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Continuing crisis

Nick Robinson | 11:54 UK time, Thursday, 20 November 2008

If you thought the banking crisis was over, think again. That was the message taken to Downing Street yesterday.

Robert Shapiro, an economic adviser to Barack Obama's campaign and former US under secretary of commerce for economic affairs warned Team Brown to prepare for further shocks to the financial system. His fear is that the underlying cause of the economic crisis - the collapse of the US housing market - has yet to be remedied.

Here's my interview with him:

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Comments

  • Comment number 1.

    Shapiro is really playing into the long grass there, I wouldn't be surprised if Obama got a triple bogey, and lost 5-1 to the republicans, he has to remember there will be a second half in only 2 years, and things like this will not be doing him any favours.

  • Comment number 2.

    Nick, what do you have to say to accusations from some quarters that the media's negativity is contributing to the collapse of confidence in the banking system, like groundwater contriubuting to the collapse of a building? - It isn't the primary cause, but it can't be helping the overall structural stability.

  • Comment number 3.

    Nick you're too right it's not over yet. There's a long road ahead of us. Hopefully when we dump good old Gordon and the rest of his woodentops some sense will return to the management UKPLC.

  • Comment number 4.

    #1 bloejogger

    I'm so sorry and this is probably a reflection on me not you. But I didn't understand a word of what you said :-)

  • Comment number 5.

    Nick
    Your assertion that the USA housing market is the cause of the problem is British government propaganda.

    Go away and read the G20 summit statement in particular section 3
    Root Causes of the Current Crisis

    3. .......... Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.

    No mention about blaming America it is "some advanced countries" i.e. UK and others.

    You really have to stop taking what Gordon Brown says as gospel. It is spin and journalists like yourself have to earn you keep by bringing him to account.
    Another brilliant piece of spin was Mandelson on the Today programme saying that the Government was aware of the problems in January 2008, conveniently forgetting that the Budget speech in April indicated nothing of the sort.

  • Comment number 6.

    Hmm.... the sector to watch in the UK is mortgage securitisation finance sector.

    Granite (the market leader with 28% share) have issued a 'non-asset trigger event' on NR mortgages.

    For those with a long memory there was a political furore when NR collapsed because NR floated off the 'A' grade mortgages in a vehicle known as Granite.

    Now Granite's business model is to borrow at say 3% from the banks and re-coup by charging its mortgage customers 6%, for example.

    However, it is finding it very difficult to obtain finance from the banks... the stabiliser is to draw more funds from NR to service its debts (held as mortgages).

    Yet NR (aka UKFI aka THE BRITISH GOVERNMENT) is refusing to play ball.

    This effectively will result in the mortgages being held as 'worthless' as Granite is forced to liquidise the 'assets' (the mortgages).

    This then means that NR gets no earnings from the Granite mortgage books and will that will dent the value of NR as an asset that the government has bought.

    The 'asset' being the reason it is kept of UK government borrowing numbers.

    That asset (NR) viability as a business will also be further downgraded in value as it loses an important revenue stream.

    Well done Gordon, you've bought a do-do.

    Hope those 6,000 jobs in a Labour stronghold were worth it.

  • Comment number 7.

    @4

    I beleive that what he meant was the economic crisis won't do Barrack Obama any favours at the next senate recount, if confidence does not pick up soon. That was my interpretation anyway.

  • Comment number 8.

    So, at last, maybe the media will not cow-tow to the assumption Gordon Brown has performed some sort of financial miracle and be held to account for the terrible position this country's economy is in. Whats GB going to do now if there are further shocks? Borrow even more money in my name?

  • Comment number 9.

    Nick says "the underlying cause of the economic crisis - the collapse of the US housing market".

    Not letting Gordon of the hook again are you Nick? There's a damn sight more to this and you know it.

  • Comment number 10.

    #4 CaptainJuJu

    I was just trying to say that the republicans will not be helped by the current political climate, however, I was using several sport metaphors at once to explain this point.
    The use of metaphors can be confusing, and I completely dissagree with JewsNunkies interpratation of the facts, I would say that he was scrabbling around, looking at 1 pixel, when the masterpiece can only be seen, much like the great wall of china, from space.

  • Comment number 11.

    You might be interested in this link Nick, from two economics professors :

    https://www.voxeu.org/index.php?q=node/2554

    Emphasise the importance of getting the right structure to pay for any fiscal stimulus :

    "The impact of higher current expenditure is strengthened when complemented with a credible plan that ensures it is financed at least in part by future spending cuts....An obvious example consists of measures that bring forward in time investment projects that are already planned, thereby raising current spending while simultaneously reducing future spending....The message from our diagram is unequivocal. The response of consumption is positive for the ‘right mix’ of accommodative monetary policy and financing by spending cuts in the future, but negative either when spending is entirely financed through higher taxes (the dashed lines), or when the monetary reaction is non-accommodating "

    Might be interesting if your questions of our politicians had those thoughts in mind - at the moment it feels like none of them have a flipping clue.

    There's some good stuff elsewhere on voxeu.org, almost all from economics professors so can be a bit hard going, but usually thought provoking.
    [no affiliation other than as a reader]

  • Comment number 12.

    Has anyone has had a look on the internet and seen what houses are fetching in the States now? I saw 3 bed 2 bath Floridian properties with a pool a couple of years ago at $250-300,000. Now they are selling for less than $100,000.

    This could well be what's going to happen here.

    Call an election.

  • Comment number 13.

    I agree with skynine that the Beeb are far too accepting of the government's views and ,incidentally, figures. Why does no economic or political commentator really take them to task about the UK figures? Obviously this would include all the stuff they leave out. If Rory Bremner can do it so can you.Come on, be brave.

  • Comment number 14.

    But Mr Shapiro must surely be wrong ????

    Gordon Brown's package of measures are going to stimulate the economy and like a knight in shining armour hes going to lead us out of the mess he helped get us in , and lead us all to the promised land....

    flap oink ! flap oink !

    There can be no recovery in this country until people can afford to get a mortgage on a house.The banks will tell us how much we are allowed to lend and house prices must fall to that level...

    No amount of posturing ( running around the world like a lost dog) will change this, Gordon must now know how it feels to be as impotent as the economists who have been warning of problems for some time , was he listening ??? nah !!! like everything else Gordon knows best..

  • Comment number 15.

    Have to agree with JunkieNews @ #2 - surely if this economic fiasco is largely to do with "confidence", be that consumers, traders, bankers or business people, the news media's hysterical reporting of this subject (only of course when it's bad news) has to actively affect it negatively.

    For example, today's Guardian lead story headline "Blodbath on the High Street"! I'd just like to see balance.

    I'd also like to know the track records of these "analysts" that keep getting quoted to back up the bad (or even good) news- do they really have any more idea than the rest of us?

    Generally I'm finding more and more that the reporting of all this is resembling the sports pages when England get knocked out of the World Cup - DOOM!! DISASTER!! WE'LL NEVER BE ANY GOOD, EVER!!

    Just hoping for some sanity and level-headedness, especially from organisations like the BBC!

  • Comment number 16.

    That is what makes the whole 'fiscal stimulus' plan deeply worrying.

    If Gordon splurges 30 billion pounds on the fiscal stimulus (AKA the election bribe) - then where do we get money from to prop up any other key financial institution given the UK is riddled with national debt?



    Labour Party: Hello it is us

    IMF: Welcome back. How badly have you bankrupted the UK this time?


    Will any government money need to be held in reserve to prop up this mess?




  • Comment number 17.

    As much as we get tied up in the micro management of it all - the direction being taken by Government is clear.

    Unrestricted borrowing ("whatever it takes") to prevent deflation - which would see any government thrown out of office in a moment.

    The tragedy for the UK is that, with it's relatively poor (understatement) balance sheet after eleven years of Gordon Brown deceit - we will become even worse off than we otherwise might have.


    https://cassiuswrites.blogspot.com/2008/11/deflation-we-had-better-hope-so.html

  • Comment number 18.

    Shapiro pointed out that a 'housing floor' was critical to the US market and some commentators think it has just about been reached.

    He also stated that it was crucial that people in the US were not thrown out of their homes.

