Fraser Nelson Fraser Nelson

Five steps to denial

Here is Gordon Brown’s five-step plan to escape blame for the credit crunch.

1) Blame America for the credit crunch, present Britain as the innocent victim of a global storm.

2) With a straight face, claim the economy is well-placed to withstand the crunch, even though the UK household debt/income ratio is the highest in the G7.

3) Present a fake narrative of the early 1990s, and compare it with equally fake stats about how good things are now.

4) Point to Bank of England rate cut as proof you are helping (even though, by making the BoE independent, no honest politician can claim credit/blame for its decisions).

5) Encourage journalists to blame lenders for “failure” to pass on rate cuts.

The BoE will doubtless cut rates tomorrow and I wouldn’t put it past Brown to call on mortgage lenders to “pass on” the cut – implying their lending has become cheaper by the same degree. This will be a Brownie for three reasons. First, mortgage rates are dictated by interbank borrowing rates (Libor) which have become detached form the base rates (see this post). Next, banks obviously need to re-price mortgages for the risk of a falling house market, building in higher margin. Would you lend a bloke £200k for a house that may be worth £150k this time next year? Finally, Britain’s market mortgage is very competitive – too competitive, one may argue, forcing them to outbid each other in a search for market share thereby creating the easy money era which begat the house price bubble under Brown’s framework. It remains competitive today. See the FT’s splash telling us that HSBC will bail us all out by renewing all fixed-rate mortgages at borrower’s exiting rate (subject to an unspecified fee).

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So blame the banks? No, Prime Minister. Their fruit machine-style loans for the last ten years have created all this borrowed cash which Brown first taxed, then mislabelled “stability”. If they’re becoming more risk averse now, it’s about time. In the end, one person can be blamed more than anyone else for this. The person who as Chancellor oversaw this credit bubble for the last ten years and instructed the Bank of England to look the other way. Andrew Pierce put it beautifully on LBC radio last week. “If there are chickens are coming home to roost, well we know whose chickens they are.”


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