Mervyn King:Labour not responsible for crash

princeofpounds

In a limited sense, he is probably right. The developments in finance that led to the crash, principally around the securitisation and mispricing of debt risk, would probably have grown up for any government in power at the time.

However, in a more general sense, I think it's charitable. Labour had been in power for long enough to bear responsibility for the business and regulatory environment the bulk of the problems grew up in.

They also bear an even more direct responsibility for the response to the crisis, which was essentially one of massive public spending and associated debt, and for the fiscal position of the government going into the crisis, which was relatively poor unless you assumed the good times rolled for ever.

Perhaps Mr. King is charitable because the BoE head during this period when the trouble brewed up was a certain Mr. King.

Unfortunately, properly evaluating these things is difficult because it requires counterfactuals.

A Tory government would probably have been in a much better fiscal position going into the crisis, as they would not have built a huge client-state of benefit recipients through the various tax credit programs.

They probably would not have spent as much to support the economy during the crisis. I always found it ridiculous that there was zero recession in the public sector in 2008-09. That would probably have meant an even nastier crisis, but we would be in a better position now.

They would probably be just as castigated as Labour is, even if they had reduced the impact of the crisis on the UK compared to what Labour achieved.

I certainly don't think they would have avoided the problem in anyway. King is right to say that it is a very shared responsibility in terms of warning of the problems.

But to be fair to everyone involved, I don't expect public officials to always be able to see the future, and I don't expect them to be able to turn off the good times even if they can foresee problems - the electorate would not accept or understand it.

What I would expect is that they maintain enough robustness in the system to buffer against the unexpected, and that was the unforgivable failure for me.

I do wonder what he means by 'not getting to the bottom of it'. It's fairly clear what happened from a financial perspective, in hindsight.

StevieJ

It seems to me that the BOE were fully aware of the risks that lay ahead, I should imagine the scale may have shocked them. This article from 2006 makes some interesting observations.

The City could face a financial meltdown if the debt bubble bursts, with over a year's worth of bank profits - £40bn - potentially being wiped off balance sheets, the Bank of England warns today.

The Bank is issuing a stark warning about the potential damage a credit crunch and a collapse in asset prices could cause to the economy and financial system.

view, a study about how the City would react if struck by a crisis. The vulnerability of banks to a collapse in the debt bubble is illustrated by the recent rapid rise in their funding gap (see chart), which shows that in recent years the amount lent to customers that is not backed by customer deposits has soared. Banks are, therefore, having to rely much more on the wholesale money market, which tends to be far more expensive than customer deposits

The Bank of England is also increasingly concerned about the complex and risky financial instruments devised by banks and hedge funds, of which little is known.

http://www.telegraph.co.uk/finance/2943149/City-faces-meltdown-if-debt-crisis-hits.html

CLAPTON

DaveTheMus wrote: »

They were responsible for two illegal wars - mass immigration - a new law passed for everyday they were in office - an acceleration of wealth inequality - PFI contracts - surrender to the IRA...

were WW1 or WW2 or Sierra Leone legal wars?

are legal wars less bloody that illegal wars?

who decides what is a legal war?

was VietNam's intervention in Cambodia legal?

DaveTheMus

CLAPTON wrote: »

were WW1 or WW2 or Sierra Leone legal wars?

are legal wars less bloody that illegal wars?

who decides what is a legal war?

was VietNam's intervention in Cambodia legal?

Vietnam's 'intervention' in Cambodia has nothing to do with me as I'm neither Vietnamese or Cambodian...

WWI and II were long before I was born, you might as well ask; 'Was the Scottish war of independence in the 13th Century legal?'

That's beside the point, this isn't some airy fairy philisophical debate about war - it's a thread about Labours time in Government and the spin doctors trying to absolve Labour of any responsibility of the state of the country when they left power...

I'm merely pointing out that Labours list of disasters is long indeed.

antrobus

purch wrote: »

http://www.theguardian.com/business/2014/dec/29/labour-government-not-responsible-crash-bank-england-governor-mervyn-king

I think he's trying to suggest that they were just unlucky to be the Government at the time........it could have happened to anyone Guv :eek:

Now, if I was compiling a list of Those Responsble For The Crash then, oddly enough, the name 'Mervyn King' would feature on that list. So I wouldn't necessarily treat what he had to say on the subject as gospel.:)

prowla

NuLab helped set the scene for the financial environment under which the crash occurred; they encouraged the housing bubble, they frittered away the money they collected in taxes on the basis that there would always be more coming in, they raided peoples pension funds, they allowed the banks to self-regulate (ha!), and their first response to the crash was to try and stimulate housing again.

Whilst it may be true that the banks' lack of discipline caused it directly, the government were responsible for allowing, or even encouraging, them to put us in that situation.

princeofpounds

It seems to me that the BOE were fully aware of the risks that lay ahead, I should imagine the scale may have shocked them. This article from 2006 makes some interesting observations.

It's a great article, and probably a very good report, but unfortunately it is one of those situations where this is raised firmly as a 'worst case scenario' rather than the 'base case scenario' it turned out to be.

StevieJ

princeofpounds wrote: »

It's a great article, and probably a very good report, but unfortunately it is one of those situations where this is raised firmly as a 'worst case scenario' rather than the 'base case scenario' it turned out to be.

Just making the point that the GFC it wasn't completely out of the blue to the BOE.

Thrugelmir

prowla wrote: »

NuLab helped set the scene for the financial environment under which the crash occurred; they encouraged the housing bubble, they frittered away the money they collected in taxes on the basis that there would always be more coming in, they raided peoples pension funds, they allowed the banks to self-regulate (ha!), and their first response to the crash was to try and stimulate housing again.

Whilst it may be true that the banks' lack of discipline caused it directly, the government were responsible for allowing, or even encouraging, them to put us in that situation.

Brown ( & Balls) and King took their lead from the US. Under Greenspan's then Bernake's management of the US economy. King knew Bernake personally from years back. So more than likely shared similar economic concepts. More than likely had a close relationship with Greenspan too.

BobQ

So the man who was best placed to know the way the crisis developed says it was not Labour's fault and the anti-Ed brigade piles in and starts witterering about illegal wars and adding qualifying remarks that recommence the blame gain. What a surprise!