    He then stated that a fiscal stimulus was needed because consumers were not spending.

    So, mapping that onto our country, what do we have?

    The first problem is that the 'housing floor' has not been reached here.

    Nowhere near, according to historic house price inflation stats, i.e. from 1945 to the mid-1990's, house price inflation averaged 3.2% pa but since then has averaged 18% pa.

    That is, over the past ten years, house prices have increased by 180% when they 'should' have increased by around 32% according to historic norms.

    Given that house prices have only come off around 15% or so in the past year, house price deflation in this country still has some considerable way to go before the floor is reached.

    But in the meantime, Government can and must ensure that people here are not thrown out of their homes and there is a series of options available to address that.

    I think that that is far more important than an artificial fiscal stimulus, which in this country is likely to just provide a temporary relief.

  • Comment number 19.

    Nick

    Where did you get the idea of interviewing this particular guy and how did you come up with your set of questions, particularly re the stimulus issue ? I only ask because it is all so handy from the perspective "do something" Brown in his attempts to label "do nothing" Cameron.

    Can I suggest that the question here is not whether or not there should be a stimulus but rather how big it should be, what shape it shopuld take and how should it be funded,

    Brown peddles the 'no nothing' line in relation to the Tories. In fact, the Tories have already come up with some ideas eg to help small businesess.

    Brown is saying pay by borrowing more and that we should add to that borrowing requirement by increasing public spending as part of the stimulus. Cameron is suggesting that it is possible to provide stimulus whist at the same time redirecting some elements of public expenditure for that purpose so as to reduce the cost of the stimulus and the size of future tax hit penalty which goes with it.

    Are we really be asked to believe by Brown that that there is nothing in the bloated public spending arena which is either wasteful or misdirected per se or which is not vital or a priority in terms of stimulating the economy ?

    A good starting point if one wants the right answers is to identify the right questions.

  • Comment number 20.

    There is only one word: LIARS

  • Comment number 21.

    Nick

    I think the reality is that we do have a very long way to go. We are only JUST GOING IN TO RECESSION yet the no's are shocking. It worries me a lot.

    For next week's budget, please read up beforehand re the US fiscal stimulus earlier his year: US GDP having been v weak picked up a bit in Q2 in response, but the blip was a fake: once the stimulus had worn off, down again went the economy. Big time.

    My worry is that any fiscal bail out announced next week will also be short term, but expensive and will leave us with an even greater deficit.

    Please also remember that whenever the Tories have highlighted potential public expenditure savings, the gov't shrilly denounced them as harmful: if they announce some savings on Monday, what does this mean? The gov't was wrong and the Tories right on this?

  • Comment number 22.

    PS. I understand that apart from the usual laws of supply and demand, a primary determinant of house prices is the availability of credit but I think that everybody has learnt a painful lesson there or at least I hope so.


    PPS. I fear that President-Elect Obama, after the euphoria of winning the President race, is about to make his frist big mistake and re-introduce the toxic Clintons back into Government e.g. Hilary as Secretary of State.

    It will be a tragedy if it does turn out that the best moment of the Obama Presidency was the very first moment.

  • Comment number 23.

    I saw 3 bed 2 bath Floridian properties with a pool a couple of years ago at $250-300,000. Now they are selling for less than $100,000.

    This could well be what's going to happen here.


    But surely that would be a good thing. Houses would become affordable. Instead of borrowing a shed-load of money to pay for our ludicrously over-priced house we'd be able to easily afford our mortgage and have plenty over at the end of the month for life's little luxuries. Food for example. And energy bills.


    Instead, what we have, is the cart before the horse. High prices are 'good' because then you are obviously automatically 'richer'.

    What kind of thinking is that?

    Here. Buy this million pound Mars Bar. Get a 25 year mortgage. You can't go wrong with Mars Bars. And if you need any money you can just remortgage your Mars Bar and 'release the equity' tied up in your snack.

    Silly eh? Much better to pay 40p for your Mars Bar and have all that money left to spend at the end of the month anyway. That way you get a tasty snack and all the cars/foreign holidays you want without going into debt.

    Same with houses. Okay, outside of the US you can't buy them for 40p but cheap houses are a good thing for the same reason cheap food, cheap cars and cheap travel is a good thing. Because you get more for your money.

    Houses reducing from 350,000 in 2006 to 100,000 in 2008. Fantastic. Bring it on.

    But in the topsy-turvey world of UK economics this government will move heaven and earth to underwrite the 'value' of folks ludicrously over-priced houses. Suspend stamp duty. Rig the 'independent' BoE to cut interest rates. Encourage shared-ownership schemes. Subsidise housing for 'key-voters'.

    High house prices are the reason we're in this mess. High house prices encouraged and supported by this government.

    What we need are permanently low house prices.

    What we'll get is rampant inflation to magic away everybodies negative equity thus 'proving' once again that you 'can't go wrong with property' so we can then repeat the whole over-priced bubble lunacy in another 10 or 15 years.

    What we need is the realisation that you can go wrong with property. So don't over-commit yourself. Pay a sensible amount that you can afford and use the rest of you salary to enjoy yourself instead of borrowing an unnecessary 100,000 quid 'cos our house went up in value' and then treating yourself to a his-n-hers pair of 4x4s and a fortnight at a Four Seasons hotel in Mexico.

  • Comment number 24.

    Barrack Obama - proof positive and it will become clearly obvious - "this is NO TIME FOR NOVICES"!

    The US Housing market is fundamentally different to the UK housing market - having spent 2 years in LA working I can tell you that it bears absolutely no resemblence.

    Mortgage Underwriting in the UK though severely loosened in the past decade still had key criteria in terms of income,loan to value,disposable income - even the most sub - prime of Lenders,Kensington,SPML,Johnson's I-Group now GE Money Group - adopted underwriting criteria that would have made the most super Prime of tight US Lenders look liberal and rash in the extreme.

    UK Sub Prime lent 90% LTV up to 7-8 times joint income with clear disposble income safeguards -...

    US Mortgage Lenders - even the soft sub prime - turn up,prove ID,prove 12 months residence qualification,how much do you want???????...self certify,no income checks,no disposable income checks $250k LOANS given freely to people on $500 per month benefit packagaes...

    THATS THE REALITY OF THE US HOUSING MARKET!.....

    It will impact on the Global issue-but to make any assertion that our UK Mortgage books are similar is absolute errant nonsense!

  • Comment number 25.

    If throwing the entire national assets at the banks didn't work, what next? Perhaps they should be given the bum's rush, together with their chums in the FSA.

  • Comment number 26.

    Its not just that the collapse in housing markets havent yet played out, the collapse in commercial mortgages has yet to start.

    That is far, far more dangerous.

  • Comment number 27.

    a primary determinant of house prices is the availability of credit but I think that everybody has learnt a painful lesson there or at least I hope so.

    I can think of at least one person who has learnt no lesson.

    You would think that with the realisation that the last decade of 'growth' was nothing more than an illusion perched on a mountain of debt that everybody would now be trying to pay down that debt and resolve not to repeat the mistake.

    Wouldn't you?

    But no lesson penetrates the Titanium skull of the Maximum Leader.

    The solution to this 10 year credit binge is - even more borrowing!

    He really is just trying to keep the balls in the air and hope that somebody suddenly discovers a massive gold-mine in West Bromwich or a Ghawar-sized oil-field off Dorset or something.

    He's like the classic Citizen's Advice Bureau sob-story of a bloke who starts with one credit card and a 300 billion quid limit and ends up with 20 credit cards and a 700 billion pound debt. Just one more credit card and I can pay off this credit card and buy some more stuff....

    At some point he's going to go bankrupt and it is his bank (that's us) who will take the hit.

  • Comment number 28.

    Robert Shapiro is simply echoing the consensus sapientium.

    Warren Buffett, George Soros et al (of course, not forgetting Vince Cable) are certainly expecting another shock although no one is quite sure where'll it'll come from. Robert Shapiro gives one view (housing foreclosures/homelessness) although collapse of the insurance or credit card industrie are others.

    Either way, it's one of those things that's not worth thinking about but has to be thought about.

    #18, JohnConstable, makes the point quite rightly that measures need to be taken to prevent homelessness, and I agree, however, whichever government is in charge will need to do more than that.

