Tory economic thinking isn't being discredited by this crisis 

David Lindsay

"the electorate is unlikely to think that ‘right-wing’ policies are to blame for what is happening"

Where have you been since the death of John Smith?

Of course, the "free" market is not fundamental - indeed, it is positively inimical - to both principal political traditions in this country.

TrevorsDen

Light touch regulation is better than no regulation at all and that seems to have been whats happening.

Lets be clear this began with laws passed by a left wing republican president - forcing banks to lend to bad debts all backed effectively by the US State (Fanny Mae etc) and it started a long time ago.

There has been plenty of time to regulate this and Brown has himself redesigned our regulatory structure.

Oh and it does seem to be I recall the Tories suggesting a recapitalisation of the banks long before Brown/Darling finally had to be dragged to this option.

John Hall

The chattering classes will nevertheless blame it squarely on 'the City', an outfit they will cast as the puppet-masters of the Conservative Party.

Channel 4 Dispatches has already gone some way down that road.

TrevorsDen

The Guardians point and also Osborne of the Mail's point is a bit rich really - New Labour was all about embracing capitalism.

Its surely the New Labour brand that has been tarnished by this.

Cameron is seen to be on the left of the Conservative party, its been his mission since being elected to show the Tories as Compassionate Conservatives. So why should this affect him or the party?

More navel gazing at its worst.

Let me think - just how many job losses are being predicted for the next 12 months. Just what is expected to happen to the house price index?

Just how will the floundering economy be kick started if the banks have no capital (and such capital as they do have is being bought/ borrowed at a premium from the govt) and the govt have a big debt and banks government and other lenders are going round in a spiral of lending money to each other in order to be able to ... lend money to each other.

The markets ended significantly down today after the worse 4 days I can remember ... is this saying something which the great brains of the Guardian cannot translate?

mitch

Hang on a mo that utter pillock clinton caused this and if Im not much mistaken he was a lefty.Interfering with something you dont understand always ends in tears.

Roy Simpson

Peter Oborne is wrong. It is not the economic system which has failed. The inept, deliberate and lamentable failure to regulate the avaricious banks was the problem, and the regulator-in-chief was, and is, none other than Gordon Brown.

It is time that the gloves came off, and this truth was rammed home to the electorate by the Conservative Party.

strapworld

Does being on both sides of the fence at the same time, make a journalist "Peter Oborne, one of the smartest people in journalism" ? One week it is brilliant brown , the next brown is finished!!

I appreciate he has to keep in with Dacre but did you read his Apocolypse Now article a few weeks ago? the man is M A D !

I hope Howard's letter to the FSA brings about a proper investigation. It certainly served Brown well in that it brought the banks shares down, so the banks had to accept the terms offered!

Big time gambling by Brown...but will he ever be caught.

Hysteria

wot Roy said........

HJ

Is it just me that considers that less regulation would have been better? It seems to me that regulation gives a false sense of security and encourages banks to indulge in risky behaviour as long as they don't actually breach regulations.

I'd say that government has been behind our current economic mess, not the free market. The BoE controls and thus lost control of the money supply - this was inevitably going to cause a boom followed by a bust of some sort.

Note that the sectors of the economy that benefitted during the boom years all did so as a direct consequence of government behaviour. The bankers and builders all got rich on government-provided cheap credit. The public sector and those relying on the public sector for their income did so at taxpayers expense. Suppliers to the public sector (e.g. PFI) did fabulously. Tax accountants, employment lawyers etc. all did well due to greater tax and employment complexity.

Those that didn't do well were sectors of the economy having to compete internationally without being able to rely on government largesse or on privileges obtained from lobbying the government. They had to pay for everyone else at the same time as trying to compete with lower cost rivals abroad. That's why we have such a huge trade deficit and why we are in such a mess.

CS

***Is it just me that considers that less regulation would have been better? It seems to me that regulation gives a false sense of security and encourages banks to indulge in risky behaviour as long as they don't actually breach regulations****

WHAT??? So, if there regulations, banks will indulge in risky behaviour so long as they keep in the letter of the law.

Whereas, if there's no letter of the law to stay within, the banks will not indulge in risky behaviour.

