          June 15, 2015

          May I suggest you look at the hadcrut data for global temperatures available on the web and the UK Met Office temperature data.
          A good summary can be found on wood for trees web site.

          It shows a less than one degree rise since 1900 and a surprise pause from 2000.
          2000 was a point in time that the computer models predicted an accelertaing rise in temperatures.
          A tipping point I think Al Gore was quoted as saying.
          With CO2 continuing to rise this pause is contrary to the central pillar of the theory.

          This is the main reason many more like me are becoming skeptical.
          And the immediate abuse heaped on any who dare to question this quasi religion.

        2. Lifelogic
          June 15, 2015

          Does LL have executives who do all the work for him?

          Yes, I just choose good people and set a sensible direction for them going very well at the moment.

        3. stred
          June 15, 2015

          It is possible to read and agree with journalists such as Booker, while having a scientific or engineering background because he has taken a view which is the same as the reader’s. If you doubt the scientific validity of sceptic scientists, the lecture by Dr William Happer, a very experienced and well qualified scientist, given in Washington last year is a must re gMaYmAoO804. He shows how CO2 radiation absorbtion is at specific frequencies which have a diminishing effect.

          With regard to tidal lagoons, the lack of energy output available and high cost is dealt with in Sustainable Energy by Prof MacKay, the previous technical advisor to DECC. How any minister at DECC could read this and think it was essential or going to make anything but a tiny difference at great expense is a mystery. At least it is predictable though intermittent.

          Perhaps it is because there is nothing else available because we are no longer allowed to build nuclear stations like Sizewell because they are now supposed to be less safe. Meanwhile, the new French one at Cherbourg that we have chosen has broken down with cracks.

      3. Lifelogic
        June 14, 2015

        Well Booker clearly listens to sensible engineers and scientists, and he clearly has the intelligence to understand what they are saying. The DECC seems to believe in an absurd group think, anti-science and very expensive, for the tax payer, religion. Amber Rudd seem to be going along with this lunacy.

        No sensible, numerate, person could think that generating hugely over priced energy from an absurd Swansea “lagoon” was remotely sensible for the taxpayer. I studied maths, physics and later electronics at university and stand by everything I have ever said.

        Even if you are a catastrophic warming believer wind, PV and “lagoons” make no sense other than in a very few special circumstances such as when you are off grid. Smart meters, as currently structured, are rather a waste of money too.

      4. Lifelogic
        June 14, 2015

        Tell me in what way you think they are ridiculous? Do you think it is sensible to generate energy, at many times its true value, using tax payer grants? Not even on demand energy either.

      5. John S
        June 14, 2015

        Less insults. More facts to back up your case.

      6. John S
        June 14, 2015

        Sorry, I should have said fewer insults.

    2. Stephen Berry
      June 14, 2015

      “Would you want to fly on a plane designed by humanities, history or PPE graduates?”

      Speaking as a history graduate, I would say the answer is an unequivocal ‘NO’!

  8. Dame Rita Webb
    June 14, 2015

    Eh and how about the Osborne’s responsibility for the next crash? I hope you have got your excuses already prepared. Why did you let the banks develop a greater exposure to derivatives than in 2007? Why did the national debt double? Why was the deficit not eliminated? Why is there a current account deficit? What are you going to do when it all goes pop, use ZIRP, print more more money?

    Reply The deficit has come down substantially and is on course to fall a lot more. Banks have to hold much higher levels of cash and capital than in the run up to the Great recession.

    1. petermartin2001
      June 14, 2015

      If the government is really being serious on imposing a government surplus on the UK economy then we’ll soon be talking about the crash of 2016 !

      We shouldn’t make the mistake of thinking a government’s surplus is UK plc’s profit!

      If the government are taking more out of the economy in tax than they spend back in, then all the companies (both large and small) and individuals that make up UK plc will have much less money than they do now. Plus UK plc , so to speak, will still have to pay the net import bill.

      So the following identity must hold as a matter of accounting:

      UK govt surplus + Net Import Bill = UK plc’s loss !