    With such a large percentage of our economy made up of intangibles, we are really badly exposed to any further shocks. These are very bad times that warrant the unthinkable.

    Karl Marx must be chuckling in his grave. And no, I'm suggesting that we turn to communism!

  • Comment number 29.

    #23 U946....

    I think most sensible people do realise that property prices can go up or down and they do finance their homes within their means. Any profits in property are only ever realised when the owner sells it. Up until then the profit is only on paper and has no tangible benefit.

    It was merely an observation that what is happening in the USA would be likely to happen here.

    As far as energy bills go, I can't see them coming down any time soon. Funny how energy is always linked to the price of oil when the bills go up, but now the price of oil has come down quite a bit, I wonder how long it will be before we see a reuction in our energy bills - if ever!

  • Comment number 30.

    #2 JewsNunkie

    I think you will find that the media (especailly the BBC) are trying to help brown out by, in fact, putting a massive positive gloss on the facts...

    The situation is so bad, that what you read here is the best possible reading of it.

    The americans suddenly realised that their massively expensive solution (setting up a toxic bank to buy all the bad stuff) was not going to be enough and even worse would have left them with *nothing* left if reserve if it didn't work, or things got worse -- so at the last minute they cancelled the 'all or nothing' deal and returned to rationality.

    Brown on the other hand has already played a good part of his (irrational) hand, and from that there is no going back.

    Borrowing to spend is a bad thing to do - it should only be considered when everything else has been tried and has failed - then their may be a case for trying it as a final gamble.

    Nick - I saw mandleson had time to be interviewed over the 'come dancing' thing -- surely this means he has time to talk about his trariff discussions with oleg - could you give him a call to get an appointment?

  • Comment number 31.

    #24 greatandydudley

    US Mortgage Lenders - even the soft sub prime - turn up,prove ID,prove 12 months residence qualification,how much do you want???????...self certify,no income checks,no disposable income checks $250k LOANS given freely to people on $500 per month benefit packagaes...


    ...I thought that's exactly what the banks did over here which is why we're in this mess.

  • Comment number 32.

    What is this Shapiro guy talking about - the underlying cause of the crisis being the US housing market collapse?

    Real experts (like RobinJD) know that the world recession was caused by Irresponsibility Brown, and no-one yet knows the damage that will be caused to the UK's reputations in the world because of our PM turfing millions of Americans, Europeans and Japanese out of work through not running massive surpluses on his current budget and refusing to reduce the national debt he inherited in 1997.

    Like, duh.

  • Comment number 33.

    The media has been critised a fair bit for doom and gloom mongering. I think they are actually doing a pretty good job of playing along with the story that we need to reflate and then everything will be alright. We have been relating are way out of trouble for years - each time more capital becomes un-productive - so reflations have become bigger and faster. When economies aren't funded from savings - ie they expand fast - the unproductive capital has to be redeployed via liquidations. Its basic A level economics - its just that someone (a voter) has to get hurt so all the politicians pretend no-one has to get a hangover from the big party. The only problem is we had one big long party and the hangover has to be far bigger than anyone is letting on. I read the debt in the US ecomony is now twice the level relative to GDP than it was in 1930 - and that excludes all debt tied up in derivatives.

    So if the media wanted to be really gloomy they would be talking about the possibility of the end of western financial dominance, the end of capitalism, years of austerity, the rise of Chinese and Russian world domination. And if you want some more good news then take a look at what the religious fundamentalist (as in those who study their scripture rather than the guns tooting variety) predict for the next few years - there is some sort of concensus that we are in "the end of days". Maybe another unprecedented event for which we are presently creating the precedent.

  • Comment number 34.

    I dont know where you get a positive spin for the government on this. I listened to it 3 times and he was talking on behalf of the US only. He did not at any time mention the US was to blame for this crisis.

    He in fact to me was more or less saying to G Brown or his advisors as he puts it, no you have not saved the world there is worse to come and its going to cost you a lot of money.

    The long and the short of it is if Brown had used the good years better a fiscal stimulus would have been much easier, now the debt is such that it leaves him in a very difficult position to say the least.

  • Comment number 35.

    31 - I worked very much in the mortgageindustry in UK and USA over the past decade - whilst UK lending criteria did undoubtedly loosen in that time - in a large part doe to the arrival of the likes og GMAC,GE Money,Lehmans etc in to our sub prime sector - to say that our lending criteria was anything like as loose and shambolic as thiers is factually totally incorrect.

    Even the worst type of UK sub prime lender such as I-Group,Kensington,SPML, etc and even the bucket 2nd charge lenders in the UK were absolute saintsin comparison to what went on in the USA.

    Basically someone on $500 per moth benefit who was an accedited US citizen or had a permit to work/stay could and was able quite easily to get a credit line up to and in excess of $250k....

    I do agree that our house price inflation bubble over the past decade is probably worse than theirs but I dont forsee UK properties valued at £250k in 2006 - selling for £100k - at any point - I believe we may see up to a 25% downward correction at worst - but our lending is actually far stronger in respect of that explained above.

  • Comment number 36.

    Well done, Nick. Peter and Alastair will be very pleased. You've certainly earned your bonus this year, haven't you. Next time, why not go the whole hog and interview him under a portrait of Gordon Brown, it will trump Cameron's use of Churchill the other day nicely.

    BBC: Impartial broadcasting at its best.

  • Comment number 37.

    I doubt very much if we know the real truth. It is put out by the BBC under the aegis of the Labour party.#

    My personal view is that it is all a huge piece of social engineering.

    Maybe some will find the downturn as "bracing" which is what, I believe, the head teacher of Cheltenham Ladies College has described it as.

    Horses for courses.

  • Comment number 38.

    Nick your questions are spot on. Unfortunately at least one of the answers is just wrong.
    The idea that there is no risk to a fiscal stimulus is just wrong. Keynes would have pointed out that should the economy leak more than a third of thye stimulus it may act to accelerate retrenchment.
    Depending on how the stimulus is made there is no doubt that the UK has the ability to leak (increase spending on imports) more than than a third of the funds. Some economists would suggest it may be over half.
    If this is the case the UK contraction will be accelerated. In effect the government will be stimulating our suppliers economies by providing them with: a place to invest at a high rate of return and a market to maintain and boost their production. It would also reduce any chance of a future UK recovery as we would then be competing against our suppliers who will have both been stimulated and funded by a large tax burden that will both increase our future costs and reduce our ability to borrow in the future.

  • Comment number 39.

    #skynine

    It wasn't actually Gordon Brown who said it, it was Robert Shapiro admitting that the problem arose in the US. Deal with it. It's only people of your ilk, and Tory Central Office who are in denial. THE CREDIT CRUNCH STARTED IN USA, OK? The UK wasn't mentioned by name in the G20 press release; it said 'some advanced countries'. Your assumptions are not necessarily correct. Just because you wish it doesn't make it so. Why do you all get out of your prams when someone says something you don't want to hear, even when it's true.

  • Comment number 40.

    32 Balhamu


    It is worth going back to the G20 statement on the root cause of the economic crisis:



    "Root Causes of the Current Crisis

    3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence.

    At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system.

    Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions."




    The G20 don't name names. But the financial companies that have wobbled are clearly at fault.

    Also you can see the statement is a polite way of blaming Bush and Brown (some advanced countries - who could they mean?!!)


    Root cause of crisis according to G20

  • Comment number 41.

    #29

    I think most sensible people do realise that property prices can go up or down and they do finance their homes within their means. Any profits in property are only ever realised when the owner sells it. Up until then the profit is only on paper and has no tangible benefit.

    I'm not trying to pick a fight here but I think we're finding that many people haven't been sensible when it came to property this past decade.

    A lot of people have simply remortgaged and 'released the equity' and bought themselves expensive cars, home cinemas and foreign holidays. A lot of people have borrowed five or six times their salary on self-cert mortgages. Or simple 'affordability criteria'. Affordable in the sense that at record low interest rates you can just about cover the interest on the debt. A lot of people have become addicted to living waaaaay beyond their means.

    All this in a low inflation environment (for now) ie they took on these massive dents when inflation and wage growth could only be expected to erode that massive debt by (say) 3% a year.

