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Rock blew whistle on economic flop

Robert Peston | 09:15 UK time, Friday, 20 March 2009

The National Audit Office's report into the events leading up to the nationalisation of Northern Rock can be captured in three simple points, none of which will surprise you:

Northern Rock branch1) In 2004 and subsequently, the Treasury - under the then Chancellor, Gordon Brown - didn't appreciate that banks were taking on dangerous risks by becoming dependent for funds on wholesale markets, and didn't see the urgency of making adequate preparations for the possible collapse of those banks (even though it recognised that it didn't have an adequate system for dealing with such crises);

2) In the autumn of 2007, the Treasury - under the current Chancellor, Alistair Darling - didn't expect house prices to fall by more than a few percentage points and didn't believe the UK would suffer a recession;

3) Until far too late, all the authorities - the Treasury and the Financial Services Authority in particular - had a hopelessly naïve view that Northern Rock was not taking excessive risks by providing 100% mortgages at the top of the housing market.

Of course it's embarrassing for Gordon Brown and Alistair Darling that a spotlight has been shone again on their misjudgements. But we've known for many months that they were wrong on these very big issues.

A mountain of evidence has been building and has been visible for more than a year that they, and the Bank of England, and the Financial Services Authority (and the US Federal Reserve, and so on) simply didn't appreciate that - since around 2000 - they were steering the Titanic into the mother-of-all economic icebergs.

Their misjudgements in the Northern Rock debacle were symptomatic of a much more serious economic myopia: they didn't see that the architecture of the financial system was fatally unstable and that the foundations of our economy were crumbling under the weight of excessive borrowing.

However, as I've said, I think we already knew that, didn't we?

Comments

Page 1 of 4

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    Last night it was the nineteenth century and today we are looking back to the early 20th? If Robert is right and collectively we have steered the Titanic into the mother of all icebergs thaen what are you going to do? Will you join the band and keep playing as if nothing has happened? Will you sink or swim? Business guru Tom Peters says resilience is key to surviving the credit crunch and he’s right. So if you have the Economic Mindset Syndrome that is rife then it is time to get a more positive approach and a survivors mindset. [Unsuitable/Broken URL removed by Moderator]

  • Comment number 3.

    We did know it. And we look forward to repossessing No 10 and and No 11 Downing Street.

  • Comment number 4.

    This is quite a misleading interpretation of the report. I have read the NAO's own executive summary and it says something quite different - not about Brown and Darling at all. Follow this link to see what the NAO actually thinks:

    http://www.knowingandmaking.com/2009/03/bit-unfair-robert.html

  • Comment number 5.

    I notice that John and the rets of the BBC are happy to jump on bad news - but when Prudential puts out very good results (including the pre-tax loss given the last 18 months) the BBC in all forms hides away its comment and then just concentrates on the loss. I'll be honest Mr Peston - you're becoming part of the problem!

  • Comment number 6.

    The many failings of GB must be kept in the headlines to make sure that we do not have to suffer the "headless chicken" policies of this unelected disastrous excuse for a prime minister or anyone like him ever again.

  • Comment number 7.

    So the government continued to give 125% mortgages to buy-to-let landlords through northern rock after it had started to bail the company out?

    All because many people ,including Alistair Darling thought that house prices could never fall by more than a few percent.

    But moving forward, since we have seen in the US and UK, that house prices can fall by at least 20% in one year, why is the government (through northern rock/RBS) still giving greater than 80% mortgages? In this falling market, the interbank markets will correctly value a mortgage of greater than 80% and the house as collateral as worth less than 80% of the property. [the expectation is that the person has an option to walk away from the house if house prices continue to fall before the collateral can be sold]

    So anybody taking out one of these mortgages is taking free money from the banks. Given this, what incentive is there for commercially rational banks that wish to stay independent from the government (hsbc/barclays) to lend?

    And what legislation can we expect from the FSA/Government to stop these foolish buy-to-let landlords taking out these 80%+ mortgages which are free options around the necks of every man, woman and child in the UK?

  • Comment number 8.

    Robert, while on the subject on whistle-blowing and Northern Rock, were the Treasury Select Committee made aware of the BBC Business Editor's association with an organisation called Common Purpose when he was called to give evidence on his potentially damaging reports on Northern Rock?

  • Comment number 9.

    Yes, many of us knew it. but i'm not convinced that Gordon Brown really believes it, even now. Until he really does come round to putting savers first and borrowers last, this country can't move forward securely. Let's hear the effect on savers of each government intervention mentioned ahead of the effect on borrowers.

    e.g. 'Interest rates have been reduced by x percent to y%. The effect will be to reduce the income of a saver with £z000 by £c per month. Borrowers may be better off.'

  • Comment number 10.

    They didn't see it coming?
    They only had to look at recent history.
    The savings and loan disaster in the USA in the 80s.
    The UK property collapse of the 90s.
    The Japanese property collapse of the 90s.
    The dot-com bubble collapse.
    All massive excess, and all with the same result...disaster.
    "Stimulating" economies by property booms does not work.
    It is an old trick.
    It is now defunct.
    It is always a "house of cards", and they should have known that.
    This world-wide mess is a result of another failed property boom in the US and the UK, but this time with a doomsday result.
    Wait until the public gets the bill.
    They don't have to study all those complex financial instuments, just look at the price of houses, and then look at the average wage.
    A bunch of schoolboys could have run the economy better.

  • Comment number 11.

    Spam Spam Spam Spam,
    Bank Bank Bank Bank,
    Bank Bank Bank Bank,
    Bank Bank Bank Bank,

    and so on in perpetuum mobile (to the mods: this is a musical term meaning perpetual motion - please don't censor it 'cos it's not English!)

    Robert - I find it hard to dislike you, and your TV performances are mildly entertaining, but you are supposed to be a business editor and not a banking correspondent. Are there no business stories out there to discuss? It really is getting very annoying, even embarrasing. Go to the once industrial north, or come back here to West Wales. There's loads to report on relevant to the whole country. Eg, lots of new build properties are empty. Now they're to let rather than for sale, but still no takers. Will the new LNG terminal at Milford Haven affect gas prices? ... Lots more stories just waiting to be told, and fitted into the bigger picture. DO IT!

  • Comment number 12.