      1. Stephen Berry
        June 15, 2015

        Peter, your love of deficits and fear of surpluses will strike many people as strange. Many governments have run fiscal surpluses in the past without deleterious consequences. Osborne is not planning anything which has not been done before.

        One of the things that governments could do with a fiscal surplus is pay down the debt, especially any debt which has been incurred at high interest rates. That’s a bit like you paying off your high interest credit cards. In the long run, this will actually enable you to consume more.

        Another thing which some countries have done with their surpluses is put money into sovereign wealth funds. Typically, these are rather wealthy countries and are not usually accused of courting an economic crash by doing this. As I remember, dear old Alex Salmond at the Scottish Referendum promised to set up a Scottish sovereign wealth fund. Now, you wouldn’t accuse him of wanting to crater the Scottish economy, would you Peter?

        1. acorn
          June 15, 2015

          How many countries have a fiscal surplus AND a large BoP current account deficit the size the UK has; AND, a private sector that is trying to save more than it spends?

          Sovereign wealth funds are used by large oil exporters, to separate their oil economy from their non oil economy; like Norway for instance,with its £700 billion state fund.

        2. Feodor
          June 15, 2015

          Sovereign wealth funds are almost all run by countries which are resource rich. It is a means of protecting against your currency inflating to the point that your manufacturing sector cannot remain competitive. Such a fund would be pointless from a British perspective.

          1. petermartin2001
            June 16, 2015

            Norway has a National debt of about 30% of GDP. They also have a large sovereign wealth fund of some $900 billion. So the question is why? Why do they need to keep their National debt?

            Why don’t they use some of that money to pay it off just like you and I would pay off our house mortgages if we had a windfall cash gain?

            Those who think government finances can be compared to household finances might have some trouble answering this one!

          2. Edward2
            June 16, 2015

            Norway are like a household Peter.
            One where they have savings but they still have a loan for a car or a balance on a mortgage.
            If interest on the savings is better than the interest paid on the loans then its beneficial to the household.
            Or perhaps the household simply likes having cash available to take advantage of any opportunities or emergencies that might occur.
            Not unusual at all in my experience.

        3. petermartin2001
          June 15, 2015


          Its neither “fear” nor “love”. Re surpluses and deficits.

          If the UK was a substantial net exporter, like Germany, with lots of money coming into the economy from overseas, then a budget surplus would be required. Otherwise there would be inflationary consequences.

          The idea of sectoral financial balances is a very simple concept. I’m not sure why anyone would think it to be strange. I’d just invite them to think about it a little more if that is the case.

    2. Lifelogic
      June 14, 2015

      The deficit could come down far more if this government stopped pissing money away of pointless drivel like lagoons, HS2, the green crap grants, happiness indexes, payments to augment the healthy but feckless and all the rest.

    3. Dame Rita Webb
      June 14, 2015

      Alright then give us a cast iron guarantee that under a Conservative government there will be no repetition of the events of 2007/8.

      Reply No, there will not be any repetition under this Conservative government.

  9. stred
    June 14, 2015

    I can’t remember any coverage in the media about your report at the time. Did the then leader of the opposition or the shadow chancellor make anything of it, in the HoC or elsewhere?

    Reply Yes, it was launched to the press with Mr Osborne and discussed at the time. The media mainly wanted to create tension between our Economic Policy report and the green movement I seem to remember. They were not interested in the grave and important messages on how to avoid the pending crisis. I wrote extensively about it here. This site too is a way of publishing and spreading views.

    1. Dame Rita Webb
      June 14, 2015

      Was not Osborne saying in the run up to 2007/8 that Labour’s “light touch” regulation of the banks not light touch enough?

      Reply No

      1. Dame Rita Webb
        June 14, 2015

        balls what about this then especially the bits you wrote on mortgage regulation?

