Category: Blog

At friday’s closing prices taxpayers are losing more than £5 billion on the bank shares the government wishes to buy for us on borrowed money.
Lloyds renegotiated its bit of the deal when HBOS shares fell more than Lloyds. Isn’t it time to renegotiate to save the tapxayer some of these collosal losses?
Better still, why not discuss how the banks’ capital can be bolstered without us having to stand treat? Of course the government must stand behind these banks, and lend when needed to them. That does not require all this share buying.
I seem to remember they got gold wrong when they sold it.
So far they have got bank shares wrong.

In April 1989 I published a pamphlet which set out why joining the European Monetary System and its Exchange Rate Mechanism would be destabilising and bad for the British economy. I showed how shadowing the DM in preparation for membership forced the UK authorities to borrow too much money and to buy too many different currencies at poor rates in a way which could create boom or bust. As it turned out the system created both, first boom, then bust.

It was easy to predict. It was painful to advance the argument, as the whole British establishment, the Labour, Liberal Democrat and Conservative parties and the CBI were all united behind this monster. Consensus politics ruled, and the consensus was determined to take our economy up the mountain and then throw us off the cliff. They did so spectacularly.

I was chairman of a major industrial company at the time. I asked the CBI to attack the foolish policy. They refused, so I pulled the company out of CBI membership. They just could not understand why! Maybe three years later they worked it out.

In December 2003 the Labour government decided to switch inflation targets for their so called independent Bank of England. They set the Bank an easier target to hit. They claimed they were bringing us into line with the rest of the EU, though I suspect they wanted to send a signal that interest rates were to be kept too low. Again, I objected, and pointed out it was further proof that we did not have an independent Bank. Once again the consensus knew best, and the British establishment gently dosed through the most massive build up of debt and credit we have ever seen.

This time round, I am pleased to say, the political consensus broke earlier. Opposition parties did draw attention to how too much debt was being built up. More recently George Osborne has been attacking the government’s failure of economic management, so he has had to be the target of especially brutal Labour briefing. It never does to be right!

First the Western governments keep interest rates too low for too long, stoking up massive borrowing.
Next, they meet and agree laxer banking regulation in Basel, allowing the financial sector to borrow like there’s no tomorrow, to take advantage of the low interest rates.
Belatedly the Western governments notice that bank balance sheets have ballooned and shadow banks have appeared with large borrowings, so they hike interest rates to cool them all down.
Then they starve the money markets of funds, forcing banks and other financial institutions into admitting they do not have enough cash and have borrowed too much.
Next the UK and the US allow a couple to go bust, and discover that is bad for the rest and bad for confidence. They discover late in the day that all banks borrow short and lend long, and need liquidity and ultimate support from a Central Bank.
Then the Western governments panic, print some money, and announce they will use it to buy shares in the banks.
They meet in Washington to condemn the bankers, and pose as saviours of the world. They announce their remedy to the problem of too much western borrowing – more borrowing, only this time by governments rather than by the private sector!
No wonder most incumbent Western governments are being thrown out or will be thrown out by electors– The Republicans in the USA and Labour in New Zealand were the first of a whole parade who will pay a price for this gross folly.

The Shadow Chancellor today hits out in the Times against the government’s wish to borrow like there’s no tomorrow.

Borrowing is just tax deferred.

Borrow too much, and the interest bill will rocket.

Labour used to say they wanted to save money on interest expenditure. They were right then. What’s changed?

Yesterday the party officials kindly sent me their latest views and summaries of statements by front bench spokesmen, to read before appearing on Any Questions.

I was pleased to see in the document an emerging view that an incoming Conservative government will not necessarily keep to future Labour spending plans. The more out of touch with financial reality Labour’s plans become, the more important it is that the alternative offers something better.

Conservatives have to have courage. Labour always lie, and say we want to cut schools and hospitals. I know of no elected Conservative who has ever wanted to do that. None of us came into politics to give our constituents worse education or health services. We do need to tell the public that there are many other expenditures undertaken by this government that are wasteful of undesirable, starting with ID cards and unelected regional government.

The official party line includes the following – the wish to save money on:

“The cost of social failure. Family breakdown, unemployment, durg and alcohol addiction – these social problems rack up the biggest bills for government, so we’ve got to get them down.

