Brown sits before the committee
Fraser Nelson 12:21pm
There was a kind of grand jury feel to Gordon Brown’s appearance before the select committee chairs today. “I’m not sure I can make my hearing as exciting as the one you’ve had in the last two days,” he said. “Get started,” said John McFall. Brown has a great genius in neutralising hostile questions by dragging it down into minutiae – a trick that Blair, the incurable thespian, could never quite master. I won’t blog the points that ran into the sand. Here’s my summary of Brown’s appearance, and my take on it:
1. Printing money. Brown said that the BoE has a “statutory duty” to keep inflation up if it falls below the 2% target. “Our target is not zero inflation”. But after the crippling inflation of last year, what’s so bad about zero inflation? Wasn’t it this “symmetrical” inflation target the root error that caused the whole crash? From 2000 onwards The BoE pumped the economy full of underpriced debt in a pointless battle against benign cheap Chinese imports, this is what led to the asset boom, which begat the debt bubble, which ended in the crash. This is what they’re all missing: the obsession with inflation targeting hasn’t led to stability, but the mother and father of all economic busts.
2. Bonuses. McFall quoted Congressman Barney Frank saying: “they’re hating us, the politicians, because we’re hanging around with the bankers.” Why do banks get rescued and not Woolworths? Why do they need to get bonuses? Strikingly, this is a presentational point: it’s as if McFall is saying ‘we have to bash these bloody bankers because it’s hitting Labour’s poll ratings’. Or, in his exact words, “Prime Minister there’s a long hard road to go to bring the public round on this issue.”
3. Curbing those pesky bonuses. Brown says the board members are not getting bonuses: this is, of course, a decoy for the press. The mega bucks are paid to the traders. Let’s not forget, the Exchequer took a 40% cut OF those bonuses through tax: it was very much a shared greed. “The short-term bonus culture in banks has got to end” said Brown. Every banker now knows this: you need to shift to a more venture capital-style, longer-term bonus. It would happen without regulation
4. Befuddled McFall. “Prime Minister, you befuddled me,” said McFall at one point when he forgot his second question. Too true. That, in a nutshell, is why the Treasury Select Committee has been so ineffective: the debt bubble was obvious. It, like the FSA, was a watchdog that failed.
5. Brown’s war game. A theme of Brown’s defence is that, a few years ago, he took part in what he refers to as a "war game". In his own words:- “In 2006 we carried out a huge exercise in to examine what would happen to a bank running into problems, or a major institution in America or Britain. We did a simulation exercise, we brought in the chair of the US Federal Reserve, the Treasury Secretary Hank Paulson, we had all the American regulatory authorities present. We had the governor of the Bank of England, we had the chairman of the FSA, myself as Chancellor, the [UK] Financial Secretary to the Treasury and we did this video conferencing, looking at the problems that might occur.”
6. Arrow Assessments. In 2002, Brown says, the FSA conducted a risk assessment – the so-called “Arrow Assessment” of HBOS and it concluded it was fine. Obvious question: that was seven years ago. When was the last such assessment of Northern Rock?
7. Damning HBOS. “The reason HBOS fell was its business model, its whole business model, was wrong.” Again, makes you think it would have saved the taxpayer a few bob if there was something called ‘a regulator’ pointing out what Brown seems to regard as an obvious error.
8. Third bailout. “There are no more arrows you think we can afford,” asked Edward Leigh? “I’m not going to get into what’s in the Budget,” said Brown – later revealing it will be on 22 April. That’s not what Leigh was asking. Brown is evidently planning a third bailout
9. Building Schools for the Future. Brown said the “Treasury is about to bring forward proposals” to accelerate this scheme with 100 schools in progress. But why? It’s not the masonry that’s the problems in our schools, but the quality of the teaching that goes on inside them. The move towards huge Grange Hill-style secondaries is unwelcome, and I suspect the Tory school liberalisation programme will see smaller boutique schools because this is what the public want.
10. We Need An Inquiry. Tony Wright put it very well. “When we have a catastrophe in this country, we normally have a proper forensic inquiry to find out what lessons are to be learned. Don’t we deserve an inquiry like that?” Tony Wright. Brown said no, because it’s a global issue. The Spectator says: absolutely. That’s why we’re doing ours – and inviting suggestions as to what we ask. Click here for more.
11. National Government. People want all parties to work together, said Sir Patrick Cormack. Shouldn’t Brown have invited his rivals in? We did, said Brown, but Cameron welshed on him.