    So we don't need a novice at these times we need someone with a proven record of not being able to see the writing on the wall?

    Don't dare let them get away with saying no one could see this coming. Plenty of people did including the IMF. Gordon Brown simply could not admit that the whole sorry charade was a credit fueled speculative bubble in housing. They are still in denial. Like alcoholics the first step is recognition that there's a problem. Any evidence of this?

  • Comment number 13.

    Yes, Robert, I think we do know it, and yet Flash and his team seem to think if they ignore it, it will go away.

    Labour has presided over this country's economy during a period where you simply had 'to be in it to win it'. We could have had Jimmy Krankie in number 11 and we'd have had as good economic growth, built on as big a house of (regulatory) cards as we have now.

    As Buffett famously said "It's only when the tide goes out that you can see who's been swimming naked."

    Time to put your bathers on, Gordon, get out of the water and go on home. I say get Vince Cable into the Treasury he's the only one who's been consistently talking sense on the economy.

    Okay he's not exactly Mr Personality, but he's got one thing over all of the current Labour bigwigs: Credibility.

  • Comment number 14.

    Of your 3 summary points, Robert, no 3 is the most damning. 1 and 2 require the govenment to have the ability to see into the future, but 3 is a lack of basic common sense. And it can't be blamed on the USA.

  • Comment number 15.

    4) The British financial press didn't appreciate points 1) 2) or 3), or equivalently, didn't tell the public, even though it was patently obvious to most people that banks were lending excessive amounts and making money out of thin air.

  • Comment number 16.

    I think we are still borrowing excessively. You see reports of some companies asking for loans to help tide them over till demand returns, but what if it doesn't return, or at least not to the extent that they require? With the UK expected to have a prolonged recession, are these businesses at risk of defaulting on their debts?

  • Comment number 17.

    Surely this is the smoking gun we all knew was there? The crash wasn't an asteroid which landed from outer space: it was an event which was forseeable and should have been prepared for. This is Government incompetence which all of us will be paying for over the next 20 years. Angry doesn't begin to describe my feelings.

  • Comment number 18.

    Now if I went around talking of crocks of gold at the end of the rainbow, ancient treasure in barrows guarded by dragons, golden rings of magical power and the wealth of the King of the Leprachauns I would be treated at best as mildy eccentric and at worst subject for sectioning under the Mental Health Act.

    So how come the government and The City were so sure that the economic cycle had been abolished for ever? This is what we are talking about: a wholesale failure in rationality at the highest level in the country.

    This `The Emperor has No Clothes' writ large all over it. It is not just amazing, its quite incredible!

    It is unfair on the mentally instable to say that this is a government of the mad. I can deal with people who are mentally ill, who need help with understanding, as often all they need is some kindess and respect.

    But to elevate what one can only describe as a myth into the centre of economic strategy is truly frightening. What else are they up to even now?

  • Comment number 19.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 20.

    If as you say we already knew this, why won't Brown et al apologise for these clear mistakes?

    It beggars belief that the people involved could take such risks and make calamitous mistakes and not be held accountable? May be we are all drifting towards apathy, which is why the latest story about Govthern Crock doesn't surprise us?

  • Comment number 21.

    I'm not sure why we should be surprised re the continuation of 125% mortgages for so long and this whole fiasco re Northern Crock.

    Virtually everything else that has come out re the FSA and Treasury handling of the banking crisis since the Northern Rock run especially Sir Fred's pension has shown up their complete inability to be able to even organise a drinking session in a brewery.

    Words fail me at the level of incompetence yet again exposed.

    I'll stop now before I write something that we all believe to be true but which would get me blocked.

  • Comment number 22.

    Robert

    The NAO report is a scathing indictment on the (in)competence of this government. Almost everything in that report was highlighted by bloggers when you broke the story from the Together mortgages to the lack of due diligence.

    When Alistair Darling announced the nationalisation of the Wreck he told taxpayers that we would receive a payback on the rescue and eventually make a profit. He was either ignorant or misspeaking as it is clear that the cost to the taxpayer then was estimated as between £1bn and £10bn. It is clear that even on that basis the company will never become profitable enough to sell off without writing off a huge amount of the taxpayer's investment. The reality is that 30% of the mortgages are Together which equates to them now being 100% in excess of the current value of the houses on which they are secured. The whole company is clearly a basket case and will only struggle on until put out of its misery at some convenient time in the future.


    On the findings of the NAO report Darling should resign.

  • Comment number 23.

    "Of course it's embarrassing for Gordon Brown and Alistair Darling that a spotlight has been shone again on their misjudgements. But we've known for many months that they were wrong on these very big issues"

    Well of course Robert we all knew it or at least strongly suspected it, but they don't seem to be able to recognise this fact. Gordon will even shout at you and threaten you if you suggest it to his face, in fact.

    It is frankly a disgrace that a man so utterly deviod of decision-making ability, or indeed any other redeeming characteristics, is the premier decision-maker in the country!




    Call an election!

  • Comment number 24.

    Oh dear, this looks like a wholesale machine-gunning of ostriches !! Many had warned that this would come to pass but, as in the words of a famous song, "there're none so blind as he who *would* not see" !!

    Perhaps a "mea culpa" or two by the politicians in charge might improve confidence in the British economy a tad !!

  • Comment number 25.

    what is incredible is that no-one have the courage to stare down anyone.
    If risky lending was continuing it was probably on the basis of a contractual obligation. (sound familiar)

    As usual the good old British taxpayer only has the obligation to pay up, but not the right even to an NHS dentist.

    we have 15 more months of this.

  • Comment number 26.

    Yet again evidence this govt have no idea what they are doing. We need a general election now to stop them doing anymore harm; we need to appoint Vince Cable as Chancellor and start again ie making and building things in this country. I am afraid the green issues are going to have to come second to this - like or not we have to go back to basics, drop all political correctness and start making some sensible decisions that we can afford.

  • Comment number 27.

    Yes Robert, we most certainly did know that. Maybe you should be reporting government mistakes without the Labour spin from now on?

  • Comment number 28.

    What is shocking and unacceptable is that all this buccaneer free enterprise stuff occurred under a Labour Government and a 'heavyweight' Labour Chancellor. Many thousands will now have a personal understanding of the Klunking Fist of GB. Idealogically retarded, economically naive, and politically clumsy it is the duty of every Labour MP to rid us of the unacceptable face of New Labour if, like 30 years ago when I was a Labour parliamentry candidate, they wish to avoid the political wilderness for 10 to 20 years.