“The cost of unrteformed public services. Massive top-down state monopolies cost more and deliver less, so we need to improve the running of public services through more choice, competition and non state collective provision.

“The cost of bureraucracy itself. All bureaucracies have an inbuilt tendency to grow, so we need to call a halt to the wasteful spending and inefficiency we have seen under Labour”

Exactly. Conservatives have to show they can deliver more for less. That should not be difficult when you look at the rambling Labour public sector, with its armies of box tickers and management consultants, and its fields of quangos and state owned banks.

Listening to Rosie Winterton last night on the Any Questions Panel, I became angry about the way Labour handle every criticism and every difficult issue the Opposition and the public put to them.

They always assert they are completely right. They refuse to accept there could be any other answer or way of handling things. They then decide to lie about those who put the criticisms.

In recent encounters Labour has sought to claim that I wished to deregulate mortgage banking, that I wanted banks to go to the wall, and that I wish to cut expenditure on new schools and Colleges.

Each one of these claims is a lie.

As readers of this blog will know, I proposed tightening the regulation of capital and liquidity and rebuilding the Bank of England’s powers to control the mortgage banks and other banks in the summer of 2007. I have set out many options to keep the banks afloat, including timely warmnings of the need for more liquidity in markets before Northern Rock went under in order to prevent that collapse. I have never suggested letting a major financial institution go into bankruptcy. I have never proposed cutting expenditure on schools or colleges.

I just hope that the public is at last seeing through this propoganda technique of Labour. I do not go round attributing false views to them. I have enough on my hands trying to make the public aware of all the damaging things they do do, without having to make things up to make my case.

I was sickened to read of the cruelty and mindless violence of three adults against a baby. I find it difficult to comprehend how such people lack the basic human instinct to protect the weak and vulnerable, and show none of the normal protective maternal and paternal feelings most of us feel towards the young. Of course those three adults are to blame for this tragedy.

We should also ask why on 60 different occasions professionals in child care on the public payroll saw this baby, yet none took action to protect him. We must ask why the Head of Childrens Services at Haringey is still in her six figure salary job, and why she thinks they cannot stop the occasional murder of a baby by adults close to him or her.

For if her defensive remark is true, we must ask why are we spending all this money if the person in charge thinks that her service cannot succeed in its most basic role, seeking to prevent the death of children in her borough at the hands of those close to him.

The failure of Ministers to respond directly to the warning from Miss Kemal, the social worker who turned whistleblower, comes as no surprise. Ministers trusted to their large bureaucracy, referring the case elsewhere. They accepted the assurances of the bureaucracy that all was well, and carried on referring the letters without anger or comment or intervention. These Ministers so often fail to lead these huge bureaucracies, or to demand good service for all the money they send to them.

What is a disgrace is the fact that Miss Kemal is the one who lost her job, when she appears to be the only one who tried to do it properly. I can understand that sometimes babies or children unknown to social services may be harmed by crazed adults beyond the state’s knowledge and reach until the crime is committed. I can understand that there are many marginal cases where on balance social workers will decide to leave the parents with their child, knowing that taking a child into so called care is not a good answer in many cases either. What many of us find difficult to accept in this case is the scale of the physical abuse of this baby before he died, and the inability of many experts to see it and to take the necessary protective action.

If this had occurred in a Conservative Council doubtless we would have heard the BBC constantly reminding us of the political control of the Council, and doubtless Labour spin would have claimed it was owing to a “lack of resources”. This occurred in a well funded left of centre Council. The Conservative party deliberately did not raise the political complexion of the Council when the Leader took this up in the House, only to be told he was “playing party politics” with the issue. The government does need to be involved, and there does have to be a full and detailed Independent Inquiry. It is not good enough to say all the boxes were ticked, all the forms were filled in, all the assessments were made properly, and the Council has gold stars for its overall performance. Clearly major mistakes were made in this case. We need apologies, and disciplinary action. This was the Council which also failed over Victoria Climbie.

If the Head of Chidrens Services thinks doing better is too difficult, and her team did well, then she had best be replaced. We expect more for £100 million a year.

