Blame Brown and Greenspan says Paul Tustain (interesting article).

tomstickland

http://alansmoneyblog.com/2008/10/09/bullionvaults-paul-tustain-on-the-credit-crunch/

In a time of state-sponsored easy credit all projects get financed
by incautious banks with cheap, centrally supplied money. There is
no market for cautiously lent money, priced correctly for the risk
involved. Why would anyone pay more for funds from a cautious bank
when cheaper funds from an easier source are available?
This is why the profits of incautious banks grew, and why their
stock prices multiplied.

Meanwhile careful bankers sunk. As Brown (and Greenspan) injected
ever more money into the economy the cautious banks began to lose
their customers, their managers, their share values, and their
independence. This Darwinian extinction of caution is the direct
result of a monetary environment which was hostile to cautious
bankers; one which favoured those banks with an appetite for
cheap money.
So be in no doubt about the cause of the credit crunch. It was too
much cut-price credit, and the blame for the supply of it rests
squarely on the likes of Gordon Brown and Alan Greenspan.

Governments operate
a cheap credit policy in order to defer pain, stay popular, and get
re-elected.

BlondeHeadOn

Interesting article - more quoted below:

"Yet once we have grasped that the underlying cause of the disaster
was credit creation by governments themselves we should perhaps be
a bit wary of putting them ever more in charge. Governments operate
a cheap credit policy in order to defer pain, stay popular, and get
re-elected. The US bank rescue is intended to create and promote a
higher volume of cheaper and easier credit than the market really
wants. Hmmm. They want more of the wretched stuff which got us here
in the first place. Is that really so wise? "

He's big on letting the markets rule the world and find their own level, isnt he?

Rochdale_Pioneers

BlondeHeadOn wrote: »

Interesting article - more quoted below:

"Yet once we have grasped that the underlying cause of the disaster
was credit creation by governments themselves we should perhaps be
a bit wary of putting them ever more in charge. Governments operate
a cheap credit policy in order to defer pain, stay popular, and get
re-elected. The US bank rescue is intended to create and promote a
higher volume of cheaper and easier credit than the market really
wants. Hmmm. They want more of the wretched stuff which got us here
in the first place. Is that really so wise? "

He's big on letting the markets rule the world and find their own level, isnt he?

He really seems to have missed the point - its the lack of government action that caused this, not deliberate policies. A cheap credit policy - yes Brown and Greenspan told the banks to invent all those complex credit packages to sell around the world. Then they forced the banks to create a vast network of insurance deals to make the tangled web even knottier.

Then they forced not only British and American banks to do so, but French, Belgian, Irish, German, Spanish and Icelandic banks too. THAT is what happens when the west lets global finance rule itself. Iceland is bankrupt because of it - was that a deliberate government policy as suggested? Or did we all loosen the regulatory framework allowing the bankers to do the rest?

GooeyBlob

The government consistently did all it could to discourage savers, and encourage as much cheap debt as possible. Replacing TESSAs and PEPs with less tax-efficient ISAs and then running them down, instructing the MPC to ignore rampant house price inflation when setting interest rates, overspending and refusing to balance the books as it ran up large debts during the boom, the setting up of an inept regulatory regime which failed to see the signs that many economists were warning us about, and dithering over Northern Rock are just a few of the things Brown and company were doing which put us in this mess. There are plenty more.

Sterling has collapsed against most currencies. That's for a good reason - the UK is in a far worse position to weather the storm than other countries. The government's solution is to borrow enormous sums of money nobody will lend us, or print extra money which does not exist, and throw that at the problem as if it were confetti. That will only make matters worse for the UK.

