The Spectator Inquiry--Part Two

Blimpish

Selectively,

10) The point of Dutch disease is that it makes the choice for you - the flood of capital into the City raised the value of Sterling, making it a more attractive investment while making our other tradables more expensive. We overly relied on financial services only to the extent that we were content enough with its growth to not be concerned with slower growth elsewhere.

11) Housing boom: Demand growth (demographics- and culture-driven), creating an upward path which then offered an area of uncertainty, in which a dose of excess liquidity created a bubble. All that, especially connected with a general error in expectations over future prosperity (i.e. inconsistent plans with regard to opportunities and resources). Oh, and folk memory over home ownership from the high inflation era - that you took on a tight mortgage at first, but inflation eroded its real value later. But then inflation never happened...

12) Tax - yes, but in ways that are the Third Rail... Residential housing is exempt from VAT, income tax (on imputed rents) and, most important, capital gains tax. The last one means that speculative housing investment can be tax exempt. Highly geared investment that it traditionally is, with no taxation, its net returns are increased by being exempt.

13) Deflationary shock - it meant that there was little chance that the excess liquidity of 2001-2003 (I guess) fed through into inflationary pressure.

14) Given the damage to the Eurozone and Japan, not so simple.

16) Not an intellectual error on its own... It's the belief that the collapse in traditional practices which channelled and meliorated capitalist energies didn't matter because of market rationality - that rationality is bounded, and is undermined by a high degree of uncertainty.

Assuming innovation continues, and costs are competitive, we can grow again. But growth will only happen once household and business balance sheets have matched fallen asset values with reductions in leverage - which might take some time. (While the banks remain rotten, this will not happen.)

mongoose

What about Chinese currency manipulation, I've seen that suggested in some places.

Richard in the West Midlands

There is a mathematical physics concept called Heisenberg's Uncertainty Principle. In broad terms it means that the act of measuring something changes its characteristics.

I have found the concept very useful in attempting to rationalise how business operates in both the macro and micro world.

If this concept does apply to the economic world, then the BoE by attempting to target is contributing to its own failure because the characteristics of the problem is changed.

jim

You seem to have missed light or no penalties for white collar fraud. It's important to remember white collar fraud is always more damaging than robbing a local shop. It destroys trust in the system. In Argentina now most people avoid paying tax, because they know it will be stolen by politicians or well connected friends. So it becomes impossible to maintain even basic infrastructure, without which society collapses.
Also lack of Education, universities only employ economists who sign up to the permanent inflation hypothesis, as we know inflation figures are manipulated down, this destroys many businesses through mis-pricing. We will see a lot more bankruptcies as companies sell products at too low a price, finding that when they come to replace stock, prices have risen, they have thus given away their capital.
You seem to have missed the fact that the long cycle is ending. When we left the gold standard and went for continual debasement of the money supply, by printing our way out of every crisis, this pushed up costs. It made our industry un-competitive, so it moved abroad, or closed down. Easy credit was introduced to hide this loss of real wealth from people. The credit bubble grew steadily for 30 years, then it popped. Now the illusion of wealth has been revealed as fake. This process can be seen in every collapsing empire from Rome onwards, for students of economic history it was easy to spot.

Patrick

Should we have split banks into 2 distinct groups - those that can fail and those that can't?

What regulation would be appropraite for the 'utility banks' that are explicitly government backed?

What regulation would be appropriate for the 'casino banks' that are explicitly not government backed?

Praguetory

5b) What were the warning signs? I would submit UK Personal Lending 2003 and 2004 which I have in hard copy. Even the synopsis should have been sufficient...

oldtimer

There are two important categories missing (to match against Bank of England, Treasury etc.) These concern Gordon Brown and the FSA - there is no excuse for their Macavity style disappearence from the scene of the crime.

Gordon Brown`s decisions in office: (1) what were the critical decisions that he made? (2) what were the consequences of those decisions?