    If you have a salary of 33K, wage inflation of 3% and a 200K mortgage ie six times your wage then even after 25 years you're 'only' earning 70K (ish). You're still in the hole for 3 times your annual pre-tax salary. Which, if you ask me, is about as much as I'd want to be in the hole for on day one.

    Total mortgage debt has practically trebled in the last decade. National debt (the 'fessed up bit) has doubled. UK personal debts rates are the highest in the known universe.

    You say that up until you sell the 'profits' are only on paper and intangible but the psychology of many folk is that if their property 'increases in value' by 20K, even if only on paper, then they will 'feel' richer and spend as if they're 'richer'. Ie they won't save. It was this 'feel-good' spending that has floated the economy for the past decade. Now property prices are going down then people 'feel' poorer and so they don't try to act as 'rich'. They save more of their money but of course that serves to depress all those companies supported by such spending. Jobs start to disappear. We get a recession. Which is where we are at.

    The simple cure for this is not to have a house-price bubble in the first place.

  • Comment number 42.

    6 PhaetonFlanFlinger

    Absolutely spot on.


    Gordon and his fans cling to the view that the whole crisis was caused in America.


    The Granite / Northern Rock evidence is that our own sub-prime housing market in the UK still hasn't bottomed out and is in danger of collapsing further.

    The dangerous thing with Brown, is that he is starting to believe his own press. That he had no impact on the crash. That this is all America's problem.

    That is why Brown is the wrong man for the job. He will continue his spending splurge, which is in the best interests of Gordon Brown (not the UK).

    It will be interesting to see if Gordon puts his 30 billion spending splurge before saving the money to further prop up the UK's sub-prime housing market that he has now partly bought onto the UK governments books.



  • Comment number 43.

    #40 jonathan

    Yes, poor regulation was a factor, I would agree with that.

    That's why Cameron was pushing for far tighter regulation of the City over the past 11 years wasn't it, and pushing the Government to increase funding for regulators, why the Conservatives were not constantly warning that over-regulation of the City 1997-2008 by the Government risked capital flight to New York, Frankfurt and Shanghai, and why they were urging the government to ignore those who say 'politics of envy' and actually reform of corporate governance and the incentive pay structure of governance.

    That's why Cameron was urging the Government to intervene more strongly in the decisions of banks to lend people money - after all, the Government knows best in the Conservative's view.

    That's why we need a Cameron-led Government. None of this would have happened if we followed the policies his party wanted to over the past few years.

  • Comment number 44.

    #39 Goldvaldan

    "It wasn't actually Gordon Brown who said it"

    Don''t write rubbish, Gordon Brown has repeated the mantra every time he refers to the problem, attempting to divert attention from his own stewardship of the UK economy.

    Northern Rock is starting to become a major loss leader for this government together with B&B and the other banks. The regulation of the financial sector in the UK is a major cause of the problems we face.

    Gordon has had history for the last 11 years, always the first to pick up the credit, nowhere to be see when the wheel comes off. "Sorry I was wrong" is not part of his vocabulary.
    Someone will have to pick up the mess and as a taxpayer I am getting fed up with the tab.

    Where have you been all this time burrowed down in Victoria Street?

  • Comment number 45.

    43 Balhamu

    Thanks for the reminder. I almost strayed from the official line there....


    It was Thatcher and Cameron 'what crashed the economy' ;-)


    Why does John Major get away scot free?

    Or is Major the evil puppet master that has been pulling Gordon's strings for the last 11 years?








  • Comment number 46.

    #41 U946....

    I'm not trying to pick a fight here but I think we're finding that many people haven't been sensible when it came to property this past decade.

    A lot of people have simply remortgaged and 'released the equity' and bought themselves expensive cars, home cinemas and foreign holidays. A lot of people have borrowed five or six times their salary on self-cert mortgages. Or simple 'affordability criteria'. Affordable in the sense that at record low interest rates you can just about cover the interest on the debt. A lot of people have become addicted to living waaaaay beyond their means.


    Yep - I would agree with what you said above. Some people have been very stupid and I don't much like the thought of bailing them out when I've been one of the sensible ones and not spent what I couldn't afford.

    Having said all that, surely the Government must take half the blame for not nipping this in the bud. If they had, we may be better placed to get through this.

  • Comment number 47.

    #10

    Dearie me...no real problems understanding your input...BUT...you must be a banker or in a proffesion that is closley associated.....snake oil salesmen maybe..what on earth is wrong with you man!!!

  • Comment number 48.

    #45 jonathan

    You know that's not what I think - the Government should have regulated more, regardless of what the political opposition to such a move would be.

    What I disagree with is the pretence that regulation would have been tight enough to prevent the current financial crisis under the Conservatives - when their policy over the past few years has been that the Government regulates the city too hard to the deteriment of the country.

    I also disagree with the pretence that any realistic regulatory environment could have protected the British economy from the financial melt-down which was triggered by global banks holding complex financial products based on US sub-prime mortgage debt that they did not understand). This caused the wholesale bank market to collapse (exposing dubious business models like Northern Rock), and made banks reluctant to lend money until they had got to grips with the potential losses on their balance sheets. Also, many job losses have been in, or related to, the financial sector as they attempt to manage the massive losses they have taken from US sub-prime debt.

    Focussing on the tripartite structure of bank regulation to frame Brown for the crisis is misleading - no structure could have prevented this (see what has happened in other countries with different regulatory structures - they've hardly been protected from the implications).

    It is correct to say that the UK could be in a better place if instead of investing in public services we paid back the national debt. Though I don't think Conservatives were suggesting they wanted to do this (proposed spending decreases at previous elections were earmarked for tax cuts rather than paying off the national debt). It's also misleading to suggest other countries - with higher national debts - are somehow better placed.

    re Major - I think he gets away with it for two reasons - 1. he was quite a consensual politician (at least compared to what went before) and moderated the highly oppositional politics of Thatcher; 2. people feel quite sorry for him, given the internal difficulties that disrupted most of his premiership

  • Comment number 49.

    #43

    So the best defence we have for a lack of regulation is that the Tories didn't ask for it? Am I understanding you right? Taking for granted of course that Thatcher is really to blame (for the deregulation of 1986), there is no responsibility on the government of the day to consider current and future trends in the financial markets and vary regulation accordingly?

    The financial predicament of UK banks in 2008 therefore was set in stone in 1986 and could only have been avoided if David Cameron's first act upon becoming leader of the Conservative Party in 2005 was to call for a change in regulatory structure of the Financial Services Authority, which of course the newly elected New Labour Government would have acted upon because they, and all Labour supporters, have such a high opinion of Mr Cameron's financial credentials.

    Just checking the facts, you understand.

  • Comment number 50.


    Every large institution, including every bank, has a named FSA relationship tream.

    The FSA team will visit a regulated firm on a regular basis to understand the business and risks they face.

    Every firm will supply the FSA witih financial data. This can be a frequently as daily, and then monthly, quarterly and/or weekly. Financial returns will include details of balance sheet exposures, counter-party risk, liquidity, working capital, etc.

    The so-called FSA Arrow visits (Google this for more information on the way the FSA supervises firms) are designed to identify the risks that a regulated entity may pose to the FSA's statutory objectives. The FSA has a whole range of enforcement and control methods if a regulated firm steps out of line.

    The FSA's statutory objectives consist of:

    1. market confidence: maintaining confidence in the financial system;

    2. public awareness: promoting public understanding of the financial system;

    3. consumer protection: securing the appropriate degree of protection for consumers; and

    4. the reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

    The FSA have clearly failed in the first statutory objective.

    The FSA is a New Labour creation.

    We have no knowledge as to how the fore-runners to the FSA would have acted: the very aggressive Invesment Management Regulatory Organisation and the specialists of the Securities and Futures Authority.

    We do know however, how the FSA has acted. And it does not look good.

    I can see the argument that this was a world-wide failing of regulation, regardless of the system in place. The implication is therefore that a failure of regulation is a political failure. All the then current leaders luxuriated in the glow of a consumer led boom, funded by cheap credit and letting the banks take the knock for personal insolvencies. A bubble was allowed to be created which popped.