That's logic?

Bocephus

Brown - and everyone else - keep going on about the "irresponsible risks" the banks took, but what were these "irresponsible risks" as opposed to "responsible risks."

It was he who said he had ended boom & bust thus encouraging everyone to borrow more. It was he who set the inflation target thus encouraging BOE to reduce interest rates and fuel a property boom. It was his government that encouraged the building of tens of thousands of flats in city centre which no one, other than buy to let landlords, wants. He knew banks were issuing 5x salary mortgages but said nothing. HIs buddies in the Democratic Party threatened banks with legal action if they didn't reduce their lending requirements to poor minorities.

Now billions of pounds have been lost in this Icelandic bank debacle, some of them SEC registered and he's making jokes about it, while at the same time using anti-terrorism laws to freeze Icelandic accounts. Where has David Cameron been hiding today, for god sake get out their and start kicking this guy. He made Cameron look like a fool yesterday and today he's out say exactly what Cameron said.

molesworth 1

Trevor's Den @7:12 calls it right...

Clinton.
Community Reinvestment Act.
So, not a problem of regulation but rather one of wilful, political distortion of age-old bank lending practices. Chickens, roost etc.
If only there was a chance of Clinton II picking up the mess from Clinton I, it would have some comedy value...

HJ

CS, you are missing the point.

Bank users assumed that banks were safe because of the regulations (which cover liquidity requirements, etc.). Banks then, indeed, did indulge in risky behaviour that was within the regulations. In other words, investors and savers assumed that the regulators had done the job of safeguarding their money - when, in fact, they hadn't.

If there were no statutory regulations (or at least far fewer) then perhaps investors and savers would have needed more convincing before they put their money in. Banks would have to go out of their way to demonstrate openly that they were safe. If they couldn't, people wouldn't put their money in.

It's also known that the regulations themselves contributed to the current crisis in other ways, forcing banks to behave in ways they wouldn't otherwise. It's the old law of unintended consequences.

Alfred T Mahan

CS, 8.55pm. Regulation breeds complexity as people devise schemes to get around it. That in turn creates opacity. It's quite clear that no regulator (and possibly no senior bank manager) had any idea what CDOs were doing to risk, rather like the hapless management of Barings with Nick Leeson. If we can see what's happening, we can assess the risks - if we can't we rely on regulators to to do the job for us, and they clearly aren't up to it.

If lending to NINJAs was bad, then regulations should have stopped it rather making it compulsory, as Clinton did with the Community Reinvestment Act. Bad regulation is worse than none.

Would that there was some Tory economic thinking to be discredited. I've not seen any evidence of any for weeks.

TrevorsDen

CS - the point is, IF there is regulation - like regulation of the Icelandic banks (where its has been pointed out that they claimed were regulated by the FSA - then Joe Public or Joe Local Authority might think it was safe to invest there rather than take the more realistic option of caveat emptor.

It also seems that it was wonderful Mr Prescott who insisted that LAs invested where they could get the best return.

Wilfred

I think you make some very interesting points, HJ.

Hayward

Sorry caps but Clinton di not encouraged banks or other finance institutions to...
Aggresively sell loans and undercut each other;
Take on "CEO's" with obscene bail out packages and short term bonus payments;
Lend people more money than the house they were buying was worth;
Not follow the fundamental principles of lending that are taught in economics/finance at university;
Continue to lend money to developers despite the banks already noticing buyers defaulting on mortgages.
This all happened under this Republican Administration!
To make it worse ther was
decision by the SEC to allow a certain five firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption, given only to these five firms, allowed them to increase leverage up to 30 and even 40 to 1.
Who were the five that received this special exemption?
Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.
And the result?
Three of the five broker-dealers have gone to the wall!
The SEC has only itself to blame. For an allegation being made by Lee Pickard,a former SEC official, states that this rule change led to the failure of Bear Stearns, Lehman Brothers and Merrill Lynch.
"The SEC allowed five firms — the three that have collapsed plus Goldman Sachs and Morgan Stanley — to more than double the leverage they were allowed to keep on their balance sheets and remove discounts that had been applied to the assets they had been required to keep to protect them from defaults."
Making matters worse, according to Pickard, who helped write the original rule in 1975 as director of the SEC's trading and markets division, is a move by the SEC this month to further erode the restraints on surviving broker-dealers by withdrawing requirements that they maintain a certain level of rating from the ratings agencies.
"They constructed a mechanism that simply didn't work," Mr. Pickard said. "The proof is in the pudding — three of the five broker-dealers have blown up."