  • Comment number 29.

    We all knew it already Robert
    The trouble is Gordon still doesnt believe it.
    Therefore he is not the right person to get us out of this and move us on to a safer course.

  • Comment number 30.

    Robert, in your earlier article you stated, "If only our bankers had the flair and imagination to direct their depositors' money to genuine creators of wealth".

    That gave me the notion that the problem here is the word "wealth" and that the same word is being used by different people to mean different things.

    Had the boards not gone down, I would have asked such questions as "You mean 'paper' wealth, not 'real' wealth, perhaps?" or "You mean quick-buck, short-term wealth, on the 'never-never'?

    It seems increaslingly clear that no solution to the current financial crisis will come from anywhere. Too many in the fiancial industry and the political arena seem to believe they can just use one mechanism or the other to effectively turn the clock back and go back to making lots of paper wealth, propped up by lots of credit. Even if some visionary does see the way forward, the chances of getting any sort of agreement, inplementation and compliance from the global governments and fiancial interests, is extremely slim.

    However, in looking at Northern Rock and the other failures, it is of value to remember that some more prudent institutions did NOT get themselves tied up with significant amounts of toxic debt. Some operated with better wisdom, higher quality risk management, proper levels of due diligence AND with better ethical standards.

    In my book, we should be looking at them as role models, or "Beacons". Yes, even if that does mean a return, in some ways, to the 19th century.

    Let's be clear, we can all say we mustn't get protectionist, but as we can see, others may well do just that, e.g. today's story on Renault. And also, Mervyn King made a good point about global banks being national in death.

    For Jo Public - whether as customer, shareholder, investor or what - there is a "wealth" in being able to trust the people who are handling his/her money. And many are finding another type of "wealth" in the arena of so-called "ethical banking".

  • Comment number 31.

    What all thsi does show is that the march towards nationalisation is the march towards penury. The Government have no idea how to run any of these things, despite spending £80 million on advisers.

    Whatever happens, let's hope this is the worst of it and the news gets better. It is laughable that the government continued to offer together mortages - pushing all those people into debt!

  • Comment number 32.

    Why am I not surprised? If any of these new loans go sour then maybe the new management should be held personally responsible for the specific bad debts. Lending 125% when the market was on the "up" is highly questionable - but doing so when it has peaked and crashing is downright negligent. But given that it's now in effect a "Public Enterprise" I doubt that anything will happen anyway. Plus ca change!

  • Comment number 33.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 34.

    We may well know all this Robert, but we have to discover anyone accountable for these failings. Or did I miss that bit?

    The report doesn't really say it was all America's fault either.. or does it?

    So the question has to be, why hasn't someone resigned?

  • Comment number 35.

    Very good points Robert, but I bet Gordon still doesn't say he is sorry.

    As a lay person I could see that the housing boom in Britain was unsustainable, so why couldn't anybody in authority?

    I bought my house in 1997 and paid £47,500 pound for it, a 3 bedroom terrace in Sheffield, at the height of the housing boom it was worth around £150,000, which is insane over inflation of it's value by any means.

    Banks and ALL the authorities need to take joint responsibilty for letting things get totally out of control.

    My solution from a personal point of view would be not to bail the banks out directly, rather the customers with a mortgage, i.e. it would be cheaper for the government to underwrite 80% of every single mortgage in the country, wiping that debt from people's mortgages but not crediting any real money to the banks who lent it, just cancel the debt, a far better form of Quantitive Easing.

  • Comment number 36.

    Can I go out on a limb and make some predictions about what will happen as a result of the NAO report?

    1. The government will say how terrible it is and blame it all on some middle-ranking civil servant, who will be sacked.

    2. No-one at a senior level will even remotely be held to account.

    3. The government will say that lessons will be learnt.

    4. The only lesson that will actually be learnt is that it's useful to have disposable middle-ranking civil servants so that there'll be someone to blame next time the excrement hits the fan.

    Have I missed anything?

  • Comment number 37.

    http://news.bbc.co.uk/1/hi/business/7954811.stm

    Dithering Darling and Babbling Brown, when will they look after the interests or OUR workers?

  • Comment number 38.

    "However, as I've said, I think we already knew that, didn't we?"

    I assume Robert that statement is meant to be ironic, i cannot recall one political or economic pundit who was against any of the governments buy outs or resue packages at the time, and very few since.

    Nor do i recall many protests by same pundits against the implementation of said buy outs or rescue packages.

    In fact the only people who have maintained their position since the start of this almighty mess, are various posters on various internet forums and bloggs.

    For my own part i have been against the policy this government has followed, not because i hate the banks, or capitilism or even democracy, but because every thing this government does they wreck.

    The vision this government has created either through luck or design is that the guilty should be rescued ( overextended individuals and companies) and the innocent punished ( savers). They have subverted supply and demand, after all people with money whether rich , poor, old or young should in these current times be feted by businesses and banks as having the very thing, "oh blessed capital" that is in such short supply. Instead under Mr Brown we have "the world turned upside down".

    One can only assume, when dealing with such downright stupidity that something much greater than the Uk banking industry is at stake.
    I do not hate the Lbaour party per se, and no full well that i will be no better off under the Tories, but i do not believe that when Mr Blair talked of an inclusive society, he meant penury and ruin for every one.

  • Comment number 39.

    The country needs a government that is secure in its position for 5 years so it can take long term measures to get us out of this mess.

    Labour need to do the decent thing and call an election immediately.

    Anything else is just further mismanagement by Labour.

    I think the electorate would have a lot more respect for Brown if he owned up, explained that the country needs a secure government and went to the polls. Who knows, he may even get back in.

  • Comment number 40.

    Forex markets are still ignored. How much money that could be used in the real economy is being "risked" by our bankers?

  • Comment number 41.