        Reply The Report said control banks and mortgage excess by controlling bank cash and capital – the best way to do it, limiting banks balance sheet growth and a preventing excessive credit boom. As it pointed out you then do not need specific regulation of the mortgage applicant – lending institutions will do their own due diligence on borrowers anyway and have to limit the amount of mortgage lending they offer so they will avoid people who are unlikely to pay it back. .

  10. Brian Tomkinson
    June 14, 2015

    Conservativehome published this on : January 15, 2008:
    “When Shadow Chancellor George Osborne MP set out his party’s pledges on public spending in The Times last September, his promise to match Labour’s fiscal plans for three years caught the most attention. The budget was set to rise from £615 billion in 2008 to £674 billion in 2010 – a two per cent annual increase in real terms.

    Torn between the party’s economic liberals – who were demanding tax cuts – and an alleged general desire to spend more on public services, the Conservative leadership described their budget as a plan for “sharing the proceeds of growth” – a phrase aimed at pleasing everyone. It meant more money for schools, hospitals and the police for those who prefer higher spending. To people who want a smaller state instead, it was a synonym for less government. After all, if the proceeds of growth were shared between higher absolute spending and lower taxes, the state’s relative share of GDP would fall.

    But above that, by committing to Labour’s spending plans the Conservatives wanted to reassure the general public that no “Tory cuts” would happen if elected. No hospital would close, no policeman laid off, no school would suffer. In this sense, it was good politics as it closed a complete angle for political attacks.”

    How much notice of your warnings did Osborne and Cameron take?

    Reply They agreed with my warnings on debt and money policy, which is what this blog is about!

    1. ken moore
      June 15, 2015

      I am on my annual holiday but couldnt let this pass without comment
      I was about to make the same point that the conservatives pledged to match labour spending plans! It doesnt matter that john redwood or howard flight disagreed ..that was the view of the clever clogs self satisfied smug leadership who called the shots then.
      In a better world for this and the libya debarcle cameron and osborne should be gone but we are stuck with these duds.
      Dr redwood – do yo think it was fair that mr flight had his career terminated?

      1. APL
        June 16, 2015

        Ken Moore: “or howard flight disagreed”

        Oh, what happened to Howard Flight?

        1. ken moore
          June 16, 2015

          Mr flight was short listed to become an mp in 2011 but at the last minute was removed from the list. He was then shuffled off to the house of lords.

  11. DaveM
    June 14, 2015

    The weaker Cameron is, the better. No concessions from the EU means more chance of an OUT vote.

    1. davem
      June 14, 2015

      That was a response to Peter a’s earlier comment. Damned phones…!

  12. Sean
    June 14, 2015

    Labour blame everyone but their own daft policies. What can you expect of the Stupid party.
    Con-maneron, isn’t a true Conservative, all but in name only.

  13. Jerry
    June 14, 2015

    “There are strong grounds to reject these allegations. I have dug out the relevant quotes of the Opposition Economic Policy review, written early in 2007 and published in the August before the banking crash.”

    But did your front bench oppose this light-touch from the Dispatch Box before and after this policy review, surly if the front bench did you would be able to cite (with a publicly accessible URL) Hansard, no one is or has ever said that individual MPs like yourself or committees etc did not opinionate upon impending doom but it is what your front bench did that matters.

    Also, even if the the 1997-2010 Tory opposition front bench did shout from the Dispatch Box never mind the roof-tops, it doesn’t change the fact that the Tory party made much of this miss-regulation possible by way of their reforms in the 1980s, had we still had the ‘stiff upper lip’ trading floor style of regulations [1], rather than the bonus cultures born out of the 1980s deregulation were quantity trumped the quality of the transaction…

    “We think it would be safer if the Bank of England had responsibility for solvency regulation of UK based banks, as well as having the overall responsibility to keep the system solvent.

    Yet the Tories had between 1979 and 1997 to do so, but of course they were more interested in deregulation [2] than grater regulation.

    Faults and blame exist on all sides from 1979 onwards…

    [1] no I’m not suggesting modernisation should not have happened, just that it should not have occurred in the way it did

    [2] which then got abused as all regulations naturally are push to the limit

    Reply Peter Lilley and I from the front bench opposed Labour’s watering down of bank regulation and market regulation in the original tripartite proposals!