FSA: (1) what investigations were made into banking risk such as stress testing and when? (2) what was done about the reported inadequacy of the commercial banks own risk test models? (see http://www.bankofengland.co.uk/publications/speeches/2009/speech374.pdf)

Tony Häfliger

It is fallacious to assume that economic failures have short-term economic and political reasons alone, and this fallacy is encouraged by the concept of economic cycles. I would suggest that a chart of personal indebtedness (split up into mortgage and other debts) over the past 50 years, not only for the UK but for all the countries of Europe and for the US, in juxtaposition with sociological, ideological and technological developments (secularisation, human rights in general and equality in particular, political correctness, loss of strict morality, the promotion of classlessness, the rise of digital technology, the Internet, etc. – the more strands the better), will provide a rather more interesting picture than answers to mechanical questions such as “what went wrong with xyz?”. If you realise that, in Switzerland at least, people were from time immemorial until the late 1960s only granted mortgages if payments did not eat up more than a fifth part of their annual income, and that thereafter that ratio went up to a quarter, then a third, and by the mid-1980s to 50%, you will be aware that a) a short-term view b) a national view will provide all the wrong answers – yet again. It would also be wise to remember that the disciplines of economics and literary criticism have one essential thing in common: their assessment of the past is wide open to interpretation, and their assessment of the future has regularly been risible.

Fernando

Under intellectual failures what about the issue that mainstream economists and economics departments in universities were, with a few exceptions, surprised by the crisis and bemused by the best way to respond. The Queen’s remark when she visited the LSE is apposite: “why did no-one foresee this happening?” Is there too much ‘group think’ in academic circles? Were they concentrating on the wrong problems?

Wily Trout

Cause of the housing boom: can you factor in the offer of most big development companies to take old houses as part exchange for new? This creates a situation where people can off-load houses that have become undesirable because of other development e.g. road-building, neighbourhood decline, etc. So, not so much a housing shortage as a surplus of undesirable housing.

TrevorsDen

What about the future?

The next big thing is 'quantitative easing' -- can we get some definitive opinion on this?

IS it printing money? We have had recessions in the past but none which have apparently needed such a drastic response. How is it possible to just 'stumble' into something this bad?

Finally, no matter what the purpose of this 'easing' can someone explain how increasing the quantity of a resource can do anything other than reduce its value, ie the pound in my pocket?

http://www.adamsmith.org/think-piece/economy/the-rise-mugabenomics-200901302859/

Yesterday a dog did not bark in the night. Inflation did not drop as much as people were expecting. And on top of this we are talking about printing money.

Pete Clark

I think we also need to make a point about savings. Generally speaking, and for decades, it's been pretty much impossible for savers (and certainly higher rate tax payers) to make a real gain from cash on deposit after government inflation in the money supply (the stealth tax) and the overt savings tax. Perhaps this de facto disincentive to save helps explain why banks have been pushed into borrowing on the money markets - and building a debt house of cards.

Tankus

12 . Browns legalized tax theft of what was once considered Eurolands golden pension pot , nudged people into BTL as a way of financially securing their future, coupled with the ease of obtaining 100%+ mortgages , increased housing demand.

Multiple home ownership for the common man

Jonathan

Looks like a good starting list of questions.

Additions

1.c) 'mountain of savings in China?' add Japan too. I would second point about currency manipulation.

2 d) Something regarding the short term pressure Treasury would be under to not deal with money/asset bubble due to the increased tax revenue and associated politcal advantages this brought.

Puncheon

You also need to include somewhere the effects of the Blair/Brown destruction of the civil service in Whitehall. The intellectual rigour and impartial assessment of policy options has all but disappeared, particularly in the Treasury. This always happens under Labour Governments - they are people who are convinced they are in possession of a received political truth and so they only listen to those who agree with them. Margaret Thatcher had to clear out a whole generation of incompetent yes men before she could even begin to get anywhere. So, did the institutional weakening of the civil service over the Blair/Brown years contribute to both the the crisis and more importantly the wrongheaded, panic-stricken response.