    Hi Robert
    When it comes to financials these politicians are clueless. To make it worse one of them was the chancellor for 10 years. The financial institutions seem to be able to run rings around them. Take the companies that are connected with Lehman Brothers in the UK. They are making life miserable for lots of mortgage holders in these companies. To make it worse nobody knows who owns the mortgages because of securitization and it looks like the courts don't have the time to investigate. The only MP which started to make some noise about these was Vince Cable and he got the name wrong. Just look at some of the forums where people are trying to fight to keep their homes and every time they go to court they're hit with even more charges. In the USA I understand they are looking into securitization. As they have found that the companies seeking repossession are not the legal owner of the properties.

  • Comment number 42.

    What is the betting that the 41 unmoderated comments all say "yes we already knew that". Can you get hold of Crash Gordon and find out why he did not know it. When is he going to take personal responsibility for the incompetence of himself and his government and call an election.

    Perhaps he will simply say yet again "I did not know". It is his job to know.

    Whilst on the subject the government needs to sort out its instructions to banks. Is any lending the objective, even if it is irresponsible (eg more 125% mortgages in a falling market)? Or should banks only lend on the basis of perceived good risks? It seems to me that there is a big mis-match in the economy at the moment because banks are trying to be responsible. How about the government defining a business loan guarantee scheme under which the Treasury takes, say, the first 10% of risk.

  • Comment number 43.

    On Thursday, US lawmakers in the House of Representatives voted 328-93 in favour of legislation to levy a 90% tax on large bonuses from firms bailed out by taxpayers.

    A 100% sensible legal tax move that only applies to the high earners not the front desk clerks on low pay.

    Come on GB/AD - you know this would not only be popular but is what Obama is doing and might stop a riot or too and would fill a (very tiny) corner of that big black hole of government funding.

    Come on - you can do it - I promise that if you bring in this legislation I will overlook all your previous mistakes and vote for your party at the next election (maybe).

  • Comment number 44.

    The whole picture displays how out of touch the chancellor, the treasury, and the government were, and still are, with reality. It was obvious to many that we were heading for a problem, lots of senior economists were saying that it was unsustainable to continue borrowing at the levels then, also M King said that borrowing was way off scale.

    The newspapers were sounding alarm bells so prudence was evicted when Gordon came on line and we are ill prepared for our current prediciment. Lessons are continually being learned but with no results.


    How we were propping up a business where the business model had been a failure, yet continued to lend on the same lines is totally outrageous and incredible.
    This government are totally incompetent,
    the business people brought on stream seem to be of the same quality as the government,
    they know nothing,
    none of it happened when they were there,
    they take no responsibility yet they stay in situ,
    everybody talks a lot about initiatives,
    there is no joined up thinking,
    it is all a shambles, and we are paying for it, which makes it hard to bear.
    For those who were actually prudent, lived within their means, saved, and took responsibility for their lives there has been no reward.
    What now? Borrow more to dig us out? What a joke. They are the KNOW NOTING PARTY on every level.



  • Comment number 45.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 46.

    Out of their depth going in!

    Out of their depth coming out?

  • Comment number 47.

    This should be no surprise . We have all suffered 12 years of Brown's mismanagement and incompetence.

    The writing was on the wall years ago. Economic growth-what a joke. More like an out of control socialist borrowing binge, and still they cannot get a grip.

    Deja vu.

  • Comment number 48.

    How can there be a new capitalism without accountability and ethical trading ?
    The next phase for developed countries must be a more holistic approach. We can't go BACK the the old system of increasing growth, that didn't work, we need to go FORWARD.
    To get to the next level of human developement and a more sustainable way of living REQUIRES major upheaval - that's now happening.
    I'm with Don Beck and Spiral Dynamics, roll on Turquoise !

  • Comment number 49.

    So the government continued to give 125% mortgages to buy-to-let landlords through northern rock after it had started to bail the company out?
    The 125% mortgage is not the problem! It is weather the person taking out the loan is low or high risk. Lets no go back to the pre thatcher years where you had to beg and queue to get a mortgage. My first flat was bought with a 110% mortgage at the top of the market. But since I was not high risk customer I was able to may the mortgage even when the intersest rates went to 13% (from 7%). It appears that there are many shouting from the side lines, many of whom have never worked in banking, have never been a CEO or any kind of chief. Those posting should speak to elders, to make sure we do not return to heavely regulated banks and mortagages. As a northern rock share holder, what happens when they back all the government money? Will my shares be worth more than zero?

  • Comment number 50.

    In 2003 I advised my brother to sell his house, which he did, and sold my own, cautioning anyone who'd listen to consider doing likewise.
    For the next three years I received a fair degree of ribbing and ridicule, and the accusation of being out of touch with the new reality.
    My answer throughout was the higher it goes, the worse will be the crash.
    If it was obvious to me (and a few others) that the level of debt was becoming unsustainable enough to cause a catastrophic collapse, WHY wasn't it to the authorities? It beggars belief that intelligent, informed people can let herd instinct and wishful thinking overcome common sense.

  • Comment number 51.

    The foundations were certainly unstable, but much of it was for reasons that have been true for a long time. Free markets can work, but the conditions need to be right - and need to be established by Govt:

    (1) There must be full disclosure. With company activities being so opaque as to make investment a guess at best, this is clearly not so.

    (2) There must be clarity of ownership and enforceability of contract. We often forget this (since we are not Zimbabwe where the government will suddenly decide to give what you believe to be yours to someone else), although we do get the odd nationalisation. However, although we have more than enough laws to establish contractual rights and ownership, it is cumbersome and expensive and is therefore not available as required - except to those who are rich enough (or poor enough to qualify for legal aid, and they won’t be involved in this kid of finance). And our legal system certainly does not get the job done in a time frame that is required to keep pace with the speed of market movements.

    (3) There must be no knock-on effect of external transactions involving other parties – or even involving the same parties. Even that doesn’t seem to be true when complex ‘products’ are being invented and sanctioned by those who do not understand them. This is where regulators should step in and notice the knock-on effects and disallow that type of business in a free market scenario.

    This is what we really mean by a failure of ‘regulation’. The government have allowed the inherent problems to remain and in fact to grow worse, while a lesser degree of critique is required by the FSA etc.

    So in my view, in order to ‘fix’ capitalism, we need to sort out the prerequisite conditions that have been neglected for years: greater disclosure, a more accessible, streamlined legal framework and transparency in terms of the external effects of business activities and regulators that understand exactly what types of business they should disallow in that respect.