Hayward

Something else, chaps as a segue on the Wall Street Debacle and that SEC decision. Republicans controlled Congress from 1994 until 2006, and oversight of the two FMs and others was supposed to come from Congress. It was Bush's SEC regulator, Chris Cox, who reduced the "net capital" requirements for investment banks in 2004.Thus enabling Bear Stearns, Goldman Sachs, Lehman Bros, Merrill Lynch and Morgan Stanley to dive headlong into the lucrative mortgage-backed securities and credit-default swaps markets. Only then did the trickle of bad loans and derivatives become a tsunami in waiting. Hank Paulson, then of Goldman Sachs, led the Wall Street request for relief from the capital requirements.
It is karma that now Paulson has to clean up the debris left by the receding tsunami. While it may be true that the CRA/HUD may have played some role in the tsunami of bad loans, it was a GOP Congress and GOP regulators who weakened the dykes and sea walls so that they finally succumbed. Clinton-era pressure to lend to minority borrowers was but a drop in a vast ocean of Republican ineptitude and capitalist greed that resulted in this large wave washing up Wall Street and spilling out into the rest of the world!
Bon Voyage

cuffleyburgers

The mess is categorically not proof that free markets don't work. It is proof that Labour have disastrously mishandled the economy by failing to cut borrowing while they could, and by presiding over an inept financial services regulatory system and by failing to ensure that shareholders' interests are properly reflected in boardroom compensation issues.

The Tories could easily construct an easy and convincing narrative around this but they seem instead to be frozen, and unwilling to say anything which they fear may be used against them in future.

My view is they should relax. Remember that they are there to protect the interests of the man on the clapham bendy bus.

They must argue that they are the party who will stand for the interests of the working poor, by taking them out of tax, and putting money back in their pockets. They must start dissecting Brown's absurd claim to have lifted a million children out of poverty by explaining clearly why it is clear he hasn't, and has in fact through creating this crisis, he has probably thrown another million into poverty.

Cameron has looked indecisive and must raise his game.

Hayward Maberley

Finally what of Moral Hazard?
The erstwhile Masters of the Universe looked back and saw the previous fiscal/financial malfeasance of the S&L bailed out by taxpayers and staunch defence that the Fed led by the noble Greenspan had undertaken of LTCM in cobbling together a rescue package. They knew that for the really rich there was no such thing as Moral Hazard. A quote from the report that Chairman Alan gave to the Committee on Banking and Financial Services, U.S. House of Representatives,
“..Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own…”
This is Chairman speak for the fact that many market participants (a wonderful term for the stinking rich) would lose their shirts as would some banking and finance institutions. Adding the threat to “the economies of many nations including our own” was there to reassure the House Committee that this was really the act of a patriot!. In other words, this intervention was to prevent the free market from operating as it is supposed to according to all the gung ho free marketeers. To put it bluntly the Fed stepped in to stop the very rich from becoming very poor. That is what it is all about!

Travis Bickle

The problem for the Tories at this time is very simple

"damned if they do, damned if they don't"

Ian C

The reality, allround of course is something different.

On C4 News Martin Taylor, ex -CEO of Barlcays said something very interesting and accurate along the following lines. "The west has mishandled the rise of China. We have behaved as if the deflationary effect of China's entry to the world economy would have a permanent deflationary efect. We reducd interst rates too far and too long and allowed financial institutions to much leeway in what they could do by way of securitisation. We are all to blame. We have lent too much boorwed too mcu nad borrowed to invest believing that we were in a new age."

Very cool assessment and much more accurate than the partisan judgements that are so partly right and prevalent. We all deceive ourselves if we do not accept that everyone has played a part.

As far as politics is concerned, Labour were on watch. They must (will) go as a result.