As I have blogged before, you can divide analysis of the recession into two categories: AD and BC. The BC (before the crash) approach argues that everything was going pretty well in 2007 and it was only an unpredictable banking collapse that scuttled things. It means asking why there isn’t more lending. We need someone taking the AD (After Downturn) line - asking why there was so much debt in the first place, and how we can stop this happening again. Half the lending in Britain was done by foreign banks who are now offski, said Brown, so the existing British banks must do more. Again, implying that previous levels of lending were desirable – and he wasn’t challenged on this point. This was very much a BC session, but not without its points.
P.S. If CoffeeHousers will indulge me, the below graph shows the rise of the Grange Hill model - how state school pupils have been shepherded into ever-larger schools. Building Schools for the Future will exacerbate what most parents would, I suspect, consider a worrying trend:
Source: House of Commons Library (pdf here).
Previous
Chris Clark
February 12th, 2009 1:05pm Report this comment"...what’s so bad about zero inflation?" - The threat of a deflationary spiral that harms growth and employment.
"Wasn’t it this “symmetrical” inflation target the root error that caused the whole crash?"
No - at least not directly and certainly not in the manner you suggest.
The stability in asset prices that was a direct consequence of (successful)inflation targeting may, as Hyman Minsky predicted it would, have led financial speculators to under-price risk, thus inflating the asset boom and sowing the seeds of the current crisis. Note that it was the US Federal Reserve, who do not target inflation, which led the way in slashing rates and boosting asset prices. Finally, the US Government was highly active in driving the boom in house prices by refusing to rein in predatory lenders and artificially lowering long dated Treasury rates, to which mortgage rates are typically benchmarked in the US, by suspending issuance of said long-dated Treasury bonds.
This in no way represents anything like a full list of the reasons why you are ill advised to go around blaming inflation targeting for the current Crunch Crisis.
Tim Carpenter LPUK
February 12th, 2009 1:23pm Report this commentA very useful post, Fraser.
1. Absolutely, this has been our position all along. Unsound money and a BoE distracted by chasing a chimera - price inflation.
2. Supporting the banking system is not the same as supporting pick and mix.
3. Bonuses, if truly earned, should not become a victim of envy politics and class war spite.
5. Brown had a war game? He clearly lost that one yet failed to learn his mistakes - or was it a Keynesean fit up?
7. Quite. We have regulations - it, like laws in the wider world, is a question of enforcing what we have, not inventing new ones to give the veneer of action.
8. or a full Nationalisation?
9. Indeed. In the US, studies have said that schools over 300 pupils begin to degrade due to a lack of cohesion. Larger schools can be split into semi-independent schools sharing the big assets of playing fields and sports halls, but this is just one way forward. If the Tories truly do allow schools to be free, I believe you are right and things will improve.
10. The very fact that Gordon keeps hiding behind this "global" figleaf should be part of the evidence against him.
11. National Government at this stage with the parties as they are - so utterly centrist and statist, will be a disaster. Nobody the MSM will listen to will be holding them to account - Brown will sucker in all the LibDems for sure and many Tories.
Sounds like Brown was not nailed at this session and clearly he has zero recognition, let alone contrition, over his errors and responsibility.
TrevorsDen
February 12th, 2009 1:24pm Report this commentCommittee is a pointless exercise unless someone is prepared to stand up and call Brown a lying bastard.
Does anybody really believe that this committee to appoint the deputy chairman of FSA was 'independent'? Three numpties and Browns pal - just which one does anybody expect them to choose?
Sam
February 12th, 2009 2:07pm Report this commentThere is actually very little evidence that school size has any effect on attainment or on any of pupils' wider development - it's one of those folksy myths. If anything, small schools cause harm because of the lack of money to hire specialist teachers, narrowness of the curriculum, fewer books and computers per head etc.
David Preiser
February 12th, 2009 2:16pm Report this commentExcellent point about lending levels, Fraser. Mr. Brown has been selling the line about pushing the banks to lend at 2007 levels for weeks and months now. It's almost his biggest excuse for the bailout scheme(s). Nobody has yet really hammered the point that some of that lending maybe shouldn't have been done in the first place. Ramping it back up by force wouldn't be, you know, prudent. It's evidence of a loss of perspective and twisted priorities.
oldtimer
February 12th, 2009 2:52pm Report this commentRe inflation - the approved definition excluded housing costs; it was and is a flawed definition.
Re wargames - when reality struck it hasn`t done the regulators (here or in the USA) much good judging by the ineffectiveness of their responses so far.