Rex Burr

(Because for a while, lenders were right to think that today’s 125% mortgage would become a 60% mortgage in about four years’ time.)
How could anyone believe that?
Would a corner shopkeeper allow the price of gobstoppers to rise at a faster rate than the pocket money of the local kids? I think not.
Perhaps we need a few corner shopkeepers in our financial institutions.
(Is it inevitable that we’ll bounce back, as per the next upswing – or is this faith in the boom-bust pendulum part of the failed thinking that got us into this mess?)
Where will the bounce come from? The reputation of our financial institutions will have been damaged by recent events. Time for the East to crank up its own financial services, after all that’s where the money is, and reduce our earning potential from that sector. Without a massive reduction in our standard of living or a massive rise in the standard of living of China and India I don’t see a restoration of manufacturing here. Oh, sorry Gordon I forgot about the earning potential of our songwriters and artists whose collective brilliance will put our balance of trade back in the black.

Fraser Nelson

Oldtimer, i dont want to make this a Brown-blaming exercise. He'll be gone soon, and dancing on his grave wont help us. I'll add yr FSA point. But thanks a million for that link to that speech: great stuff. And it augments the case for looking at the philosophical approach to risk management, our final point.

Mongoose, that may come under the 'deflationary shock' category: ie, the influx of Chinese imports and surplus of Chinese savings.

TrevorsDen, the future is a fascinating question - but one for a separate inquiry, methinks. We have to keep this focused.

Tony Häfliger, great idea - we intends to publish such metrics. Not sure how far back the data goes, though.

Fernando, that's a great alternative heading for section five. I'll update.

Wily Trout, that'll be part of Q11

Pete Clark, I'll update Q12

Jonathan, will reword Q13

Puncheon, will add a 2d to cover that.

ALL ABOVE CHANGES SHOULD HAPPEN TO THE ABOVE POST BY THE TIME YOU READ THIS - WE'LL MOULD AS YOU SUGGEST...

Keep 'em coming!

Magdalene John

2) The Treasury (i.e. GB's personal fiefdom for 10 years) - Brown's endless fiddling with definitions of the business cycle were consistently and rightly lambasted by many observers at the time. Alas, this focus on the Chancellor's capricious claims about the cycle's timing helped to distract attention from the calamitous truth, namely that the UK was for a decade at least running a much bigger structural (i.e. cyclically adjusted) budget deficit than anyone at the Treasury either realised or (if they did realise) was prepared to admit. After a 10-year super-cycle characterised by, on the one hand, booming finance & housing (plus the associated tax revenues) and, on the other, by China's exported disinflation, we are now firmly in the down-leg of that super-cycle (as Martin Wolf has argued persuasively). Unfortunately, many years of excessively loose fiscal policy have left the cupboard bare - which is why Brown's willingness to throw yet more government (i.e. taxpayers') money at the economy is now so dangerous. Not nearly enough attention has been paid to the poisonous fiscal legacy of Brown's decade as Chancellor. The saddest - and most ironic - aspect of that legacy is that, like every Socialist Chancellor before him, his most serious failure was towards the weakest members of society (rather than the BUPA-toting, private-schooling Coffeehousers). In 1997 Brown inherited from Clarke the fiscal strength that allowed him to choose to allocate more tax revenues to, say, the NHS and schools. But 10 years on, thanks to his cowardly failure to face down vested interests, the money is all gone (and then some), while neither the NHS nor the state school system has been noticeably improved. Here, in essence, is the main reason why Socialism is morally ugly.

5) Who knew? There were repeated and authoritative warnings about Labour's fiscal profligacy almost all the way through Brown's stint as Chancellor. One thinks of Christopher Fildes and Jeff Randall in particular. More widely, many people pointed out the dangers of the expanding asset price bubble in the UK, US and elsewhere. As for the risks posed to the world's financial system and (ultimately) to economies by the exponential expansion of the OTC derivatives, the Sage of Omaha summed it up with his phrase "weapons of mass financial destruction". Unfortunately, nobody took much notice of any of these wise men - the fate of Cassandras in every generation.

A.L.Wallis

Is the deflation threat overstated, or are present policies designed to defer the pain and let inflation rip in two years' time when the Conservatives will be in office?
Would it be better to raise interest rates to the point where they give a modest return to the saver, thus encouragiing him to provide the banks with the deposit base they need to recommence prudent lending?
And if low interest rates are so essential, why is there no noise regarding the rates charged on credit cards?