    In essence, to say that the free market economy has failed is not really true – it is really the failure of government to create the conditions required for it to have a chance to succeed.

    That is not to say that there should not be limits on fat cat pay – of course there should. There can be no bonus for short-term gain since only the long view tells us of the true performance of business leaders. All of which is part and parcel of (1) above – full disclosure certainly gives us a better idea of what they have actually achieved.

  • Comment number 52.

    It was obvious to everyone that we were in a bubble (particularly house prices) that would one day require a drastic correction. The bankers ignored this - and more shamefully so did the government. They turned a blind eye and happily raked in corporation tax and stamp duty, despite repeated warnings from the IMF. Gordon Brown's attempt to blame everything on external "global" forces is risible.

  • Comment number 53.

    Hi Robert

    Actually before Labout was in power. The then Tory's had a few scare as well. What happened to them credit card booms and resulted in the black Friday................... Why people did not learn? Could be because they were too ignorance? They blamed on the sophistication of these new financial instruments and hedge fund etc but it is nothing new. The labout Government just dont get the right advice. Why Chinese people in Hong Kong like saving their money even though interest there is so low? I do, my parents did and my grand parents did and that's why Standard Chartered and to certain extent, HSBC are surviving as they built their empire mainly from the Far East. By the way I came from Hong Kong fourty years ago. Saving is a habbit, a cultural things. It won't be changed overnight. Look at the kids nowadays. They borrow up to the heel. Problem is borrowing habbit started from the top ie the Head of the State, the family etc.

  • Comment number 54.

    #13 - "It's only when the tide goes out that you can see who's been swimming naked."

    That's priceless.

    So are we saying that what has happened on a global scale could and should have been anticipated and those (Brown/Darling) that were arguably partly responsible are now running the Government.

    Brilliant.

    And that the FSA who is supposed to regulate the financial institutions is run by those who used to work for the banks. No conflict of interests there then.

    "Bankers"

    Many economic theories and models are based on "assumptions". It seems that they have made the mother of all assumptions.

    I'm not even sure who to blame or how to fix it anymore.

    I't all about greed, prestige and not losing face.

  • Comment number 55.

    Robert,

    I’m not sure if you are not the most gullible of reporters on the BBC staff or you just report what your told “A mountain of evidence has been building and has been visible for more than a year that they, and the Bank of England, and the Financial Services Authority (and the US Federal Reserve, and so on) simply didn't appreciate that - since around 2000 - they were steering the Titanic into the mother-of-all economic icebergs.”
    Ask your self the question what happened in 2000 that set this all rolling ? Why yes we had the dot com bubble burst with billions of dollars and pounds wiped off of share prices. I suggest that you read Robert Lowensteins book “The Crash” the analysis of the dot com bubble and the reasons why it occurred are almost identical to the problems we now have in spades. GB presided over an economy where inflation was held in check not by an improvement in economic efficiency or fiscal or monetary policies pursued but as a result primarily of deflationary imports from China. Moreover, the inflation targets and measures were skewed to under report inflation ( house and land prices were excluded plus new product features evaluated as price deflation ) both US and UK governments sat on their hands as trade imbalances with China grew and surplus cash from these trade imbalances together with an uncontrolled expansion of the derivative markets expanded money supply and cheap credit it was the availability and expansion of this cheap credit that drove the asset price bubble and both US and UK governments knew it was happening but were content with the consequences. The problems we have today are a direct result of government policies in response to the dot com crash just as the current policies being pursued by Brown are the seeds of the next cycle. Can we please ask the Audit Office ( they appear to be the only department with some integrity left) to investigate the role of the Bank of England monetary policy committee as to why they did not act to curb the expansion in money supply when it was clearly one of their key responsibilities.

  • Comment number 56.

    "Treasury minister Stephen Timms said "lessons needed to be learnt" about the handling of Northern Rock."

    taken from bbc news.

    ha,ha,ha,ha,ha,ha,ha,ha,ha,ha....................................


  • Comment number 57.

    Northern Rock - £800 billion and 6 months of giving out 125% mortgages after the taxpayer proped them up.

    Still none of this is Gordon`s fault is it??? How I wish the election was this spring!

    "UK will have the worst deficit in Western world, warns IMF"
    http://creditcrunchedoutinuk.blogspot.com/

  • Comment number 58.

    I'm fed up with all this credit crunch stuff...

    I suggest we have a regulator that regulates the regulators... ohh stupid me that's the government's job isn't it.. LOL

    I have a simple answer to all this... based on the following..

    1) We all owe the banks money
    2) All the banks owe the goverment money
    3) The government have used our cash to save the banks


    Therefore the answer is: Lets just call it quits and start again..

    "Show Me The Money"

  • Comment number 59.

    I hope every person who changed their vote from conservative to labour in may 1997 can now see what a terrible mistake they made. The "prosperity" of last ten years has been based on illusion and un-repayable debt; it is very easy to write cheques Mr Brown, it is much harder to earn the money to make sure they do not bounce - I am sorry you have to go. I am afraid history will pour scorn on this administration I just hope this country survives what is coming so our children can make sure this reckless nonsense is not repeated. Everything this govt has done is unravelling in front of their eyes because not one thing was thought through. Our health service is in a state; we have invaded two countries without just cause; our legal system has been engulfed with ridiculous EU laws and compensation claims; our schools are in turmoil because teachers do not feel trusted or supported; the pension industry has collapsed (remember Mr Brown's act of removing tax relief on dividends? he was warned...). I could go on and on.

  • Comment number 60.

    Robert,

    Yes we did know it - BUT why are the same people who regulated the collapse STILL in charge?

    The Governor, the MPC (including its latest member a mortgage 'expert'), the FSA and the Treasury - all should/must go and go now!

    It is hugely symptomatic of the appealingly bad thinking that the Treasury has today appointed a mortgage 'expert' to the MPC - I don't need to remind everyone that anyone involved with the mortgage business over the last decade is absolutely tainted by the business and is not fitted to be on the MPC going forward. - yet that is who the Treasury have appointed!!!!!

  • Comment number 61.

    The most shocking fact to emerge today was that Northern Rock carried on giving 125% mortgages for 6 months AFTER we had taken the business over.

    Is it me, or is this incompetence on a cosmic scale?

  • Comment number 62.

