The LibDems Vince Cable has just let rip at Gordon;
“The British economy may have been reasonably successful but it is also highly fallible. The house that Gordon Built may not be built on sand but it has certainly been built on a floodplain. It has yet to be fully tested against rising economic sea levels, though the events of the last week suggest that it may be very soon… This current boom does not depend on long term investment or on exports or on the cultivation of a more educated, skilled, labour force. It is powered by debt financed consumer spending, some reckless lending and the optimism generated by a house price boom. The water is now pouring through the defences after the near collapse of Northern Rock; a product of greed and reckless gambling by overpaid executives; lax, indulgent bank regulation; and a complacent government. I warned Gordon Brown of a looming debt crisis four years ago.”
Sir Derek sits, like so many other of New Labour’s great and the good, on various government quangos; the Statistics Commission and the National Endowment for Science, Technology and the Arts.
More importantly he chairs Northern Rock’s Risk and Audit committees. If anyone should have known what was coming, it was Gordon’s favourite banker. He had to sign off on all strategic risk management issues. When Northern Rock realised the game was up, do you think it might have been Derek who was deputised to call his old political ally, Gordon Brown, for the bail-out?
Since Darling brought up the subject, Guido thinks this is Labour’s ERM equivalent moment, when this government loses whatever reputation it had for economic competence. It is going to be very hard for them to blame this instability on the Tories, perhaps they will blame it on Mervyn King at the Bank of England.
Darling has been on the phone to Benedict Brogan spinning furiously, complaining that everything is fine, that Cameron is playing politics. “He’s acting like a Tory backbencher, not the Leader of the Opposition. It’s completely opportunistic at a time when he ought to be reassuring people,” one “senior source” (with white hair) is quoted by Brogan. Playing politics, eh?
If anything the Tories have been slow to press home to the voters the reality of the “debt and mirrors” economics of Gordon Brown. Can you imagine this happening when Gordon was opposition shadow chancellor? Would he have gone around “reassuring people”? Would he hell. He would have said that it was the Chancellor’s fault and that it was the policies of the government that brought this on. He didn’t say on White Wednesday that exiting the ERM would lead to the longest period of unbroken economic growth in living memory. Gordon said it was a disaster. How should Osborne describe Britain’s biggest home lender of last year going bust?
Osborne might do well to point to moves like the loosening of bank reserve requirements which reduced the cushion of capital required of Northern Rock. Far worse still is Gordon’s dishonest manipulation of the MPC’s composite inflation target to justify the lower interest rates which have encouraged the property bubble. It is not as if there have not been enough warnings…
We are told that Ming is in control, there is no leadership question and that he knows what day of the week it is. Excellent news…
Nobody in the City was surprised by Northern Rock’s difficulties, but many were surprised by Mervyn King’s overnight U-turn. His stated policy of avoiding moral hazard was prudent and generally accepted in the Square Mile as wise and right. Foolish risk takers should suffer when they get it wrong.
In 1995 Barings collapsed. The Bank of England did not bail it out. Imagine the outrage if a Tory government bailed out the Queen’s bankers, “Tory toffs looking after their own pin-striped aristocrats” would have been the charge. Central Banks should only intervene when their is systemic risk to the financial system, not to bail out shareholders when things go wrong. Northern Rock put too many eggs in the mortgage securitisation basket and offered mortgages at slim margins. That strategy is now shown to be risky and unsustainable. So why bail it out?
Northern Rock is not merely the victim of illiquidity in the money markets as Alastair Darling spins, investors knew something was wrong months ago, the share price tumbled long before the sub-prime crisis made the headlines. Nor can you argue that the collapse of the Northern Rock would cause systemic crisis. The mortgages would be administered, the householders would barely notice a change in ownership and it is inconceivable that other banks would suffer contagion.
The economic arguments against a bail out such as this have been impressively made by Mervyn King himself, the special circumstances argument is patently political spin. So isn’t it more likely that this is a political decision forced on the Bank of England by Gordon Brown and Alastair Darling to spare their blushes?
Northern Rock is a regional bank from Labour’s North-Eastern electoral heartlands. Labour supporting figures are on the board. Sir Derek Wanless, Gordon’s favourite banker, chairs the Risk and Audit committee. Sir Iain Gibson sits on both those committees and was appointed by Gordon to the Court of the Bank of England. As far back as the miners strike it has been seen as a “Labour” bank. In the eighties Conservative ministers were furious when striking miners were told not to worry about their mortgages by Northern Rock – removing a pressure on them to return to work. The Labour movement lauded them for it and for their giving of 5% of profits to North Eastern charitable projects.
Guido suspects that the Treasury pressurised Mervyn King, against his better judgement, to bail out Northern Rock for political reasons. Brown’s Britain is a bigger version of Northern Rock. Gordon’s macro-economic policies are Northern Rock’s borrowing policies writ large. Gordon has mortgaged spending through PFI, government debt has ballooned and the consumer economy is floating on debt secured against over-stretched property prices. It can’t go on for ever…
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Cathy Jamieson MP, Labour’s Shadow Treasury minister, commenting on Treasury analysis of the economic impact of tax changes…
“If the Treasury is looking at the economic impact of tax changes, then surely it should examine the impact of the rise in VAT and cuts to tax credits? George Osborne’s £12 billion VAT rise knocked confidence, helped to choke off the recovery and has cost families £1,350 over the last three years.”