    And just look at where we have ended up.

  • Comment number 51.

    #49 obangobang

    So Conservative economic policy over the last 11 years is irrelevant is it?

    And the origins of the crisis are also unimportant - Brown has to take the blame regardless of what triggered recession.

    A convenient point of view for Cameron maybe - but perhaps not one that will wash with the electorate.

    I haven't heard Cameron say that "We were wrong when we said the City should be deregulated further". On the contrary, he sticks to the falsehood that it was all about the tripartite arrangement which is easily disproved by the global experience.

    So no signs that the Conservatives have abandoned their commitment to deregulation, despite the current crisis that suggests that more regulation is desperately needed.

    And note my #48 - I'm not saying that this excuses the Government for not regulating harder.


  • Comment number 52.

    Re #50

    I'm sure that like Haringey Council the FSA can hold up a pie chart and claim that they had achieved their targets, meanwhile the economy just died.

  • Comment number 53.

    #52 yellowbelly

    Aren't the FSA just red-tape and bureaucratic form-filling though? Shouldn't we just let business free and the market do its thing?

    Haven't seen much of this element of the Tory attack recently - where's Redwood gone?

  • Comment number 54.

    balhamu@51

    "So Conservative economic policy over the last 11 years is irrelevant is it?"

    YES - LABOUR WAS GOVERNING, NOT THE CONSERVATIVES

    Sadly, that does make a difference, particularly when the party in power has a very large majority. Or does it work differently in your parallel universe?

  • Comment number 55.

    #54 pammyammy

    You're wrong - especially as its still their policy now (which is why I suspect Redowood's been put back in his box).

    Conservative critiques would certainly carry more weight if they hadn't been pushing Labour to deregulate the City further throughout the past 11 years and criticise the loss of jobs to other financial centres because of red-tape.

    Wouldn't "Stalinist micro-managing" Brown have regulated more if he thought it was politically feasible?

  • Comment number 56.

    balhamu@55

    The quantity of red tape is only relevant when there's too much of it. Quality is more important and is sadly lacking these days. People seem to think that if a law is passed and boxes are ticked, then everything is fine. There's no common sense or thought to most of the regulation now. I've just had the misfortune to read the new Doorstep Selling Regulations. As far as I can see they won't prevent what they want to prevent, and will involve businesses in additional unnecessary paperwork and administration, and will slow commercial transactions considerably. An absolute nightmare of unnecessary meddling, which appears to be prompted by the EU. 38 parties provided opinions about the proposal. 1 was a large business, there was NO input from SMEs and the rest were government and public bodies of one sort or another. And I would bet that very few businesses are aware that they may now, as of 1st October, be breaking the law.

  • Comment number 57.

    55

    "Wouldn't "Stalinist micro-managing" Brown have regulated more if he thought it was politically feasible?"

    Of course it was politically feasible. They had a stonking great majority and MPs who were all on message. I suspect Brown was happy to let things rip because he was getting huge amounts of tax to carry out "reforms".

  • Comment number 58.

    #51

    Sorry, been offline. As I said, I was just checking the facts. I now know it was indeed the Tories who were to blame, the government were unable to regulate without cross party support.

    And it goes without saying that it therefore follows that Brown is blameless for the current predicament, particularly since the balance of payments is in surplus, we have paid off all our debt and are likely to be giving money to the IMF rather than looking for cash like profligate countries like Ireland and Iceland.

    Thanks for that.

  • Comment number 59.

    re: obi none cojone @58

    WHAAAAT? You know this to be true? Who toldyou? Lord Lucan? or was it the Easter bunny? Lies m'boy, you have no proof to back up sweeping statements like that.

    How about this:
    He followed the conservative framework for what 2 years? then he found the company credit card, the keys to the safe, and began writing IOU's once he had squandered all the taxes (most of the 100 odd NEW STEALTH taxes) and cooking the books.
    He isn't just a thief, he's a labour gummint thief!

    And he HAS to carry some of the blame. I for one would want his head on a pike outside Buck Palace, in order to deter future thieves.
    then we wouldn't need to call an election!!!
    :-P

  • Comment number 60.

    #55 pammyammy

    So why doesn't Cameron say:

    "We were wrong that there was too much regulation on the City, and we were wrong to criticise Labour about this, and raise the spectre of financial firms moving to Shanghai, Frankfurt and New York. In hindsight, it turns out we needed more regulation. The Conservative Party have changed their mind in the light of recent events, and we acknowledge that tight regulation on the City is required as it turns out that the market does not know best"

    They're still pushing the (perhaps inconsistent) line that the recent financial crash is an aberration and not an indictment of the low-regulation utopia they have consistently been pushing for.

    #57 pammyammy

    Labour could have taken the choice to re-regulate and see capital flight abroad, yes. They may have been punished at the ballot box for doing so - the Conservatives made a political issue of regulation on financial firms being too high. Any action would be portrayed by their political opponents as Labour destroying jobs and attempting to return to the 1970s. It was not considered by them to be politically feasible.

    #58 obangobang

    It's a lot easier to sideline what I'm saying by misrepresenting it isn't it?

    My point isn't that the Government is blameless (though I still struggle to see a realistic regulatory environment in which our banks would have escaped the seizing up of credit markets).

    It is that Cameron and his party were pushing for further city deregulation, were not proposing that the housing market was checked and were not proposing the Government interfered in loans made by banks. And they still believe in this now - Redwood is being hidden for now, but the Conservatives do not believe they were wrong about the need for City deregulation.

    They look for third or fourth order things to blame for the crisis (e.g. tripartite banking regulation, and 'with hindsight' disagreeing with the Government's fiscal rule to balance the budget after it turns out that Labour surprisingly managed to meet it during the previous economic cycle. They pretend that they would somehow have tried to dampen house prices (despite the evidence of their previous policies).

    It's not Labour are blameless - it's more there was a political consensus over much of economic policy, and also that the Conservatives don't really have any answers for how the UK should respond (it seems to be by raising interest rates to support an overvalued pound, taking more demand out of the economy by contractionary fiscal policy to deepen the current recession, focus tax cuts on people who will not spend them, cut investment, and continue deregulating the city)

  • Comment number 61.

    Nick,

    spring election. No doubt.

    I think that the fiscal stimulus, tax credits for the poor, will not kick in until April.

    The government will hold the election on the basis that the money is in your pay packet or will get into the pay packet just before or just after the election.

    The pre budget report is just that, a pre budget report, or will it be the budget itself.

    Hang on, just thought as I wrote that. This is a pre-budget report, so it can only report on the economy. This is an emergency budget to meet a crisis which has resulted not in a downturn but a recession, which will lead to Great Depression II.

    It is all in the words, a soldier of the Great War. The war to end all wars became WWI when World War II broke out, surely all the memorials should be changed. We could not have had WWII without WWI, which was the Great War. So if we had the Great Depression, which actually was World Downturn I, then now we can have World Downturn II. It doesn't have the same ring to it though does it. How about World Depression I and WDII, all we have to do is find how to include a letter, M for Mass, so now we have WMDII. World Mass Depression II, or WMDII when we attack Iran, ie Weapons of Mass Destruction II, talk about something to take our minds off the crisis.

    Funny bloke that Griffin, where is his head!

  • Comment number 62.

    They look for third or fourth order things to blame for the crisis (e.g. tripartite banking regulation,

    So effective regulation of the sort that meant we hadn't had a run on a UK bank for over 100 years would not have worked?

    Labour simply could not have put an effective enough system in place to police the financial system. Okay. If you say so.

    I'm not reading about runs on the French Banks or, even more amazingly, given their massive property bubble, the Spanish banks. I'm sure there'll be some reason Santander is able to buy up our distressed banks for cash.

    and 'with hindsight' disagreeing with the Government's fiscal rule to balance the budget after it turns out that Labour surprisingly managed to meet it during the previous economic cycle.

    But we both know this requires Peter-Pan like suspension of disbelief. During the period when Brown declared he's run a balanced budget he actually increased national debt by over 200bn quid. Plus another 100bn or so in PFI - commitments made for buildings financed by the private sector.