"Cassandra"

Another Day

"The MPC had a very tight remit, and most of its members are picked by the government. Would it have helped if the BoE had more independence?"

How can you have more independence? Either it is independent or not. BOE independence has always been a myth, and a myth never questioned. Independence was a fallacy when the MPC was largely picked by the Government, and it's policy objective and targets were set by the Government.

mckenzie

The main causes are simple, so simple I don't think you want to see the simplicity of them. I don't you will ever grasp it judging by the crap you have swilling around in your head suggested by this post.

Harry Tate

= The central point that has been missed is that this crisis results from capital failing to control the agents it appointed to protect itself. Managerial capitalism has led executives to exploit shareholders for their own advantage [ludicrous compensation schemes] and the institutionalisation of shareholding has meant the policing is done by people who have different agendas to the beneficial owners in whose interest they are supposed to act.

A very simple way of seeing this is to recognise no-one lends their own money to someone they don't expect to pay it back.

Greenspan imagined capitalism would protect itself form excessive risk-taking in its own self-interest - it didn't because managers have asymetric incentives. The way to fix this is to confiscate their assets, as you would with any fraudster. Incidentally, it's why self-regulation used to work.

= Why did anyone believe House Prices relative to income could rise for ever - there is an extremely clear history of this cycle - see Fred Harrison's book for example... the same point can be made about personal debt relative to income. The point about this is there is nothnig even vaguely "Black Swan" about reversion to the mean of variables like these - history shows it's the norm, and mathematics makes it inevitable. Perhaps the underlying cause is simpy ignorance of financial history - how could anyone not have seen the irony of repealing Glass-Steagall after a 20 year bull market?

= I agree with Blimpish re CGT on housing - there must be a level playing field tax wise between assets generating capital gains [perhaps with a rebate for those that create employment, and I'm not thinking interior designers here]

Brian Sanderson

Is there perhaps more than a little irony in commenting on the current recession or 'financial crisis' courtesy of a journal founded some nine years before the demise of the South Sea Bubble? An earlier, albeit more patriotic, adventure in the privatisation of the national debt. In post world war two England there was both resentment and accuracy in the thought that America was God's gift to the world. Now one might in large part view the present situation as the result of the world being Gods's gift to America; that is the dumping ground for worthless bonds spawned by bankers who believed the fantasies they encouraged others to accept, and which indirectly supported the US national debt incurred by an accelerated re-run of Britain's own efforts in Iraq, and earlier in three Afghan Wars. One should of course 'think positive' and realise that since it is becoming cheaper to borrow US dollars than it is to print them, the crime of forgery has in effect been de-privatised.

donald fraser

1. Ref 1A. “Deflationary shock of globalisation” is a meaningless phrase. It infers some understanding of the “future shock” Alvin Toffler wrote of. If you are being serious about this question, you need to re-write it. I have no idea what it means at the moment. Surely the issue is to what extent we are ever justified in changing the components within a composite index, such as the “basket of goods” that measures inflation? That works fine without use of the offending phrase.

2. Ref 1C. Take more care with your use of the tenses. Obviously the point of analysis of the past is to suggest things for the future. Avoid the temptation to introduce obscurities by mixing tenses. Do you mean “banks could have borrowed” or do you mean “banks should borrow”? Assuming you adopt my suggestion in point 1, this question becomes your first use of the term globalisation. Be wary of confusing current Anglo-American financial and political polarities with the theories surrounding the comparative advantages of international trade. The “global village” was hijacked from Internet speak to become a meaningless term for politicians to justify what is! Every time your survey uses the term “globalisation” it is devaluing this inquiry as legitimate theoretical exercise. In this instance you could re-write “Did globalisation undermine” as “Did comparative trade advantages undermine”.

3. Ref2D. Replace the term “throughout its history” to be more precise. What about “Since the Treasury stopped being entrusted to a single individual in the 17th century”? Otherwise I’m pointlessly wondering if you are going back to the 12th century and the reign of Henry 1st.

4. Ref10. Add to “Did we rely on finance to the exclusion...” to be “Did we rely on the export of financial services to the exclusion...” Be clear you are talking about how our balance of trade depends on these export of these invisibles.