    1. Edward2
      June 14, 2015

      Well thats a new take on economic history.
      No surprise Jerry that you think previous governments and even the oppositionat the time of the crash are to blame, rather than the actual government at the time.
      What was it 13 years in power from 1997 ?
      And you have the nerve to criticise many on here for political bias.

      1. Jerry
        June 14, 2015

        @Edwasrd2; “Well thats a new take on economic history.”

        Please feel free to actually read what I said, rather than reply to what you think I said, or are you going to start yet another pointless argument about what you think I said!

        “What was it 13 years in power from 1997 ?”

        That was for how long and when New Labour were in power indeed, but what about the 18 years before that. You seem to be in denial of the major changed within banking and the financial sectors, to both working practices and regulation, that occurred during the 1980s, which directly effected future working cultures and regulation, many of the errors should have been foreseen back in the 1980s (or at least by the mid 1990s), human nature doesn’t change much after all, greed being one of the original sins and all that…

        “And you have the nerve to criticise many on here for political bias.”

        I think the words you were looking for was “…criticise many on for being Partisan”, if so, guilty as charged! 🙂

        Reply Conservatives started the transition from light self regulation to Statutory backed stronger financial regulation, which Labour completed at the end of the 1990s. It was this relatively new stronger regulation backed by law which failed with the banking crash. The main error was the failure of the FSA/Bank of England to control cash, capital and lending levels in the way the old Bank of England had done.

        1. Edward2
          June 15, 2015

          Even some of the new Labour MPs and some of the candidates for the Labour leadership are now beginning to accept responsibility and to say that actions they took on spending levels and in bailing out the banks were poor.
          But you carry on blaming only Conservative administrations from years before if you want to.

        2. Jerry
          June 15, 2015

          @JR reply: “Conservatives started the transition from light self regulation to Statutory backed stronger financial regulation,”

          Exactly, thus it was both the Tories and the later Labour regulations that have failed, after all the previous 200 and more years of self regulation prior to the 1980s rarely failed – yes there were investor bubbles but here we are not talking of those but fundamentally poor practice within the rules that poor Statutory regulation allowed.

          @Edward2; “But you carry on blaming only Conservative administrations from years before if you want to.”

          But that is no9ty what I’m doing unlike you Edward, you seem to want to forget history and blame this mess solely on the Labour party, in the same way as the right always comes out with the line about Labour always mess the economy up forgetting both international and/or past domestic issues that lie like a ticking economic alarm-clock just waiting to go off some time in the future at a most awkward moment.

          1. Edward2
            June 15, 2015

            Well its all a matter of opinion Jerry.
            But they were our Government from 1997 and extracted every positive when there were any to be claimed.
            So its not surprising when people blame them when things go wrong too.
            It is commonly accepted that Labour entered the downturn running the biggest deficit of any G7 nation.

          2. Jerry
            June 16, 2015

            Edward2; “Well its all a matter of opinion Jerry.”

            Wrong again Ed, it is all a matter of historical fact!

            “But [New Labour] were our Government from 1997 and extracted every positive when there were any to be claimed.”

            Yes and often cheered on by the Tory front bench, as other people in this debate have also reminded us.

            “So its not surprising when people blame them when things go wrong too.”

            No one is suggesting anything other, just that it is not the whole story of blame considering that it wasn’t the Government deficit which caused the worldwide ‘Great Resection’, nor even just the UK’s part in it (how ever much the Tory party and people like you wish), but the business practices of banks, mortgage and other financial institutions, due mostly to traders greed, pushing the regulation rules to the limit and beyond.

            “It is commonly accepted that Labour entered the downturn running the biggest deficit of any G7 nation.”