    What do you think the effect of squandering 200bn quid is? Well, one of the effects of squandering 200bn quid over there is that over here he receives, one way or another, 40% of that in tax. So if he doesn't squander 200bn quid over there he doesn't receive 80bn quid in tax over here to help him balance his 'current budget'.

    As for investment in infrastructure. Hah. A paltry 0.3% of GDP over the previous government and he's managed to double the national debt.

    They pretend that they would somehow have tried to dampen house prices (despite the evidence of their previous policies).

    For which they were duly thrown out in 1997. And Gordon Brown was elected with a mandate specifically to make sure there would be no more boom and bust and no housing bubbles. Because we'd all seen how they turn out.

    And then promptly proceeded to ride the feel-good factor of the biggest expansion of credit (thats a boom) in UK history and is now using any trick in the book to deny it had anything to do with him or that he should have seen it coming.

    You know yourself that no matter what the Tories said, no matter how well intentioned it was the entire Labour machine is geared to batting away the Tories. So, when Michael Howard warned of the tax and squander chancellor back in 2003 or whenever it was just water off a ducks back. Thanks for your opinion Michael - we won the election and you didn't nah nah nah nah ner.

    Any time anybody expressed horror at the budget deficits it there was always some country, somewhere on the planet that was spending more. Generally the Americans. So Brown and his apologists would simply give it 'Ah, but the Americans are spending 3.5% of GDP on deficit spending this year'. As if that somehow absolved them from their own squandering.

    I don't care what the Americans are doing. Let them screw up their own economy. We don't have to emulate them.

    I have to concede that Labour's tenure has been a decade long demonstration of the power of propaganda. Control the media. Control the images. Control the soundbites.

    When they briefly lost control for a few months in the summer and the media could report the facts then Brown was almost where this governments performance deserves to put them in the polls. But Mandelson and Campbell sure got things back under control didn't they?

    Now we all know how to think. I feel physically sick when I think about it. The man who deregulated any effective oversight of the UK banking system. The man who enters this recession with increasing deficits. The man who, according to Mandelson knew we were heading into recession in Jan 2008 but still sat there and let the 2008 budget be read out (Borrowing 43bn this year, less next year - growth GROWTH! 2% or whatever). The man who dithered while the UK banks were going down the pan and then claimed credit when Darling shoved a solution under his nose.

    I'm retching just thinking about it.

    But the clincher for me was the day it all broke having the BBC describe it not as the final nail in Labour's claim of prudent economic management but a failure of Thatcherism complete with handy archive footage.

    Nope. We got Gordon Brown, saviour of the entire world's economic system. Gordon Brown, the man for a crisis.

    And it's working. The polls show it. It turns out that people really are that stupid. But just because they are that stupid doesn't mean it's big and clever to take advantage of them like that.

    And the BBC should be ashamed of the way it was manipulated into broadcasting that spin on the facts. Have they any idea of the damage they have done?

    Gordon Brown is on the edge of reality at the best of times but this has tipped him over into complete fantasy. And taken the rest of the UK with him.

    There are some who accuse the Tories of fighting the last election by having Glamour-boy Cameron as the counter to grinning-boy Blair. But Labour seem to be still fighting the good fight against Thatcher and are blind to the damage that their very own Brown has caused.

    He

    has

    wrecked

    the

    economy.

    All by himself. You're not getting back at Thatcher. She's gone. You are so blinded by hatred of Thatcher that you cannot or will not see the immense, possibly irreparable, damage that your own bunch of incompetents have done.

    You're prepared to hammer out any old half truth or bogus statistic or dubious interpretation, dutifully reported as fact by the BBC and all the while Blair and Brown have wrecked the excellent legacy the were bequeathed in 1997.

    It's an absolute tragedy. Neil Kinnock has so much to answer for.

  • Comment number 63.

    #60

    Let's say you bought a new house in 1997. The NHBC guarantee expired last year. This year, there's a major water leak causing significant damage to the house. Notwithstanding that the guarantee has expired, you want to blame the housebuilder, despite the fact that since you bought the house you've added two new bathrooms, a downstairs toilet and a new central heating system. You didn't even use the same builder so they have no idea whether the work was done properly.

    But as far as you're concerned, the problem must be with the original plumbing.

    I'm afraid the true answer is, that's what happens when you get the cowboys in.

  • Comment number 64.

    Clearly the collapse of confidence within the banking system began when Gordon sold our Gold dirt cheap.When the bankers saw the advantages of this brillliant scheme,they saw an opportunity to invest vast sums into the sub prime mortgage markets.what Gordon can do,we can do better.

  • Comment number 65.

    #62 Mr U

    Wow - that's a lengthy response.

    re tripartite regulation

    The point the Conservatives are making that the response to the crisis would have been a lot better if the function of banking regulation say with the function of setting monetary policy.

    Why would that have made such a difference? Why do you think that the financial crisis would have been averted? And how do you square that with the evidence that even banks in Europe and other territories with different banking regulations are in trouble?

    It doesn't seem like a primary or secondary cause of the problems - dare I say it it seems like a "third or fourth order" problem at best.

    re meeting the golden rule

    The Government has 2 Golden Rules as you well know. They have met the first (balancing the current budget over the cycle) and not the second (debt below 40% GDP) - though they have reduced debt as a % of GDP compared to the Conservatives - at least until next year.

    The 1st is that the current budget is balanced over the course of the business cycle, and borrowing only to invest over the business cycle. Most experts agree that this was met - just - over the previous economic cycle. The Conservative party (and other right-wingers) believe the Government fudged the beginning and end of the business cycle, and that if they hadn't done this, the Government would have narrowly failed to meet their objective to balance the current budget. Even in this latter case, the comparison with the 1979-1997 Government is stark and its clear the 1997-2008 Government has done a lot better at balancing the current budget.

    The 2nd rule (which your points on PFI etc refers to) is that the Government will not increase borrowing to more than 40% of GDP. I agree with you that they have not met this - while the National Debt is lower as a % of GDP than it was in 1997, it is now higher than 40% thanks to PFI and other things, and is only kept below it by various fudges to keep PFI off of the books.

    Your persistent belief that the actual size of the National Debt has doubled shows your lack of understanding of economics and I'm fed up of continuing to repeat 1) The debt has not doubled in nominal terms; 2) There's something called inflation that means 1 pound in 1997 is worth 32% more than 1 pound in 2008, so you need to adjust the 1997 debt to establish what it's real value would be today. I've covered this on several posts - but you're clearly a bit slow/a bit of a liar.

    The rest of your post is just an ill-informed rant

    You don't challenge my correct point that the Conservatives were not proposing that the Government pricked the 'housing bubble' - indeed they were criticising the Government for not subsidising FTBs to purchase over-valued houses and advocating abolishing stamp duty (which acts as a brake - though not a good one - on house price growth).

    "Brown has wrecked the economy". And the German one. And the American one. And the Italian one. And the Japanese one. The IMF note that growth has slowed throughout the world, and is negative in the developed world. This is all Brown's fault isn't it.

    And, tellingly, you do not challenge the points that I have been making - the Conservatives do not consider there to be a systemic problem with their 'deregulate the City' world view and criticised the Goverment for regulating the City too much over the past 11 years, and think that contractionary monetary and fiscal policy is the way to cope with recession. This is shown in the most recent polls which shows Labour catching up significantly with the Conservatives, and in the unrest in the Conservative party over the lack of any real answers to the current world economic problems amongst Osborne and his team

  • Comment number 66.

    #63 obangobang

    You still not getting it. The metaphor is flawed.

    I'm not saying Thatcher's fault - Labour inherited the system they did, and they have had time to change it.

    I'm saying that there was political consensus over economic policy over the past few years - except Conservatives would have knocked a couple of % of GDP off of tax and spending, and regulated business - included the City - a lot less.

    And I'm also saying that Cameron things that the view they have held in the past (the Redwoodian view that the market knows best, regulation on financial firms is still too high, the cure for recession is contractionary monetary and fiscal policy) are still there. And it makes them seem irrelevant due to what we have seen in this current crisis.

    It's a time for paradigm shift, and re-thinking the policy consensus that regulation on the City should be minimised. Instead, Cameron is still trying to sell the same old product that Thatcher, Major, Hague and Howard were touting.