5. Ref11. I don’t like this question because you are answering it partially by the question and then sealing the lid on it with the phrase “is it even possible...” You are partially answering it because you refer to housing as an “asset bubble”. However the “dotcom bubble” was only a very short time ago in historical terms and compared to the South Sea bubble at the time. In my opinion this present crash is just an extension of the first bubble. I’d recommend trying to avoid referring to the present crash as a bubble of any sort (unless you are going to say “secondary bubble”). You can’t treat the “dotcom bubble” as being too long ago to be relevant in this part of the inquiry and yet refer to the fiscal probity of the Treasury “throughout history”. My suggestion. Replace this: “Is it even possible to answer this question?” with “Was it a secondary bubble created by the movement of capital out of dotcom bubble? If so, how are they linked and what regulatory framework was lacking to re-establish this investment alternative to bricks and mortar?”

6. Ref 13.You should be using terms like “deflationary spiral”, “aggregate demand” and “velocity of money”. “Deflationary shock” does not exist in Wikipedia, which for me is good enough to say junk this term. See point 1 above. Instead of using “deflationary shock” I would suggest using always “deflationary spiral”. However “leakage in the velocity of money” or “collapse in aggregate demand” is also valuable to consider using where appropriate. Still, your lack of understanding of Keynesianism is obvious. Otherwise how can you mix the effect of cheap immigrant labour with the import of Chinese goods? You must split this into two parts. Suggest first part as follows: The Deflationary Spiral. Did the new wave of immigrant labour created by the 2004 expansion of Europe start a leakage in the velocity of money because an unprecedented sum of money was sent home? Are there identifiable areas of the domestic economy that experienced a collapse in aggregate demand before the credit crunch i.e. in areas where low paid workers normally spend their income? I recommend you re-write the second part 9 (as a new question) yourself as it seems to be about China – but do avoid mentioning the word immigration with any question including mention of China. It infers (whether intentioned or not) relationship to Illegal Chinese immigration into the UK which grabs the headlines only because of scandal. Obviously this type of immigration has a negligible impact on the UK on the macroeconomic level. This is not true of the sanctioned immigration from East Europe, which is why the question needs asked.

7. Ref15. Change phrase “bling culture” as it trivialises the question by using slang unnecessarily. I suggest replacing it with “Conspicuous consumption”. If you search wikipedia for “bling” and scroll down to the “other” section you will find some alternatives. Nothing is entirely suitable to capture your “chav” or “easy money” critique (we have been here before with the post 1987 vilification of Harry Enfield’s “loadsamoney” catchphrase). If you want to keep “bling culture” in the question you could do one of two things. You could write “Was it a bling or loadsamoney culture...” (that implies the answer “no” because we have been here before quite recently) or Was it “conspicuous consumption or bling culture...” (that implies the answer “yes” because you are identifying a new cultural norm to be criticised). Finally is the stigma of borrowing, not of lending? Is that a typo or am I misunderstanding your intended meaning?

8. Ref14&15. You repeat the phrase “inevitable consequence”. Just “consequence” will do! No point of weakening to historical determinism unless you have been re-reading Marx.

Harry Tate

One thing I forgot -

Warren Buffett is famous for describing derivatives as Weapon of financial destruction.

Moody's is one of the ratings agencies that enabled the sub-prime securitization fraud by rating what is now recognized as garbage "AAA".

WB is Moody's largest shareholder.

I'm "surprised" this hasn't attracted more attention, though I do note a recent article:

http://www.vanityfair.com/online/politics/2009/02/warren-buffetts-hidden-stake-in-financial-weapons-of-mass-destruction.html

As the recent Soros book showed, Structured finance accounted for 60% of moody's ratings revenues in recent years, so it seems odd Warren missed it.

Paul Phillips

What about the auditors? Huge firms, for huge fees, signing off on these accounts either failed to spot the risky loans posing as assets, or failed to do their duty in not highlighting them. These are the same people who allowed Robert Maxwell to defraud pensioners and it is about time they were wiped off the face of the City.

