Fraser Nelson Fraser Nelson

How we got into the current mess

As David Cameron prepares to speak, I would like to helpfully outline five components behind the mess we see today.

1. Bungling central bankers: As I blogged earlier, the Bank of England refused to support banks with the zero-penalty lending rates offered in every other major world economy. There’s a strong case for such discipline, but I believe a stronger one for keeping liquidity moving if there’s a risk of a run on the banks.  2. Dozy regulators: The FSA hasn’t kept pace with the UK’s fast-evolving banking sector. Northern Rock had stood out a mile as the most highly leveraged bank in Europe, yet the FSA didn’t see any problems. The City did.  3. Monetary loosening: Swapping a 2.5% RPI target for 2.0% CPI effectively loosened the target to 3.0% RPI because the two indices are percentage point apart, not half a point like HMT claimed. A cheap debt binge was encouraged at the worst time.

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