            Indeed, but then Tory government entered office in 1979 when the UK still had a motor industry, a steel industry, a coal industry, at least some civil ship building industry etc – not forgetting something called “society”. We can all cherry pick the facts we like and ignore the ones we don’t…

          3. Edward2
            June 17, 2015

            Its about the way you take these “historical facts” and make your conlusions Jerry
            Quite unusual conclusions many would say.
            You are now back before 1979 looking for Conservatives to blame for a 2008 crash.
            Your last sentence describes your post neatly.

          4. Jerry
            June 19, 2015

            @Edward2; Its about the way you take these “historical facts” and make your conlusions

            More dirty pots and pans Edward, after all it is you who seem to think that it was New Labour who over saw the “Big Bang” in the City of London and all that, funny that, but I don’t recall Labour being in government at any time during the 1980s!

            “You are now back before 1979 looking for Conservatives to blame for a 2008 crash.”

            Indeed I am because it was the Conservatives who over saw root and branch change in the UK financial markets in the 1980s, whilst over seeing the root and branch decimation of our manufacturing sectors, meaning that far to much faith and freedom was given between 1979 and 2007-8 to our financial/banking services sector.

            “Your last sentence describes your post neatly.”

            Sorry, I forgot that you can’t do ‘irony’…

          5. Edward2
            June 20, 2015

            Come back on two days later with another repetitive dull personally insulting post I see Jerry

  14. petermartin2001
    June 14, 2015


    Do you mean too much build up of debt in the private sector or public sector? There’s a big difference economically.

    Too much debt in the private sector otherwise known as a credit bubble. When the bubble is inflating then the economy goes zipping along quite nice nicely. People borrow money, house prices rise, everyone feels richer. But we all now know the downside of creating those bubbles.

    So, if the last Labour government had followed good advice and not allowed that bubble to inflate they would have had to have a tighter monetary policy.

    So, if they had run a tighter monetary policy, how would they have kept the economy functioning at the same level of capacity. By having a tighter fiscal policy? Or having a looser fiscal policy, ie a higher deficit, to compensate?

    Reply I meant mianly the private sector, but the excess deficit did jot help when the economy was overheating.

  15. a-tracy
    June 14, 2015

    Your party should be making hay whilst Labour is in such disarray. People should be reminded how, why and what warnings were issued so we don’t make the same mistakes again.

    Instead of just allowing all news about UK politics to be about the EU let’s get back to discussing what is happening in the UK right now to put our house in order, to increase our UK sales and exports, how are we fixing broken parts of the NHS? Have we improved A&E waiting times are the worst areas being inspected? Are the best practises of the best A&Es being shared, are we training more Doctors and Nurses, did you make more training places available? How many more?

    How many students that graduated with the first student loans are paying those loans back now? Which subjects? Which universities? Are EU students that got UK loans repaying what % what subjects?

    I’m sick of hearing just EU EU EU all the time, and I’m still no wiser on facts and figures from the media.

  16. petermartin2001
    June 14, 2015

    Mr Redwood,

    I’ve been endevouring to get across the point that trying to balance the govt’s budget but ignoring the trade deficit is a recipe for economic disaster. It is ignoring the principle of sectoral balancing.

    I’m pleased to say that some 70 economists, some of whom may be considered to be slightly better qualified that I, have made essentially the same point in this letter:

    Please do what you can to dissuade Mr Osborne from wrecking the economy!

    1. Lindsay McDougall
      June 16, 2015

      I thought that payments automatically balanced over the economic cycle as long as you have freely floating exchange rates. Either that is not the case or we are not measuring our imports and exports accurately. Can anybody think of any such inaccuracies?

      1. petermartin2001
        June 17, 2015

        No, the empirical evidence shows that tends not to be generally true. Countries like Switzerland and Germany will have a trade surplus over the whole business cycle whereas the USA and UK will have a deficit over the business cycle.

        The UK has been in continual trade deficit since 1980. But that surplus was just a blip. Since about 1976 really.

        1. Edward2
          June 18, 2015

          Perhaps the necessity for balance applies to the whole planet and not just one small country.