    When and where will this all end. I have been saying for more than a year that the risk of Labour not being able to fund The Civil Service salary bill is getting very close. That would trigger an election.

  • Comment number 63.

    I remember an aged friend of mine much decorated in world war two, saying 12 years ago that he was considering voting for the raving loony party.On asking him what the differance was he replied pensively, after due concideration, "NOT A LOT"


    What should anyone expect from those who say "things can only get better" ,appart from the subsequent accountancy delusion precided over by the wyatt twerps of the sfa ,the simple simon says pied piper of sedgfield and his side kick sancho pans down man the bilge pimps

  • Comment number 64.

    #49 evertonw

    "It appears that there are many shouting from the side lines, many of whom have never worked in banking, have never been a CEO or any kind of chief."

    And thank heavens for that! It was, to a large degree, the actions of banking "experts" - particularly CEOs and other "chiefs" - that caused many of these problems, through poor risk management and, in some cases, through making dubiously ethical decisions about what they would do with other people's money. (For sure, the regulators should have at least caught out some of them, but they had seemingly been politically nobbled, for want of a better term).

    Or are you suggesting that we just have a self-perpetuating financial industry, void of control, accountability and regulation, which is allowed to do what it likes with customers' and shareholders' money and permitted to imperil individuals, communities and nations?

    You seemingly trust the banks a lot more than most people I know.

  • Comment number 65.

    Under Northern Rock's much criticised "Together" mortgage, a homebuyer could get a mortgage up to 100% of the purchase price and then take out a separate loan of up to a further 25%. The fact that this continued after nationalisation is currently attracting much media criticism.

    However the fact is that the Government is still using the same model to push 100% lending into the market. Under the various "Homebuy" schemes, a home buyer can take out a loan from the Government of up to 50%* of the purchase price, and then use this loan as a deposit, allowing them to get a mortgage for the balance. This allows people to buy without saving or investing a penny of their own money, and puts the taxpayer directly on the hook in the case of non-payment or default. The Openmarket Homebuy scheme allows buyers to select any home they wish which is available for sale. In an added twist, the scheme is actively targetted at people who simply can't afford to buy.

    http://www.direct.gov.uk/en/HomeAndCommunity/BuyingAndSellingYourHome/HomeBuyingSchemes/DG_066591

    If you can't afford to buy a home, the 'Open Market HomeBuy' scheme can help you to get a loan alongside a regular mortgage.

    http://campaigns.direct.gov.uk/ontheladder/index.html

    [Openmarket Homebuy] Offers an equity loan for up to 50 per cent of the property's value to run alongside a regular mortgage. The loan can be used as a deposit and is repaid when you sell the property. You may buy a property on the open market and will be the sole owner.

  • Comment number 66.

    I guess we all make mistakes. My wife forgot to go to the supermarket yesterday, I forgot to set my alarm last night, and my daughter forgot her toy at pre-school. Brown & Co just forgot to run the economy prudently.

    After all the the job losses, personal catastrophes and economic misery, the sun's still shining and winters finished. I still like Gordon Brown, and as for Alistair Darling - well he once gave up his seat for my Mum on a train. And they're Scottish. I just haven't heard them say prudent recently.

    Go on Robert, you big bully; pick on someone less poweful than yourself.

  • Comment number 67.

    Its patently obvious that the crash test dummies temporarily esconsed in nos 10 & 11 have a lot of brass (northern speak for hard faced).They just don't care...........they will turn round and deny any kind of mis-management on their own part on any subject and instead quickly change the subject.Yes,they are good at that.Their latest clutch bag appears to be the G20 summit where messrs brown,darling et al hope to regain some kind of credibility by hosting the international summit.Yes,they will grab at anything that keeps them in power-megalomaniacs.Even the shortest straw would do for these "guiltless" 2.

    By the way........I think the words apology or sorry is not present in eithers vocabulary.To be in denial is the action of a fool.

    As the old saying goes " you can fool some of the people some of the times etc etc "

  • Comment number 68.

    "Their misjudgements in the Northern Rock debacle were symptomatic of a much more serious economic myopia: they didn't see that the architecture of the financial system was fatally unstable and that the foundations of our economy were being undermined by the burden of excessive borrowing.

    However, as I've said, I think we already knew that, didn't we?"

    I feel full of despair reading this. Why haven't we turfed out Brown for his monumental incompetence?

  • Comment number 69.

    From the BBC report on all this, GB's comment is:

    "We acted when Northern Rock got into difficulty, I think the NAO agrees this was the necessary course of action."

    As far as I can tell the report wasn't about whether they were right in rescuing NR, it was to do with their mishandling of NR after "rescuing" it. What a surprise that GB now spins this damning report into a good story "Look we saved NR!" How about actually admitting "sorry, we should have looked at NR's lending policy"

  • Comment number 70.

    Post 56 it is no surprise that the token sacrificial lamb Stephen Timms has come up with the cliche re lessons being learned. Interesting that netiher Crash nor Alistair were put up to open the batting on this matter.

    I can only hope the voters in East Ham learn their lesson and vote him out at the next election. He was no good as leader of Newham Council before he became an MP and he doesn't seem to have got any wiser since.

    As for Crash well it wasn't his fault, apparently!

    http://news.bbc.co.uk/1/hi/uk_politics/7954373.stm

    You couldn't make it up! The lot of them couldn't beat a one legged man in a rear end kicking competition.


  • Comment number 71.

    Robert Peston why doest the British Gov put a 90% tax on bonuses for companies rescued by the tax payer? The USA has done this and there is an argument to follow their lead. What do you think?

  • Comment number 72.

    I've just heard Gordon Brown on the BBC talking about something or other when asked about this report. Is he ill? He is so desperately in denial and talking such old rope I think he must be. What was it someone said about a bunker in Downing Street?

  • Comment number 73.

    The british financial press were/are in colonoosion with the stataaa's quoers and realized that only hyper active fractianal reverse banking would save their sorry AAA's until the QE'ers were ready to pump sub prime dydl doe on behalf of the whole.

    Its so obvious an "uneducated" fool could see the obscenitty of it

    I challange the great Gordone0 to display whats left of his globals caught between the Rock and a haaard place by telling us that his "things can only get better",but his thumbs up were a write off

  • Comment number 74.