  • Comment number 67.

    So it seems Gordon Brown has been exonerated. All good economists know that the current economic crisis stems from the disastrous policies of the Bush administration.

    Luckily, the British people are beginning to realise that Gordon is the man to lead our country forward.

    Thank God David Cameron isn't Prime Minister! If he ever is, I'm sure we'd all feel it!

  • Comment number 68.

    #64 premoslatz

    I take it you're being sarcastic right?

    If not, talk me through how changing the composition of the Bank of England reserves from Gold Bars (earn zero interest, cost money to keep) into Euros (earn interest) caused the current global crisis.

  • Comment number 69.

    Nick

    Is TheHandofHistory on the BBC payroll?

  • Comment number 70.

    #67 handofhistory

    Why do you insist on misrepresenting what I'm saying?

    Brown's administration has certainly made mistakes in not regulating the City harder and demonstrating political cowardice by cowing to the 'house price rises are great' brigade even when it was apparent there was a bubble.

    However, this was the political consensus. Cameron and other Conservatives were pushing the line that City regulation was far too high, and was risking driving financial firms abroad to centres that were less regulated. Conservatives were silent on the need for house prices to come down, or for the Government to intervene to prevent banks from loaning certain people money (as the Government is obviously a far better judge of risk than the free market). There can be no "I told you so", apart from focussing on 3rd and 4th order things (e.g. tripartite regulation) that would have made little difference.

    So, assuming Cameron does not have access to a time machine to allow policy to be set with hindsight, it makes sense to compare the two parties vision, and scrutinise whether lessons have been learned.

    Cameron wants a contractionary fiscal and monetary policy (government borrowing is 'too high' and we want to protect over-valued sterling). This will have the side-effect of deepending recession and leaving more people jobless - "a price well worth paying" I guess. Cameron thinks that current financial events are an aberration and not systemic - once the current crisis is over, deregulation of the City and reducing tax on City 'entrepreneurs' can continue apace.

    Brown wants to use fiscal and monetary policy (not that he has a direct say over the latter - only through the objectives of the MPC) to avoid a deep recession, and pay back the additional cost of this over ~4-5 years. He wants to continue investment, and judges the impact on future growth and quality of life outweighs the negative impact of borrowing more money. Brown wants to rethink regulation, and push for world agreement on a new global financial framework (and something like this is necessary to sustain real regulation in a globalised world).

    This is what the choice is over.

  • Comment number 71.

    JewsNunkie

    You are blatantly a parodist, I should know, I am sitting 2 seats away.

  • Comment number 72.

    Ah so Mr Shapiro suggests a stimulus for business and leaning on lenders not to foreclose! Now that sounds more like it, rather than giving the money to the poor to go and have a merry Christmas!

  • Comment number 73.

    Balhamu,

    Firstly, you seem to mistake me for someone who is trying to defend the Tories. I couldn't give a toss about Cameron's lot. I vote SNP. I'll be happy to see the back of Gordon Brown and if the Tories win next year, all the better chance for a yes vote on independence in 2010.

    I'm ashamed to share my nationality with Brown.

    All this "that was the political consensus" is just so much guff. When did NuLiebour care about consensus? When a million people marched against the Iraq War? Don't think so. You can blame back seat drivers all you like, but Brown was at the wheel as the country carreered into the ditch.

    He specifically pursued policies designed to prolong the housing bubble because that was the only way he could meet his own growth targets and milk enough tax out of the system to feed his oversized public sector. The man has no concept of how to keep a market economy moving forward, to him the private sector is a dripping roast. The problem is, there's no meat left and we're all going to have go hungry now.

    I don't doubt that with enough media manipulation Labour can win another election. They've done it before. Don't for a minute assume, however, that just because enough people are too stupid, too lazy or too craven to vote for him, that means he knows what he is doing.

  • Comment number 74.

    #73 obang

    Well, I said that Brown's government are culpable in the financial crisis to the extent that they did not embark on a programme of re-regulation of the City over the past 11 years (to reverse previous policy or to adapt to the increasing complexity of the pricing models used by the City). The thrust of my post was that the Conservatives were not suggesting this re-regulation to happen, and they are left trying to blame unimportant things (and pretending the crisis only affects the UK) to try and finger Brown for it. The fact you disagree with these facts suggests you are trying to defend the Tories (as a pro-independence SNP person, you know that a Tory England boosts the independence cause)

    Why are you 'ashamed to share your nationality with Brown'? Really. Isn't that a little over the top?

    Requiring political consensus is a fair point to make. Labour are abandoning many policies now because there is no consensus (see all the announcements on U-turns), and have shied away from some policies they have wanted to implement (e.g. more redistribution, regulation) because they feared collapsing the 'Big Tent' they put together to win election.

    Iraq is a good example of where Labour required political consensus - if the Conservatives had opposed the Iraq War, the vote on it in the House would have gone the other way.

    Are you really suggesting that Labour can do what they want, and don't need to think about the lines of other political parties or what people think? Isn't the critique made of Labour normally the other way round (that they pander to focus groups and try and out-flank the Tories at every opportunity for electoral advantage)?

    How come we've had 11 years of a Labour Government and this is the first recession (despite a world recession hitting the economy around 2001, the British economy kept on growing)?

    Name me a developed country where the growth outlook looks positive at the moment - Germany's economy, for example, is already officially in recession (2 quarters -ve growth) and has shrunk by more than the UK economy).

    Why is the global commentary on this disaster calling it "unprecedented" and "similar times to the Great Depression of the 1930s" if it's only the UK economy and due to Brown.

    Disasterous management then!

  • Comment number 75.

    Can anyone tell me exactly how many other countries have signed up to Gordon's World Rescue Plan? The news seems to be a bit wooly here.

  • Comment number 76.

    Disastrous management? That just about sums it up, yes.

    If you want to blame the Tories, carry on, I couldn't care less, and it makes no difference.

    We're now in it up to our necks and Brown won't be happy 'till we're drowning in it.

  • Comment number 77.

    balhamu

    Calm down, dear, you'll pop an artery.

    As I see it, Brown didn't cause the recession here. I was bound to happen once the USA tanked. But, he didn't limit the damage because he didn't put money aside in the good times. He set up the tripartite City regulation, which has failed. He raided the pension funds, and caused the managers to demand double digit growth in profits from all the companies they invested in - at a time when inflation was low single digit. Labour's tinkering with everything that they possibly could, and not fully implementing many reforms properly has caused the absolute mess we're in now.o colleg

    I look forward to the day when I can wake up without immediately feeling irritated. And not find myself walking through Euston Station muttering "shut up, shut up" at the incessant nanny announcements.

    I object to the encouragement and normalisation of borrowing - students encouraged into college to keep them off the unemployment register, and having to pay for it themselves, starting life with a millstone of debt and a low paying job because every other person of their age has a degree. I'll have to stop. It makes me SO CROSS, I start gibbering!

  • Comment number 78.

    #77 pammyammy

    Quite right - these proles should know their station and leave school at 16 to enter a productive career earning the minimum wage burger-flipping.

    And why should students get their education (which massively boosts future earnings) for free of the backs of those who earn less than them? Surely an income-related loan payback scheme is the right way to go?

    I suspect you disagree with tuition fees for the same reason as the Conservative Party did - it's not fair that the middle-class have to pay their way.

  • Comment number 79.

    balhamu@78

    You're so good at twisting words, you must be a Labour spinner. It'd certainly give you access to all those tractor production figures.

    I don't have a world view that divides people into proles (your word) and what? Toffs? I see young people who are encouraged to borrow huge amounts of money for an education that may not produce a job that will enable them to repay their loans, and may make them feel worthless if they're not actually academic and drop out. I read an article recently that pointed out that not all people are good at ?the high jump, or running, so why is it assumed that half the children should go to college. Almost everyone has a talent of some sort, but schools only serve academic talent. Children should be allowed to leave school at 14, provided that they go into some form of apprenticeship or training, that could be funded by what the school would have received for them. I also believe that anyone should have help to go to college at any age. Many people miss out at 18, but would love the opportunity later - it should be available.

    Unfortunately, many companies don't want to offer apprenticeships because kids can't read, write or reckon properly, so remedial classes would need to be offered as well.