  17. Ian wragg
    June 14, 2015

    Eliminating the deficit I believe will go the same way as reducing immigration
    The public will be in no mood to be conned again
    I see more are joining your anti EU gang
    Is the penny dropping at last that CMD and Gideon are out to con the public.
    Why John are we building a 57 megawatt tidal lagoon with the Chinese which will give them direct access to our power system control technology. This lunacy when spinning reserve is down to about 5% this winter.

    June 14, 2015

    C’mon and come off it. Whilst the Labour Party cannot be defended for making anything but window-dressing regulations in regard to irresponsible British banks and British financial institutions they were and are world famous and Tory-Party famous for wishing to control all aspects of business. “Typical Nanny State attitude ” “Interfering in the running of the banks” as many a Tory put it time and time again in every permutation imaginable. The Tory Party as a whole aped the US Republican Party, at least those MPs talking on TV numerous times, speaking with some kind of 19th century laissez-faire gobbledegook where ” If only “the Labour Party would give free reign to our Great Financial institutions then…” etc etc. It was a Tory mantra. We shall not forget.

    ALL the mainstream parties, most certainly the Tory Party, and the vast majority of political/economic pundits despite what may have said in O.P Reviews led this country with arrogance to catastrophe.

    After the crash both in sub-prime and banks it was not actually surprising to hear various people saying “I told you so”. Odd their voices were not really heard at the time. Dragging some statement or other from their bottom drawers is a failure to accept responsibility. The Labour and Tory parties failed the British people. Now fess up and accept responsibility.

  19. Sandra Cox
    June 14, 2015

    John, re my earlier posting on the left-wing case for leaving the EU, I should have said article in New Statesman, not Spectator.

  20. Iain Gill
    June 14, 2015

    I note from the foo fighters news that in Sweden you can break your leg, be taken to A & E, X-ray, plaster, and travel back to return to stage an hour later. Try doing that in this country and it would be six hours minimum. And people continue to say the NHS is the envy of the world…

    1. Jerry
      June 14, 2015

      @Iain Gill; But how much did the groups medical insurance cost, and who says that his leg was properly set in that time, I very much suspect that he was fitted with a temporary cast and is in need of further treatment judging from the official statement the group put out and that the group have now cancelled (at least some) future European concert dates. But hay, why let the actual facts get in the way of a good anti NHS rant?…

      1. Iain Gill
        June 15, 2015

        You wouldnt get to see a doc in an hour here, whether its a temporary splint or not is of little matter the reality is he was seen and had enough initial treatment to be able to resume the show within an hour… an absolute non starter in this country. Sure he had follow up treatment. Its just another example of how poor the NHS is, of which I see many examples up close and personal regularly.

        1. Edward2
          June 16, 2015

          I agree Iain.
          Recently a relative injured their ankle during the weekend
          Nearest hospital found not to offer A and E at weekends
          Next hospital, waited 3 hours before seeing a nurse.
          Then waited a further 2 hours to see a doctor who ordered an x ray.
          3 hours later the x ray was done
          1 hour later doctor confirmed bad sprain.
          Treatment given, ankle wrapped, crutches provided, taking another 1 hour.
          Left home at 10.30 am got back at 9.30pm

        2. Jerry
          June 16, 2015

          @Iain Gill; You will if you have paid for private medical care! Then of course if the NHS was properly funded, and that also means a properly funded and running GP service with a proper after hours/home visit call out service, thus stopping people feeling the need to take non emergency cases to A&E…

          1. Iain Gill
            June 17, 2015

            There is no out of hours emergency private care in the UK. You can go to NHS A & E there are no other choices at all. No out of hours GP clinics, private or NHS, with X-ray either. It matters not how rich you are, unless you personally know medics close by you are in for a long wait if you break your leg.

          2. Jerry
            June 19, 2015

            Iain Gill; “There is no out of hours emergency private care in the UK.”