Chris Rose

Blame for the catastrophe of this economic collapse must be laid on the Government; for it is only the Government that could have acted, on the evidence that was available and the warnings that were given, to ameliorate the consequences of an overextended economy. It could have acted, because warnings were given, though they were not heeded, and though siren voices declared that the dangers were illusory.

The circumstances preceding this recession were different from previous recessions, but the fundamental pattern of events was not. And the Government could, if it had been alert to the dangers, have acted in time to have cooled things down, increased bank lending ratios (as was done last October - far too late), increased interest rates, questioned the stability of the banks and questioned the prudence of running a heavy government deficit during a period of prosperity.

So whose job is it to question whether the Nation's economic course is prudent and, if it is not, to instigate corrective action? Who is in charge of the Government? In constitutional terms, who is the Queen's first minister? It is the Prime Minister. He is the chief executive of the Government and it is an essential part of his job to satisfy himself that the various departments of the State are functioning effectively. This applies especially to the Treasury; after all, he bears the title First Lord of the Treasury.

The Prime Minister personally may not be well equipped for such a task of assessment, but he has a staff - Blair had a large staff - and he can draw on more or less anyone in the country to help and advise him. As any chief executive must be able to get explanations of the state of the business from his finance director, so the PM must be able to get clear explanations from the Chancellor of the Exchequer and to satisfy himself that economic policy is sound.

Blair was quite obviously struggled to get such explanations. So here we have the first cause of the catastrophe. For the sake of an easy life, Blair was prepared to leave the Nation's finances to Brown and not to ask questions. This was a dereliction of duty by Blair.

The Chancellor himself has a similar role within the Treasury. He must satisfy himself that each department is well managed and the Nation's finances are healthy. Here, without dredging up detailed evidence, we meet the second cause of the catastrophe: Brown was hopelessly deluded. After all I have seen of this man, I cannot believe he is capable of listening to advice that conflicts with his views. I can think of no institutional checks that would have made Brown see the economic situation any differently from the way he did. But deluded or not, he was responsible for this nation's finances. We must recognise that he failed to act responsibly.

The House of Commons should be more robust and devote more time to debating financial measures and their implications. But Parliament, particularly the House of Commons, has little financial expertise and has shown little inclination to challenge measures which are put before it. European legislation is passed on the nod, Westminster legislation is treated similarly. But we entrust the custodianship our Nation to our MPs; we must demand that they act on our behalf to ensure that the Nation is healthy and the laws we live under are fair and reasonable.

There is a cancer at the heart of this government: spin. Spin is biasing information to give a favourable impression. Spin is a weasel word, pretending not to be deception, not to be propaganda, not to be mendacity, but which can, when pursued with vigour, be as insidious as any of these. Under this government, there have been endless announcements of programmes to be followed, of laws to be passed, of speeches to be made. News bulletins must start with a government announcement. All is done to give the impression of competence. Spin has become an end in itself.

This innovation has done immense harm to government. A propaganda machine, or spin operation, which might be tolerated as part of a political party's campaigning operation, was brought to the heart of government. Lying and deceit, bullying of the press and the BBC became part of the Government's daily practice. In time the deceit deceived the Government itself. More importance, and time, were given to the presentation of the Government's programmes than to the planning and implementation of them. Endless petty regulations and laws were passed to keep up the flow of press releases. The culture of spin led to a demand for perpetual busyness to give the impression of confidence and authority - never mind that the laws subsequently turned out to be poorly drafted and unenforced.

At the Treasury, the spin culture has been a disaster. If ever a situation demanded calm deliberation, it is the recession; but instead of calmness, the spin culture of "be seen to be doing something, never mind what" has caused operations to be directed from 10 Downing Street mindlessly. So that far from ameliorating the effects of the recession, recent government actions have made them worse and will have deleterious effects for years to come.

The Select Committees of the House of Commons have a role to play, but we should not want them as a modern equivalent of the stocks or of Tower Hill. They may question senior members of the Government, but their task is not to pillory them, however entertaining that might be. The Committees are part of the House of Commons and should perform the task of scrutiny.