Re HBOS - the failure of HBOS and others (Northern Rock, RBS etc) reveals a failed regulatory system. How can the business model fall outside the remit of the regulatory system, as implied by his reply? How did the HBOS business model change between 2002 and 2007? My impression, listening to Hornby`s evidence yesterday, is that he was starting to shift the model if only in a modest way after he bacame CEO.
David
February 12th, 2009 4:15pm Report this comment"It’s not the masonry that’s the problems in our schools, but the quality of the teaching that goes on inside them. The move towards huge Grange Hill-style secondaries is unwelcome, and I suspect the Tory school liberalisation programme will see smaller boutique schools because this is what the public want."
I would just say that good buildings encourage good people to work in them, and isn't the Tory voucher scheme supposed to make good schools bigger?
Tiberius
February 12th, 2009 4:41pm Report this commentLovely post, TrevorsD, but they're all too polite to call Brown anything nasty.
I hope C/Housers with the knowledge of all this stuff keep posting, and about the Spectator Inquiry. It is diffcult for we non-specialists to see above merely the general points.
Fraser Nelson
February 12th, 2009 4:55pm Report this commentChris, I could happily read more of those reasons - would you consider "giving evidence" (ie, putting a written submission) to our wiki-inquiry?
Ian C
February 12th, 2009 5:08pm Report this commentLet's get GB back after David Moore has been in front of them! He won't be so chirpy then.
There is now a direct link between GB and the Treasury and the depression - and it is Crosby. GB must have had considerable inside knowledge of what banks were doing and why to have considered appointing Crosby to advise him and the FSA.
What is amazing is that noone picked up on this when it came out on the Money Programme in October. I missed it as I don't watch it but for the press and Osborne and Cable not to have followed it up is unbelievable.
It's a smoking gun found in Brown's possession.
Napoleon
February 12th, 2009 5:37pm Report this commentNothing to do with the post but I want to know what you think about the Wilders ban. Cheers
TGF UKIP
February 12th, 2009 7:12pm Report this commentWell, Fraser, you can chortle and snipe away at Gordon but the dreadful truth is that thanks to the appallingly useless oppostion provide by your Precious Pair, he largely gets away with it.
Can we go back to the very recent YouGov poll of the marginals which showed an overall 7% lead for your mates. (Translated, of course, that means massive lead for Dave in his heartland Southern marginals but Gordon winning in the North.) However what was most interesting was some of the follow ups.
"Which of these do you blame most for Britain's current economic problems?" - British Government 22%, American banks 63%
Translation - Dave and Boy George have utterly failed as opposition politicians to pin the blame where it really lies.
Then "In the 1980s, when unemployment climbed to three million, the Tories did little or nothing to help the victims of recession." Total agree 60%,
Total disagree 17%. And then:
"A Conservative government led by David Cameron would do far more to help the victims of recession than Margaret Thatcher's did in the eighties." Total agree 42%, Total disagree 43%.
Translation - Gordon's drumbeat message of "do absolutely nothing" registers because Gordon gets propaganda and all Dave's and The Shaven Headed Wonder's lefty Blue Labour posturing has achieved very little other than getting up the noses of so many of his party and of so many on this blogsite.
Finally, I know you'll forgive me indulging myself, Fraser, but I find it so hard to resist:
"Do you think David Cameron is ..." A heavyweight politician 20%, A lightweight politician 57%!!!!!
The most enjoyable thing is, and you will, I know, tell me if I'm wrong, Fraser, that this figure of 57% has barely altered over the past two years.
Small wonder that Gordon & Co can still be so cocky!
Tim Carpenter LPUK
February 12th, 2009 7:42pm Report this commentSam: "There is actually very little evidence that school size has any effect"
Not so, according to actual RESULTS in NYC. Even after a review, optimal size is 600-900 and our schools are kissing the very limit.
Face it, State schools are set up to fail because they are run as a monopoly. Monopolies almost never provide a good service to the consumer. Schools are no different.
Archie
February 13th, 2009 5:35am Report this commentTGF UKIP: Absolutely spot-on as usual!
Fraser Nelson
February 13th, 2009 7:02am Report this commentTim Carpenter LPUK, sounds interesting - can you point us to a study?
hadrian
February 14th, 2009 9:31pm Report this commentGordon breezed through this because it suits McFall and his cohorts not to tear into their precious 'Leader' and thus reinforce the catastrophic results at the polls many of them face. This was a 'Brown-wash', pure and simple.
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