Rochdale_Pioneers

GooeyBlob wrote: »

The government consistently did all it could to discourage savers, and encourage as much cheap debt as possible. Replacing TESSAs and PEPs with less tax-efficient ISAs and then running them down, instructing the MPC to ignore rampant house price inflation when setting interest rates, overspending and refusing to balance the books as it ran up large debts during the boom, the setting up of an inept regulatory regime which failed to see the signs that many economists were warning us about, and dithering over Northern Rock are just a few of the things Brown and company were doing which put us in this mess. There are plenty more

OK so lets take all that as real. How then do you explain the mess in the American banks? Belgian? Irish? Danish? Icelandic? German? French? Spanish? I'm not denying that there haven't been a whole pile of mistakes here in the UK. The point - one that some of you seem very keen to ignore - is that these same policies went on everywhere, which is why banks of so many nations now owe so much money. The question is this - did our policies ape poor policies elsewhere because we're sheep? Did the rest of the world copy our policies? Or did we reform our policies so that our banks could stay competitive in a global system which encouraged risk-taking?

GooeyBlob wrote: »

Sterling has collapsed against most currencies. That's for a good reason - the UK is in a far worse position to weather the storm than other countries. The government's solution is to borrow enormous sums of money nobody will lend us, or print extra money which does not exist, and throw that at the problem as if it were confetti. That will only make matters worse for the UK.

How many points can you be wrong on in just the one paragraph? You're ignoring the fact that Sterling was massively overvalued against the Dollar and the Euro for several years. A correction back to $1.50 was what industry had been screaming for - and they got it. We went down against the Euro too - as did every other currency. The only time you can look at the value of Sterling recently and say "crash" is this last week.

"The government's solution is to borrow enormous sums of money nobody will lend us" - funny how they've had no problem finding people to lend the money. More than can be said for Germany, whose latest Gilts sale failed. And we can borrow enormous sums of money before we get anywhere near the debt levels of our competitors. We went into this with debt levels of 44%, and the forecast is that we'll head towards 80%. That compares to 104% in Italy, 95% in Greece, 84% in Belgium, 65% in Germany, 64% in France - BEFORE this started. Our debt will go up because we're spending billions. Their debt will go up because they're borrowing billions. So we're still going to have lower debt levels than all those countries. And America. And Japan. And Canada. Allegedly we can't sustain high debt because we don't have a big manufacturing economy. So how does Belgium cope? Or Greece?

You seem to miss the big point that governments everywhere are borrowing billions and are throwing it at banks to try and keep our economic system alive. We had a 2nd bank bailout this week. As did Belgium. France. Denmark. Ireland nationalised a bank.

Are you sure that (a) we're all alone and (b) its all Brown's fault?

GooeyBlob

Are you trying to tell me you believe the man who claimed to have single-handedly abolished the economic cycle is the one to get us out of this mess? This is the man who has practically ended the savings culture in the UK, and now seeks to erode it further by borrowing money nobody wants to give us (we had trouble raising money at a gilts auction a few weeks ago), and printing money which doesn't exist. This is the man who created the house price bubble in the UK when he instructed the BoE to ignore house price inflation when setting rates. You can blame him for the increase in repossessions, you can also blame him for the record number of personal insolvencies, which broke through the 100,000 barrier long before the credit crunch started, and you can blame him for the collapse of the savings ratio.

The reason why sterling has collapsed against so many currencies (most of which the majority of us have never heard of) is because the markets have no confidence in the UK. If the US were anything like as badly-placed as the UK, the pound would not have lost a third of its value against the dollar. Indeed, one might have expected the dollar to fall too. You know, Brown won't even admit to the majority of UK debt; factor in PFI and you realise we were in over our heads several years ago.

We are at least better off than Iceland and Zimbabwe, but we are still in a far worse position than most.

harryhound

& Argentina?