    We need to give manual skills the recognition they deserve and stop thinking that academic talent is the only one worth having.

  • Comment number 80.

    balhamu@78

    "education (which massively boosts future earnings)"

    This a myth based on what used to happen. Graduate starting salaries in general are not that good now, many graduates are looking at second degrees to improve their employment prospects, with yet more debt accumulated. School leavers can get jobs, some with training and part time studying, at only a little less than graduates, and WITH NO DEBT.

  • Comment number 81.

    Not a single politician, not one commentator or presenter and certainly not a single 'expert' in the news has correctly identified the two interlinked problems the world is facing today:

    1. The little financial difficulty: True, it started with sub-prime mortgages, BUT it is far deeper than that. After all the total of sub-prime mortgages is reported as being some $1.5 trillion, whereas Governments have so far pump close to $10 trillion into the banks. If the problem was just sub-prime mortgages, or 'banks not lending to each other', this $10 trillion cash injection would have solved in one go.

    No, the problem is 'derivatives'. These dents and bets are worth some $500 trillion. Compare that to the GDP of the whole planet of just $50 trillion and you get some idea why this fantastic burden of debt can NEVER be repaid.

    The only solutions are
    a) hyperinflation to degrade the whole of that debt (following Zimbabwe)or
    b) legal cancellation of all derivative contracts (!!) or
    c) collapse of the whole financial system incl just about all banks, and starting all over again.
    We need to choose one and go for it. The future is bleak whatever Gordon does, but pumping borrowed money into the economy in the utterly vain hope of recovery is just about the worst possible strategy.

    2. The little problem of Energy and Growth.
    Next year the world production of crude oil will, for the first time in history, decline for geological, not political or economic, reasons. Peak Gas will follow some 10 years later.

    2008 is the end of the Era of Growth (as growth is predicated on the availability of cheap energy) and the start of the Era of Decline.

    No matter what investment is made in oil or gas fields, the total production from 2009 onwards will decline every single year by perhaps 4%, thus our energy sources will halve every 20 years or so. This has already happened in 60 oil producing countries around the world, incl USA (1972) and UK(1999) and now, in 2009, global production will begin to decline.

    The 1930s depression was bad enough, but this decline will be on a massively larger scale. To start with, it will be at least 40 years long. 40 years will take us to about 25% of current energy usage, which is what we can expect from all renewable sources combined. So at that stage, provided Governments have been wise enough to have invested massively in renewable energy, renewables may be able to take over from fossil fuels and perhaps stabilise the world economy.

    So, the budget should
    a) embrace the Green New Deal (£50 billion per year invested in renewables)
    b) forget about tax cuts or other increases in current spending
    c) choose a strategy for the self inflicted financial crisis - and follow through

  • Comment number 82.

    pammyammy

    #79

    I would agree with you that vocational skills training needs to be improved.

    But the whole reason why Conservatives push for fixed quotas in A-level grades precisely because the academic performance of many working-class children has improved, threatening the middle-class monopoly on good jobs? If you're working-class you should be sorted into (lower-earning) vocational jobs at the earliest possible opportunity.

    #80

    Read ANY academic articles on the impact of university education on earnings - for example, The Dearing Report on Higher Education concluded that the private rate of return to Higher Education was high.

    Why should students not have to pay a contribution to the cost of their education given the high returns? The Government still heavily subsidises HE in any case (compare the fees that international students have to pay with those English students have to pay).

  • Comment number 83.

    82

    "If you're working-class you should be sorted into (lower-earning) vocational jobs at the earliest possible opportunity."

    So why did Conservatives support the grammar schools that DID give working class children the opportunity of a good academic education, and which enabled many MPs of all parties to get where they are today?

    I know many people still resent failing the 11+ and I agree that it was unfair to sort children once and for all at that age. However, in a much earlier life, I taught in a northern grammar school and was hired to teach girls who'd got reasonable CSEs and needed to add the literature qualification required by colleges at that time, plus an A level in British Constitution. A level classes in other subjects were provided. So it wasn't an all or nothing experience everywhere. And, it was only possible to help them achieve because the classes were very small.

    Why do you think that vocational jobs are lower earning? I assume that vocational is a euphemism for manual because medicine, and dentistry are vocational with training provided by universities. Many skilled manual jobs are not poorly paid, or haven't you employed a plumber, locksmith, carpenter, plasterer, etc.?

    I'm afraid I have little faith in official reports. Consultants often ask the commissioner what the result should be before they start. Have a look at notgoingtouni.co.uk which gives help to school leavers wanting to start work. Look in your local paper at the range of starting salaries for graduates. Many of the reports on starting salaries for graduates are based on responses from the large employers where salaries tend to be higher and often based on what's paid in London. Out here in the Home Counties, it's generally reckoned that you need to earn at least 3,000 more than local salaries if you work in London, to cover commuting costs.

  • Comment number 84.

    #83 pammyammy

    Where's the evidence that grammar schools serve working class kids better? What happens is that the middle-class pump money into intensively coaching their kids for the exams. Those who fail the entrance exams are locked into 'vocational' paths, unless they can pay to go private or their parents can move to an area with comprehensive areas. I think the answer is 'fair banding' as the former Inner London Education Authority used to operate (i.e. 20% from top 20% of ability range, 20% from the next and so on).

    Vocational courses aren't for the 'middle-class' though are they? Academic tracks are 'far more suitable for their abilities'. The danger is that (as with the Grammar/Secondary Modern system) the money goes into Grammars and Secondary Moderns form a glorified baby-sitting service.

    And do you really believe that there is no earnings dividend from going to uni? Really? And why not move to London rather than commuting from the home counties? Its a choice - I'd rather pay to commute and live in surburbia in a bigger house with a garden than accept a smaller pad in the City and less commuting

  • Comment number 85.

    balhamu

    What I said bore no reference to you, whoever you are.

    I am not interested in what you say.

  • Comment number 86.

    Well, well, well. What on earth has just happened to the Great British pound - I have just heard the news on the wireless.

    Wait now for a quick joining to the Euro for us.

    Next will be America. They will lose their dollar under the same forced pretence and it will join with all the Americas to become the "Amero".

    Don't take my word for it, take this brilliant well respected man's word:



    https://www.youtube.com/watch?v=7nD7dbkkBIA

  • Comment number 87.

    ....well Gordon always said that the stars (or whatever he said) wld have to be aligned propely before he would consider it.

    If Labour really thought about the timing of joining the Euro, they could stand to make some more money. Maybe this is what they were going to do all along.....!!

  • Comment number 88.

    Browndeove

    Her Majesty is a member of the Church of England when in Wales and Ireland of course.

    Hmmm. What an odd question if I may say so!

    You have to decide if you want the House of Lords or not.

    Bear it in mind that your Lord Mandelsonn got into governemnt via that route as he sure would not have been elected by the others now would he?

  • Comment number 89.

    I saw on TV this morning that RBS are planning to use 1bn of the 20bn we so generously gave them when they were hard up, to pay bonuses to their staff.

    I also see that Jacqui Smith has been using her sister's home as a primary residence and claiming money for it.

    I think I'll just go back to bed!

  • Comment number 90.

    39 wrote:

    'It wasn't actually Gordon Brown who said it, it was Robert Shapiro admitting that the problem arose in the US. Deal with it. It's only people of your ilk, and Tory Central Office who are in denial. THE CREDIT CRUNCH STARTED IN USA, OK? The UK wasn't mentioned by name in the G20 press release; it said 'some advanced countries'. Your assumptions are not necessarily correct. Just because you wish it doesn't make it so. Why do you all get out of your prams when someone says something you don't want to hear, even when it's true.'

    For Pete's sake. Noone or at least very few are denying that the impetus for The Global Credit Crunch started in The US housing market. The contention is that because of his reckless borrowing and spending policies when Chancellor, Gordon Brown has made us the least well placed to cope with the downturn although he himself claims that we are the best placed.

  • Comment number 91.

    441, /SAGA


    Scotophobe?

    Scottishly Prejudiced?


    I don't know. What I do know is everybody I meet and know is fed up with them. Let'em go and send Brown and clan back up there,

 

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