If Mr Brown needs to buy a coffee when he arrives in Washington he will discover what international investors and markets think of his economic rescue so far. Before he started buying up bank shares a $2.05 cup of coffee would have cost him £1. Today the same $2.05 cup will cost him £1.40.

Posing as the saviour of the world, and putting so much borrowed money into UK based bank shares has entailed paying a huge price in devaluation. The 30% fall of the pound against the dollar is mirrored in a similar fall against the yen. We are also at a new all time low against the Euro, which has been a weak currency as well. The Prime Minister, if wise, would ask himself why is this happening? He would ask himself how easy it is going to be to borrow all the money he needs to borrow to buy the bank shares and pay for the expensive recession we are entering. If his fellow guests at the Summit were unkind, they would ask him who he thinks is going to lend the UK the extra money he now wants to finance the tax cuts.

In Mr Brown’s world, state money is easy come, easy go. He assumes – if he thinks about it at all – that the Chinese on much lower average incomes than ours will willingly put up more cash to lend to us to maintain our higher living standards. He assumes that there are enough rich people and companies left in the UK to dig more deeply in their pockets to lend the state what the state is not taking in taxation from them. Why stop at the £43 billion he forecast for this year’s borrowing? Why stop at the £63 billion the downturn will probably make that? Why stop at the £120 billion needed when you add in the purchase of bank shares and the Bradford and Bingley transaction with Santander? Why not add in some tax cuts for good measure?

A sensible money manager would be asking himself some basic questions, when he saw the value of his currency drop by almost a third in a few months against two of the other three main currencies of the world. He would see the need to be more careful about the financial risks he was running, and more careful about the amount he thought he could borrow.It has always been odd that he thinks you can solve a problem of overborrowing in the private sector by overborrowing in the public sector instead.

The G20 do need to discuss what further action they can take to limit the length and depth of the recession. Countries in stronger financial positions than the UK should cut taxes. Countries should revisit the measures they are taking to sort out the problems of the banking system. The best thing they could do would be to agree that the lower interest rates and more liquidity are beginning to work. It would be better to leave it to the banks to sort out their capital positions, without committing taxpayers to stump up risk money. Big banks in trouble should have access to short term loans and guarantees whilst they raise the money they need one way or another. The Paulson plan is being revised for the fourth time. Why isn’t the British plan being revised, as it is not easily affordable for British taxpayers?

The decision by RBS today to announce 3000 redundancies is a crude version of what needs to be done. I would rather RBS had announced a complete staff freeze so natural wastage could go to work, coupled with no bonuses for 2008 and a downwards review of pay for those on six figure salaries. They do need to make a big reduction in their costs, and that would be a better way of doing it than picking on 3000 for potentially costly redundancy. Taxpayers now have to help pay to sack people, which is going to annoy Trade Unions and upset left wing Labour MPs who were so keen on bank nationalisation. They should not be surprised, as taxpayers are already paying for large redundancies at Northern Rock.

The G20 would be well advised to reach agreement on more capital for the IMF. More countries are going to borrow too much and reach a point in currency and state borrowing markets where they can no longer raise the money on sensible terms. They will need to borrow from the IMF who will in turn make them cut back and get their borrowing under control.

The Europeans will be pressing for more regulation. What they should be pressing for is regulation that works. Their regulators failed to curb the lending by European banks in the easy credit years. They are now curbing it too much. If they want to set up a system which always curbs it too much, then they make the recession worse. What we need are some central bankers who can set interest rates sensibly, and regulators who demand more capital when things are heating up, and less capital when they are cooling down. Why is that so difficult?

Tonight sterling hits $1.45 and Yen 138!
Do the authorities in this country intend to demolish our currency, by being too gloomy and borrowing too much?
Don’t they care at all?
A modest devaluation to make our exports more competitive is one thing, but this sterling rout is now out of control and very damaging. We have fallen around 30% against the dollar since the summer.
They will discover that this will make it more difficult to sell all the debt they wish to sell, as foreigners will be wary.

Yesterday the Governor said enough for Labour to be able to claim he supports an unfunded tax cut – a temporary fiscal stimulus.
However, he also warned that borrowing could get out of control. He said if people did not think extra borrowing would be reined in quickly and credibly fears would build that it “might get monetized and put pressure on sterling”
Precisely.
And what does he and the Chancellor think is happening at the moment to the pound?