Sunday, Jun 14, 2009
Poor Gordo
Wall Street Journal: Gordon Brown Helped Cause the Crisis
Britain's economic downturn began when its house price and household debt bubbles inevitably burst, beginning with the run on Northern Rock in September 2007. These bubbles had swollen to higher levels than in the U.S. and other major economies.
British house prices rose 88.5% above their long-term trend between 1997 and 2007, whereas in the US the figure was 64.5%. British household indebtedness reached 177% of household income while the US it was 105%.
Gordon Brown tolerated and even encouraged the formation of these bubbles for several reasons. Eager to achieve the illusion of steady progress in the overall economy, Mr. Brown needed the rapid expansion of financial services and the real estate business to replace the shrinking manufacturing base.
17 Comments
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1. little professor said...
"So the boom in the financial and real estate sectors served Mr. Brown's political interests well. And he was by no means a passive bystander to their growth. He urged them along in several policy speeches. Introducing on April 1, 2005, a policy document entitled "Homebuy: Expanding the Opportunity to Own," he insisted that "this Britain of ambition and aspiration is a Britain where more and more people must and will have the chance to own their own homes."
Ignoring the inability of many house buyers to pay their mortgages, he touted this message to City bankers in successive annual speeches at the Mansion House in London, promising them "light-touch regulation." Already in 1997 he transferred the responsibility for bank regulation from the Bank of England to the inexperienced Financial Services Authority. He also curbed the central bank's ability to keep asset inflation in check by removing housing costs from the price index."
2. mr g said...
The words of one 1970's dirge say it all: "Gordon is a moron"
3. jackas said...
This is plain to see by anyone who is not blinded by the lures of the toxic ladder.
He is not a dumb man, but his timing is poor.
Back to work everyone.
4. rotten tomato said...
So, the powers that be behind the press have decided to dump Nu-Liebour in favour of the Conservatives. Not that I like Gordo at all. Just seems a bit odd to have come out with an article like this now, well after the horses left the stable.
5. mark wadsworth said...
It's a good summary, but a year or three too late (as RT says).
And the Tories would have been NO DIFFERENT, had they been in power since 1997.
6. Danetheman said...
Mark Wadsworth, what a completely ridicluos statement.
You sem to be suggesting that you have travelled into an alternative reality, where the Tories won the election in 1997, changed their political philiosophy to the left, then percieved the answer to the future of the left, in a twisted interpretation of Isiah Berlins Negative liberty philosophy, then sold our gold reserves at the bottom of the market, then proceeded to set up a pseudo orwellian, stasi esque regime, then lie about an illrgal war, then authorised the accidental murder of over 100,000 civilians in Iraq,
Set up a tripartite sytem, take away power from the BOE and awarded it to the newly created FSA, completely forego any kind of regulatory powers whatsoever, with which the BOE may have acted sooner. etc etc etc.
The list of Labours incompetence goes on and on and on.
And you state that no-one else would have done anything differently?
[You seem to be an apologist for a government who have directly, or indirectly, caused more damage to the UK than world war 2.]
WAKE UP
7. andrew said...
None of us know if the Tories would have been different, looking back since WWII, Labour have always made a mess economically, are we all to believe that there would be no difference ?
In the 2 years after Labour came to power in 1997, I started to pay more tax, I was then on a modest salary but was made to pay about £1500 more tax per year. That is the difference between the Tories and Labour, most of the country was convinced that Labour would actually do something different and good with our tax money.
Now our taxes have gone into raising the salaries of most public sector workers, and now will go straight to the bankers pockets, two of the most obvious examples. The difference, if only that is that less of your earnings under the Tories go into the government black hole.
I am not that in favour of the Tories but Labour are just so sh@t it beggars belief. Or are we back to the conspiracy theory about bankers ruling the world again and whatever anyone does makes no difference?
8. nomad said...
From the end of this piece:
"Choosing a new leader with integrity and managerial competence is the party's best chance to win greater respect from voters."
Such wonderful words - yet such an elusive proposition.
Like a longed for lover that you know is way out of your league. Or that first ripe strawberry of the new season that you spot, but someone else is closer and has also seen it.
Just a dream.