            There is no private emergency care in the UK full stop, something all you pro-private, bash the NHS, forget…

            The point I was making Ian is that with better (out of hours) GP and rest-bite care etc. there would be less people feeling in need of attending and thus over crowding the UK’s A&E departments with non A&E cases, meaning that waiting times for real the but less acute A&E cases would be reduced to those found in those “better run” (and funded, but that is never mentioned…) state health care services people like you keep pointing to.

  21. Gary
    June 14, 2015

    but the Tories racked up even more debt since 2010 than labour did in 13 years. !

    The Tories have overseen massive and ongoing bailouts of the banks at the expense of the taxpayer.

    Both the Tories and labour are owned by The City. Quite obviously. How many bankers are in jail ? zero. We are far worse off than in 2007, nothing has been fixed. This is going to end in disaster.

    Maybe we first need some politicians in jail ?

  22. acorn
    June 14, 2015

    Your list has a few fundamental (neo-liberal) errors in it JR. The last seven years have proved so. I think you will find the thinking has moved on a lot at Treasury and the BoE. Mr Carney weened the Canadians off worrying about the deficit and debt by teaching them that the two were not what they thought they were.

    I think Mr Osborne has been given the word, but will keep peddling the zero deficit austerity meme, to keep Labour behind the eight ball. I think he now realises that he can’t do it without the private sector going into more debt than 2008; and getting the negative current account (imports) reduced to essentials. Basically, the same out turn as the last five years, deficit wise.

    If this is so, then things will be looking much brighter towards 2020. In or out of the EU.

  23. Gary
    June 14, 2015

    I cannot remember when the BoE has been correct on anything. They are also complicit in rigging the biggest housing bubble ever seen here, but keeping rates artificially low. Did any central bank see the $700 tn derivatives nightmare that still hangs over our heads like an Axe ?

    An now we are told that it’s a virtue to have them in control !

    1. Iain gill
      June 14, 2015

      Yep I note john is not mentioning current mismanagement of the economy, most obviously the house price bubble being ever more inflated.

      Reply I have often written about house prices and have proposed a) lower inward migration b) more new homes.

    2. acorn
      June 16, 2015

      Gary, stop worrying! UK resident Banks, currently have only £4 trillion worth of derivatives exposure, in all currencies.

  24. waramess
    June 14, 2015

    Don’t I remember Osborne and Cameron repeatedly saying they would match the spending plans of Brown?
    Obviously not however, the problem arguably was that the interest rates had been left too low for far too long.
    Had interest rates been raised at an earlier stage then the debt pyramids would not have built up as the demand for credit would have been lower.
    This would of course have impacted the banking sectors’ credit quality and the banking collapse would not have happened.
    At least Osborne now seems to be a repentant sinner and appears to favour a smaller state sector. Let’s hope he is sincere and may at the same time stop taking the fatally flawed GDP as a measure of growth. The only true measure of real economic growth is to be seen in the balance of payments and that is not looking too good at the moment

  25. Aatif Ahmad
    June 14, 2015

    Someone needed to stop the relentless rise in debt to GDP levels and the collapse in credit quality. Are you going to point out the current increase in debt levels and failure to reduce such levels to pre-Labour ones for both private and public sector?

    Reply I have often written on the state of the public finances and support policies to remove the deficit.

  26. John S
    June 14, 2015

    A Labour lie? Cameron and Osborne did not see the crash coming. Cameron was talking about “sharing the proceeds of growth”.

  27. Lindsay McDougall
    June 16, 2015

    A crucial mistake made after 2001 was to instruct the Governor of the BoE, in setting monetary policy by inflation targetting, to use an inflation index (CPI) that excluded house prices.

    This was reflected in the outcomes that Mr Redwood has frequently observed, namely that between 2001 and 2007, when house prices were rising, monetary policy was too loose, while in 2008/9, when house prices were falling, it was too tight.

    Why is it that the Treasury and the Bank of England, who employ some of the country’s top economists, cannot do better? Define an inflation index that excludes VAT and excise duty, and includes house prices, and perhaps things that the rich buy as hedges against inflation, such as gold, art and fine wines. It doesn’t have to be easily understood by the layman, it has to be easily understood by the MPC.

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