It is right that we think deeply about new mechanisms for guiding our economy, but they will be as chaff in the wind if we do not demand good government from the politicians we elect to office. It is up to us, by discourse and debate, to decide what we expect from our rulers, to decide when they have failed and to resolve to demand better from their successors. We grant our politicians great power and privileges. It is our duty to hold them responsible for the actions they take.

Ken Boyd

Surely the point of an inquiry is to produce a series of do’s and don’ts in the fond hope that we can prevent such mistakes recurring. Not to dance on Brown’s grave is a misguided attempt to ignore the main cause of this cycle’s downturn being exacerbated by an ignorant and incompetent Chancellor. Vernon Coleman’s “Gordon is a Moron” is the best expose I have yet to read.

Chris Rose is bang on the mark about Blair and Parliament being emasculated by a brooding psychopath unable to work in a team environment. As Blair and Parliament let him get away with more and more Brown became more and more powerful with no one prepared to stand up to him.

Blair and Brown, the Mugabes of the Western world went out of their way to strip men and institutions of power so that no one could thwart them in their “modernisation” of Britain. History tells us that power never returns from whence it came hence O’Donnell’s insistence that we overhaul the way Whitehall works.

Can we return power to Parliament so that irresponsible leaders don’t take us down the paths to hell? The decision to go to war against Iraq was a case in point. We believed in the integrity of the system, which had long ago been corrupted, and went along with the discredited information we were fed. Similarly McFall and the Select Committee hadn’t the intellectual and independent rigour to carry out their job. The Parliamentary Ombudsman was ignored over her rulings on the 125,000 pensioners who lost their pension after being told their pensions were guaranteed. Everywhere you look the checks and balances of our democracy had been dismantled so half baked ideas could be introduced.

What is required is the strengthening of our democratic institutions. Ironically had Blair and Brown been less keen on the Teflon and more appreciative of the workings of a democracy we and they would not be in the humiliating position that exists now.

Richard Dale

Balance of payments defecit.

In the 1980s and up to the mid-1990s I remember a lot of talk and reporting on the UK balance of payments defecit. Everyone was terribly concerned when it was high. The Labour party particularly liked to hammer the government with it.

Since then all has been quiet. We have had a terrible balance of payments defecit, but the economy grew strongly. To me that combination signals taht the growth is from borrowing rather than increased productivity, and is therefore unsustainable. Organic growth should see a relatively small balance of payments defecit that grows no faster than the economy itself, along with periods of surplus.

steve_roberts

Exellent project. Can I suggest in parallel, tracking the recoveries of different economies which take different lines of actions - Keynsian,Freedmanist, Misesian etc - and see which fares best ?

clive smith

I'd like to know why gordon brown/the treasury asked the BofE to control inflation, yet left out house prices and energy costs from the calculation?

Did no one at goverment level see that keeping inflation and thus interest rates artificially low created artificially high property prices rises?

Why did no one in the goverment/treasury or FSA do any thing to cool down property speculation when 100-125% of valuation or 6+ X earnings and/or self certified mortages were being sold.
were none of them aware of reversion to mean? had they all forgotten the late 80's housing boom & early nineties bust?

Why did none of the mp's on the select committees that have recently been extracting apologies and not much else from the banks notice anything wrong before now?
Why did they not giving the FSA or the Treasury a hard time?

Why are the traders and their bosses that knowingly sold unprofitable complex derivitives investments! not being tried and jailed for fraud, and having their assets confiscated or at least their previous bonuses?

What are the penalties for failure next time around 15-60 year time if they get away with it this time?
if we allow the people responsible for this crisis to get away with it do we deserve any better next time?

Did tony blair do any favors for JP Morgan to get his gig?
Should X-premiers be allowed to work in the private sector for companies they may have previously been involved with?
Should any politician or civil servant or political appointee be allowed for 3 years to work for companies or public sector organisations they have previously been politically involved with in a govermental capacity.

Does the BofE see any similarity between off balance sheet borrowing by retail and investment banks, and the off balance sheet borrowing by goverment e.g. PFI's, and what can be done to ensure that the govt borrowing doesn't unwind in a similar way to how the banks leverage is currently unwinding?