Rochdale_Pioneers

GooeyBlob wrote: »

Are you trying to tell me you believe the man who claimed to have single-handedly abolished the economic cycle is the one to get us out of this mess? This is the man who has practically ended the savings culture in the UK, and now seeks to erode it further by borrowing money nobody wants to give us (we had trouble raising money at a gilts auction a few weeks ago), and printing money which doesn't exist. This is the man who created the house price bubble in the UK when he instructed the BoE to ignore house price inflation when setting rates. You can blame him for the increase in repossessions, you can also blame him for the record number of personal insolvencies, which broke through the 100,000 barrier long before the credit crunch started, and you can blame him for the collapse of the savings ratio

Calm down. I did say that Brown has been responsible for a whole string of failures and mistakes. Nor did I say he is the one to get us out of this mess - frankly I don't anyone can single-handedly as so much of our chances are based around what other countries do.

You state that Britain had trouble raising money. The FT disagrees. The fact is that we successfully sold our Gilts, whereas the Germans didn't, and Spain and Belgium cancelled planned auctions. What you are saying is simply wrong. Why are you spreading it around that UK is not credit worthy? The facts suggest that actually we are more credit worthy than the Germans. The Belgians. The Spanish.

GooeyBlob wrote: »

The reason why sterling has collapsed against so many currencies (most of which the majority of us have never heard of) is because the markets have no confidence in the UK. If the US were anything like as badly-placed as the UK, the pound would not have lost a third of its value against the dollar. Indeed, one might have expected the dollar to fall too. You know, Brown won't even admit to the majority of UK debt; factor in PFI and you realise we were in over our heads several years ago.

So with the pound so excruciatingly overvalued against the dollar when it was riding at $2 for so long, are you suggesting that it wasn't going to come back down ever? Of course market confidence has something to do with it - I'm pointing out that the reason why its percentage drop has been so big is that we were overvalued. Rates in the $1.50 region were normal, rates around $2 were not.
You talk like ours in the only currency sliding. You seen any other prices? Euro against the Dollar? Dollar against the Yen? Euro against the Yen?

As for PFI I suggest you look at Eurostat. They include PFI debt and clearly show that we went into this recession substantially lower than most of our European neighbours on debt.

And you're still not answering the main point I was making. Lets say Brown is guilty as charged as is responsible for the mess in Britain - national and personal debt, the over-borrowed banks, the lot. Who is responsible for the same in Europe? America? Japan? Who forced Icelandic and Irish banks to borrow so heavily that they had to be nationalised? Who forced Bulgarian banks to borrow Euros and Swiss Francs to loan in mortgages that they can no longer afford following their currency's crash against the Euro? Who forced American banks to offer sub prime? To package them up and find buyers for them here there and everywhere? To create a vast insurance pyramid selling options against the failure of other options?

I can hold Brown responsible for a whole pile of things in this country - you didn't mention flogging our gold at the wrong time for starters. But the notion being put around by some of you - and with respect you sound like a cheerleader - that this is entirely home grown, only affects us and therefore we're all going to die, is frankly absurd.

Brown might well be a pillock. His regulatory structure has proven itself to be woefully inadequate. But did he create the global mess in which we are stuck?

Backbiter

Rochdale_Pioneers wrote: »

Lets say Brown is guilty as charged as is responsible for the mess in Britain - national and personal debt, the over-borrowed banks, the lot. Who is responsible for the same in Europe? America? Japan? Who forced Icelandic and Irish banks to borrow so heavily that they had to be nationalised? Who forced Bulgarian banks to borrow Euros and Swiss Francs to loan in mortgages that they can no longer afford following their currency's crash against the Euro? Who forced American banks to offer sub prime? To package them up and find buyers for them here there and everywhere? To create a vast insurance pyramid selling options against the failure of other options?

I can hold Brown responsible for a whole pile of things in this country - you didn't mention flogging our gold at the wrong time for starters. But the notion being put around by some of you - and with respect you sound like a cheerleader - that this is entirely home grown, only affects us and therefore we're all going to die, is frankly absurd.

Brown might well be a pillock. His regulatory structure has proven itself to be woefully inadequate. But did he create the global mess in which we are stuck?