    At least the financial incompetence of our political elite and their sponsors has kept the 6th anniversary of the Iraq war out of the news.

  • Comment number 75.

    Robert,

    There have been problems with your blog loading comments.

    1. Your post on FSA : the regulator is getting his view on the record before we know what the Treasury Committee are to conclude.According to him, its the philosophy of regulation which went wrong, not regulation per se. So what do our Government say. If you look at the appendices to the Horsham Communique you will see a firm commitment to innovative and commercial banking as the best means of intermediating credit - I dont think the policy-makers have any intention of travelling back to 19th Century banking. I think I would give the Treasury committee's views more weight, and so might everyone else. Is it hug or bash a banker?
    2. Banking retreat : net lending to individuals is collapsing at a rate of £8 billion per month - lending to non financial corporates is collapsing at a rate of £7 billion per month - £180 plus billion of lending collapse since Q4 2007 - some of this is recessionary credit demand collapse,some of this increased savings and debt reductions, some of this is credit supply collapse from banks in uk - this could thwart recovery - if banks are placed in full retreat, can they service demands of the recovering economy / are they still under-capitalised to meet UK economic needs, forget about regulator aspirations - more shocks to come from Eastern Europe? Who has got the lebnding capacity shortfall figures - the Bank Lending Panel meeting with Mandelson and Darling must be providing the stats - why arent we being told ? I cant find any minutes !!
    3. Northern Rock whistle blowing : the best argument I've heard yet for a full independent judicial inquiry on the broadest remit to hold to account those who should have done something and didnt and those who made the worst banking business models - whatever is said, no-one has excuses for not understanding the location of the icebergs by 2006 - read the BoE Financial Stability Report 2006 and the FSA Financial Outlook 2006 - its all there !

  • Comment number 76.

    Don't worry everyone because 'lessons will be learned', just they always are. It's just that they will be forgotten again very quickly and more mistakes will be made. Requiring further lessons to be learned.

  • Comment number 77.

    It seems, at last Robert, that you are beginning to understand that all the bloggers who appear on this site may come from their different subjective political persuasions but blame this government objectively.

    Just because you're Tory doesn't mean you're a posh, privately educated, rich, middle class Thatcher lover who can't wait to bash a miner. In the same way, just because you're New Labour doesn't mean that you're a common, state educated, poor, lower class Lenin lover who can't wait to hang the next toff.

    What these blogs have been saying for months is that that the present administration have mis-managed the economy.

    Forget about the things that they could not control.

    They will be judged for the things that they could control but didn't, either because they were incompetent or becuase they were more interested in their own self gain and that of their friends and supporters.

    Your article shows that no matter how much of the blame this government tries to shift elsewhere, more and more hard evidence is coming to the fore day by day.

    As journalists, and a BBC one at that, impartiality is everything and I commend you for writing such an excellent piece and please, more of the same; the stories and scoops are there!

    It may be that such an article will go against the grain of New Labour supporters but in the end the truth will out, and when this happens, the fair and decent people of all political persuasions will thank you because in the end, no one minds mistakes being made.

    What they do mind is that when mistakes are made, our leaders are big enough to admit them, be accountable for them, take responsibility for them and then do the decent thing like falling on your sword or resign.

    I am a Tory and can readily admit that Thatcher did not get it all right but she did not get everything wrong either.

    After 18 years in power, the Tories lost the 1997 election; they were sleazy and tired and politically and morally bankrupt.

    It comes to all parties in the end and whether they like it or not. The incriminating evidence gets extracted, leaked and published until the drip becomes a torrent, then a flood which cannot be held back.

    This government is going down and this article is one of a growing many that will appear more and more in the days ahead.

    And by the way, just what was in the letter that TB sent to the Chairman of the FSA?

  • Comment number 78.

    Northern Rock is the past.

    To prevent huge mistakes in the near future may I suggest reading a paper that raises serious doubts about the analysis as well as the effectiveness of deificit spending ('fiscal stimulus') that the UK and the US governments are pushing for:

    [Unsuitable URL removed by Moderator]

  • Comment number 79.

    Gordon Brown has defended his handling of Northern Rock against criticisms of government negligence, saying he took the "necessary" steps to save the bank.

    Opposition parties say a report showing Northern Rock lent £800m in risky mortgages after it was bailed out with public money was "damning".

    The Conservatives said such failings were "inexcusable" while the Lib Dems said they warned ministers at the time.

    But the PM said the alternative was letting the bank collapse


    I have news for Gordon. In essence it did collapse. It certainly isnt a private company now is it!
    It would have cost the Tax payer and darn sight less if it had been allowed to go to the wall completely

  • Comment number 80.

    On regulatory failures:

    The government said the issue had been "considered in depth" and "a good deal of detailed work was carried out from 2004 and through 2005 and 2006".

    costing how much and achieving WHAT? Brown regularly tells us at PMQs how much money is going to be spent "helping hard-working families" etc. - but the money seems to disappear into a world of advisors and incompetent project managers before failing, utterly, to achieve it's original goal. Why is no one capable of getting the incompetent lying weasel to answer any questions properly, why isn't there absolute uproar at what is happening in this country? Forget the credit crunch, WHY ARE WE SPENDING SO MUCH MONEY ON C**P???




    Oh who cares any more.

    I'm going to the pub after work.




    call an election.


    If you can be bothered.

  • Comment number 81.

    #74 NewsNigelcollins:

    "At least the financial incompetence of our political elite and their sponsors has kept the 6th anniversary of the Iraq war out of the news. "

    ++++

    The Iraq War:


    Another Glorious Defeat for the British ( like Dunkirque ).

    Sorry for OT

  • Comment number 82.

    The National Audit Office's report does help explain why Brown's claim that tax havens have caused UK banks to collapse seems stretching it a bit, to say the least. But then, maybe Northern Rock was one of those 'shadow banks' that Brown now is also talking a lot about. Well indeed it is, but not in Brown's way but because it has blown up. Obviously it's all the US's fault, as is Brown's subletting of his contituency office.

  • Comment number 83.

    RP:

    "A mountain of evidence has been building and has been visible for more than a year that they, and the Bank of England, and the Financial Services Authority (and the US Federal Reserve, and so on) simply didn't appreciate that - since around 2000 - they were steering the Titanic into the mother-of-all economic icebergs."