9. mark wadsworth said...
@ Andrew, I agree, Tories' record since WW2 has been slightly better, but let's imagine that the Tories had been in since 1997 and been a bit more careful with public spending and kept taxes lower - wouldn't the house price bubble just have been all the bigger? Higher net incomes would lead more or less directly to higher house prices. Lower government debts would also have kept interest rates ever so slightly lower, so that would have exacerbated things.
I'm thoroughly and totally in favour of small government and low taxes (The Tories are large state wimps, from where I'm standing) but until and unless we shift taxes from incomes to property values (while reducing taxes overall) we are doomed to repeat these 18 year cycles of boom and bust over and over again.
10. inbreda said...
All I know is that Vince Cable WOULD have done stuff differently.
So would the BNP, but at least the Lib Dems are the only remotely serious alternative to "the other two identical ones"
11. andrew said...
Mark, I agree with you about the property tax, it would be the only practical and acceptable method of discouraging rampant property speculation.
Most people want higher house prices in the UK, in other words money for nothing, that is going to be a tough nut to crack, back to the same old problem.
12. devo said...
"Or that first ripe strawberry of the new season that you spot, but someone else is closer and has also seen it."
I hate it when that happens.
13. it_is_going_with_a_bang said...
That is the real issue here. Over the last 10+ years 'most' people have educated themselves to believe that ever increasing house prices is a good thing. Money for nothing attitudes are hard to fight.
Gordon Brown, if he was a going to be as good as he says he was going to be, should have regulated to make sure that 6x lending could not happen. He should have made the banks legally responsible for checking references. Human beings when left to their own 'devices' do tend to act irresponsibly and that is what government is for. Shirking the responsibility in the name of freedom is inexcuseable.
Time and time again he loved to brag about how good he was - smirking all the way. The argument of whether the Tory's or others are better is totally irrelevant. The fact is that Tory's were ousted in 1997 for one thing more than anything else - there were seen as liars who had had their 'turn'. The same is true for the Labour party today. They have had their time - now it is time for change once again. Change is healthy in a democracy and the time for change is now.
14. stillthinking said...
GB removed housing from the BoE index, and split the financial regulation system into three. The big difference would have been if housing costs had been monitored and used to alter borrowing costs, in which case deflation from excess global savings would have been apparent much sooner, and the resulting downwards pressure on wages would have moderated housing costs further.
The timing and the severity are certainly due to New Labour policies. You can't know what the Conservatives would have done, and I am sure there would have been a housing bubble, but;
the expansion of the state masked a decline in private production, the state expansion would not have been a Tory policy so the shrinkage of the private sector would have been more visible.
essentially I feel that had the UK been under the Tories, we would have seen -gradual- indicators of all the problems we face now, instead of being punched in the face with a huge fist of economic bad news and I think being exposed gradually would have allowed a more measured policy response over a much larger time period.
So basically if you accept that the Tories wouldn't have changed the regulatory system, and wouldn't have expanded the state sector, then we would have been better off under the Tories. Maybe its just that Labour stayed too long, two terms would have been sufficient.
15. _woody said...
The economy of course began its long path of growth from 1992 onwards. During the 1992 to 1997 period, the then Conservative administration followed a deliberate policy of re-paying rather than adding to National debt. There was also little encouragement for individuals to add to their own debt level, and there were no real bubbles evident within the economy. Sound money was the order of the day. The Labour party have clearly followed a different and destructive economic strategy.
16. a saver said...
So funny when Gordo comes out with "we need to restore the people's confidence in the Labour Party/The Housing Market".
You would have to be very silly to have confidence in either, but hey Gordo is all about duping the public so he can stay in power. You would have to be pretty dim not to see right through him.
17. Chilli said...
Fascinating article.
I'm especially cogniscant of the fact that quite a few million people were released from productive enterprises and employment in the 'HPI carnival' instead. And this moron saw no downside to that. Even the finance sector is ultimately a closed money roulette game. There is always just as much won as lost.
But hey, Gordo is a politician. What more could you expect? Perhaps we should have rich politicians instead? Maybe then they would care about the future of the economy more? Obviously the people's party has no more claim to altruistic tendencies than any other party at this point.