This morning we learn from government sources that the PM has taken the action necssary to see us through the crisis. Did I miss something?
I heard the US authorities announce large extra liquduity for markets, and heard them announce a buy up plan for unloved mortgages. The US Congress, which is allowed to meet, will be passing emergency legislation next week. The UK Parliament has been prevented from meeting throughout this summer’s crisis and remains uninformed of the government’s latest forecasts and thinking.I saw the US slash interest rates some time ago to only 2%. I have not heard a thing from the Uk authorities, other than to say they will waive the Competition rules to allow a merge of a couple of UK banks, and are banning short selling for a few weeks.
The truth is that the UK version of the Credit Crunch is a particularly bad one, and has been made worse by this government’s actions in recent years. Far from helping solve the crisis, the government has helped the banks create a UK crunch through bad central banking and bad regulation. The main regulatory mistakes have been:
1. Taking crucial powers away from the Bank of England to run and understand the money markets in the 1997 reforms.The Bank needs to be the daily regulator of the main banks and needs to manage the government debt.That was always a disaster waiting to happen.
2. Appointing people – and reappointing – to the Monetary Policy Committee who kept interest rates too low in 2003-6 and are keeping rates too high in 2008. We need an MPC with better judgement.
3. Setting a new target for inflation control prior to the 2005 election which encouraged the Bank of England to keep interest rates too low – that was obviously a dangerous mistake at the time.
4. Abandoning Prudence after 2000, building up huge deficits in the public sector during a boom, instead of taking some heat out of the binge by cutting the growth rate of spending and by reducing borrowing.
5. Accepting and negotiating Basel I and Basel II regulatory systems for the banks, which encouraged banks to put as much borrowing as possible off balance sheet, and encouraged securitisation, selling loans into less regulated funds. Far from controlling the banks, the global regulatory rules encouraged the type of excess which brought the system down.
6. Introducing expensive and elaborate mortgage regulation, giving the impression that it would make things safe, when it had no beneficial impact whatsoever. Never have mortages been so regulated in the UK as today and never have we had such a big mortgage mess.
7. Showing the priavte sector how to use off balance sheet borrowing on a huge scale, through the big PFI and PPP schemes to buy extra public facilities on the never never without putting them properly into the public accounts.
8. Failing to put enough money into the money markets in the sumnmer of 2007, allowing the run on the Rock to develop.
9. Nationalising Northern Rock – so the taxpayer has to pay all the losses,and so one of our once largest mortgage lenders can no longer lend any new money!
10.Making foolish statements at crucial times for confidence – ln the summer of 2007 telling everyone there would be no bail out which encouraged a run on the Rock, just before announcing the bail out, and more recently telling us the conditions are the worst for 60 years whilst failing to give us any hard information about what that means and what the government’s forecasts are.