    ++++++++++++++

    I cannot accept that.

    Was not the previous FSA chief moved sideways/out because he brought these matters up?

    Someone knew 'what was up' and had him moved out ( later than 2000 was it not?).

    I wonder who they were?

    Sorry to sound pompous but the site does not handle apostrophes very well.

  • Comment number 84.

    The main objectives of the Northern Rock fiasco were to salt away the money into Granite offshore, and to give J P Morgan the best parts of their book as a dowry for the thieving Blair.

    They might have survived without Brown's largesse if they had been left to make their own destiny, and the example would have made the likes of RBS and HSBC behave themselves. The funds from Granite would have come home, and Blair would have had to find another gang to latch on to.

  • Comment number 85.

    HBoS and FSA - Crosby - government adviser

    Northern Rock - Wanless - govenment adviser

    RBS - Goddwin - government adviser, well after being pushed from the sinking RBS wreck (can a wreck still sink?)

    Perhaps there is a link?

  • Comment number 86.

    Norther Rock mistakes were made in the past. Although the mistakes are very illuminating about the quality of Brown's stewardship, it is now more important to prevent future mistakes, such as borrowing for deficit spending to try solve a debt problem. Therefore I suggest reading a paper that raises doubts about the quality of the analysis that supposedly supports deficit spending as well as about the effectiveness of fiscal stimulus. The paper is written by four economists on the top of their game, including John Taylor who devised the Taylor rule for interest rate setting.

    The paper is titled

    New Keynesian versus Old Keynesian Government Spending Multipliers

    The paper can easily be found on the web (the BBC won't post the link I've found out)


  • Comment number 87.

    Who do we trust? The banks? The goverment? the FSA? Two years ago my father who I might add is not a banker said watch out son problems are afoot.I laught at his comment thinking what he said was full of doom and gloom.Well Dad I take it all back your were right.Now I know who I can trust my father.What a wise man.

  • Comment number 88.

    Sorry folks, but all this debate, laudable though it is misses one big, huge, enormous blunder. Who was appointed to sort Northern Rock out? A Barclays boy through and through...where was he when Barclaycard entered subprime lending?
    Er, is he the best man at the helm in these troubled waters? If so, God help us.

  • Comment number 89.

    Don't know why the incompetence should be such a surprise, ever since Nulabour climbed into bed with the city sorts they have been well and truely tucked up.
    Idiots shown up to be just that, Pinoccio like noses so long they stand no chance of seeing past the end of them without binoculars.
    NO ONE can see into the future and yet year after year the Chancellor of the Exchequer trys to convince all and sundry he has this prophetic talent...fools, much like the coat tail hanging journo's who swallow every single word.

  • Comment number 90.

    This whole episode shows the potential for even greater calamity that exists in letting civil servants control the banks. Heaven help the taxpayer when they start tinkering with complex lending and banking products.

    An earlier poster referred to Lincoln.

    There are fools like Darling some of the time
    There are fools like Brown some of the time
    But Brown and Darling are fools all of the time

  • Comment number 91.

    AAAccountancy is predicated on inkcompetence of keeping Dorian Gray V training FRAMED AND OFF BALANCE SHEET until the brown stuff[derivelatives] hits the fans of 'things can only get bet err'

  • Comment number 92.

    Can we please have an election NOW to see if the nation backs what Gordon and his gang are doing or not?

  • Comment number 93.

    The real appropriate saying is that the malignant narcissists, chronic scapegoaters, uncorrectable grab baggers, greed creed, uncouth shysters and second best to child molester politicians for their self interests, self righteousness, inequality, rights only of their kind, have managed to create a very unhappy, indecent, rotten to core, selfish society that preys on itself and sacrifice others with coercion, reckless abandon and impunity to promote its outward / hypocrite self image of good. The evil SOBs are destroying everything from within at a fast track. Of course its cynical!

  • Comment number 94.

    39. At 1:00pm on 20 Mar 2009, tufftimes
    "Who knows, he may even get back in."

    HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA HA!!!!!!!!!!!!!!!

  • Comment number 95.

    I really don't know why people even bother.
    I only have to look at the man (Brown) and his cronie ministers on TV and I feel depressed.

    We have a political party in power who simply will not accept when they are wrong.
    They have manipulated the media bandwagon using people within the media such as reporters at the BBC to spew out pro Labour policy which the majority of it has turned into disaster after disaster.
    The only thing we, the electorate can do is throw out as many Labour MP's as possible at the ballet box in 2010.

  • Comment number 96.

    70
    Ian the chopper link
    The GB quote may have been crossed or out of context, but how on earth could discontinuing 125% mortgages have caused the collapse of NR? Surely such discontinuance could only strengthen their situation as less money would be lent and thus wholesale borrowing reduced.

    We live in a world of newspeak doublespeak and pipsqueak.

  • Comment number 97.

    Apparently there was either save Northern Rock or the alternative was let it go Bust according to Crash Gordon today............

    .... save it and run it properly wasn’t in there then?

    The spin is starting to make me very dizzy.....

  • Comment number 98.

    77 andfinally

    The letter has surfaced.

    Dear Chairman,

    You know and I know that this bubble is due to burst.
    Do me a favour and hang on in there for a few more months. I have decided to hand power to my Chancellor and I need a head start to be well out of the way when all the chickens come home to roost.
    As you will know through the old boys network, I have a couple of sinecures lined up and your new title will be in the post as soon as I am gone.

    Yours in a rush
    Prime Minister

  • Comment number 99.

    If man buys a house with his wage. And then he needs to include his wife's wage. And then his overtime. And then her overtime. And then they need a bigger deposit from his parents. And then a deposit from her parents. And then the deposit is too big so he has to borrow 125% of the value. And then the couple need to find a lodger. And then three friends have to club together. And then four. And then five. And those five people expect house prices too raise enough for them to sell and each buy their own house. That is an out-of-control bubble that Gordon Brown based our entire economy on over the last decade - and all the infrastructure put in place, bought by an endless supply of money, has to be maintained. With less income and a bigger debt.

    If nobody in charge could see the house price crash coming then they should resign.

  • Comment number 100.

    Actually, if the Titanic had run straight into the iceberg it would probably have survived. It was trying to avoid it too late that proved fatal.

 

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