Good to read some sense of perspective. I agree with your take on this extremely serious mess.

baileysbattlebus

Rochdale_Pioneers wrote: »

I can hold Brown responsible for a whole pile of things in this country - you didn't mention flogging our gold at the wrong time for starters. But the notion being put around by some of you - and with respect you sound like a cheerleader - that this is entirely home grown, only affects us and therefore we're all going to die, is frankly absurd.

Brown might well be a pillock. His regulatory structure has proven itself to be woefully inadequate. But did he create the global mess in which we are stuck?

I must admit to a large extent I have to agree with you - Gordon Brown is not single handedly responsible for the state of the global ecomony - or even the banking crisis that has happened here and around the world.

What surprised, no, what shocked me was the fact that the balance sheets of some of the the banks aren't even ours, most of the loans etc were made overseas. So we are bailing out the banks foreign debt. Only 20% of the debt they have was UK based.

Whitehall sources said that they had discovered that some major UK lenders - including RBS, HSBC and Barclays - have had only 20 per cent of their balance sheets made up of "traditional" loans to UK households and firms.
Meanwhile, up to 80 per cent is tied up in loans to foreign nationals and companies, bond issues and other investments.

A Government source said: "It was pretty breathtaking to discover these figures. They provide further evidence that so many of the problems we are all facing started with bad banking practice on the international markets and were not simply caused by problems with the British economy."
So the UK taxpayer is left with the debt of foreign firms and individuals caused by banks irrational growth plans fuelled through leveraged lending.

So, yes it was irresponsible lending of a phenomenal magnitude- but not to us

Rochdale_Pioneers

baileysbattlebus wrote: »

What surprised, no, what shocked me was the fact that the balance sheets of some of the the banks aren't even ours, most of the loans etc were made overseas. So we are bailing out the banks foreign debt. Only 20% of the debt they have was UK based.

So, yes it was irresponsible lending of a phenomenal magnitude- but not to us

And thats where the lack of a regulatory framework - here and globally - has screwed us. We could have handled our banks loaning too much money to companies here, but that wouldn't have provided the high rates of return the banks needed to satisfy their egos. So they go and borrow foreign currency from foreign and use it to bet, err finance, a foreign investment that offers a much higher rate of return. Which is fine as long as the value of the assets being bought keeps going up, as it did for a decade.

And its not just here. How many kinds of foreign financial services were offered to us in the UK pre-crash? We all know about the Icesave fiasco - Icelandic banks borrowing foreign currency to lend to foreign currency, with only the profits (and the risk) touching the floor in Rekjavic. We had Allied Irish cash machines in branches of the Post Office. My company is about to switch Corporate Card providers from GE (American) to Citi (American).

Where we fell down was that several of our banks decided they could be godlike as their larger American counterparts were. So they aped the American banks and invested many multiples of their net worth abroad with money borrowed from other banks abroad. And how the city and our politicians cheered! Cameron is telling everyone who will listen how shameful it is that Brown didn't keep these bankers in check. How loudly he told us that before the crash. Why only as recently as last September his shadow Chief Secretary to the Treasury told the Tory Party conference that the city of London could gain advantage over Wall Street. "There's a real possibility, if we get this right, that it will allow London to become the preferred place for international business if the US goes into over-regulatory mode."

Now thats not an attempt to say nothing would have been different under the Tories, or that its their fault, or even to obsfucate past Brown's many !!!!-ups. But lets be clear when we hear Cameron on TV banging on about Brown's regulatory failure - his party believe in less regulation than we already have. What it shows is that all our politicians of both sides have become mesmerised by the deregulated free-market system. And not just ours. Governments across the spectrum have all pursued nearly identical policies for a decade, allowing their banks and foreign banks to run rampant. Note how the policies pursued by Brown described by punters of a Tory persuasion as "typically socialist" were also pursued by Bush, whose Treasury secretary apparently was on his knees begging the speaker of the House to give him the cash. A funny kind of "socialist dogma" thats adopted by the most right-wing American administration in recent memory....