It's the Stupid Economy

U.S. Debt

Created by: MBA Online

Niall Ferguson on the Descent of Finance

Overconfidence and the crunch

Malcolm Gladwell presents a fascinating narrative of the role overconfidence amongst experts played in our current financial woes, and in the collapse of Bear Stearns in particular.

"I told you so..."

Mr. Michael Howard (Folkestone and Hythe) (Con): "It seems to me that we cannot arrive at the right prescription for the future of our economy unless we gain a clear view of why we are where we are. We cannot expect to be led out of our current crisis by a Prime Minister who puts his head in the sand. Before prescription, however, there must be diagnosis, and it is in that spirit that I offer my remarks this afternoon.

Of course it is true—we can all agree on this—that we are in the throes of an international recession, or something worse. Of course it is true that almost every other country is affected in one way or another, to a greater or lesser extent, but we are almost uniquely vulnerable. We are almost uniquely ill equipped to deal with the calamity that has befallen the world, and we need to consider the reasons for that. They are not too difficult to identify.

My right hon. Friend the Member for Witney (Mr. Cameron), the Leader of the Opposition, was quite right, last Friday, to accept responsibility for the things that we got wrong. We certainly failed to anticipate that the crisis we now face was anything like as serious as it has proved to be, but there are two main reasons for our present plight. Both of them were directly the responsibility of the Prime Minister, and, in respect of both of them, we certainly warned of the consequences. I have looked at the record, and I am in a position to answer the question posed from a sedentary position by the Exchequer Secretary earlier, when she asked, “Where were you?” I shall do my best to answer that question during the course of my observations.

The first of the main reasons for our present plight that I, at least, have identified was the ill-advised decision, taken by the Prime Minister in 1997, to transfer supervision of the banking sector from the Bank of England to the Financial Services Authority. The Bank of England had hundreds of years of experience and expertise in supervising the banking sector of our economy. The Financial Services Authority was new. It had none of that experience and none of that expertise, and, as we know, it has since admitted that it fell down on the job.

It has been suggested that the Conservatives criticised the transfer to the Financial Services Authority only with the benefit of hindsight, but that is simply not the case. When that catastrophic decision was taken, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) was shadow Chancellor of the Exchequer. In the debate on the Second Reading of the Bank of England Bill on 11 November 1997, he said:

“With the removal of banking control to the Financial Services Authority...it is difficult to see how and whether the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”

He went on to say:

“The coverage of the FSA will be huge; its objectives will be many, and potentially in conflict with one another. The range of its activities will be so diverse that no one person in it will understand them all.”

That, at least, is one of the answers to the question posed by the hon. Member for Twickenham (Dr. Cable) a few moments ago. My right hon. Friend also said that he feared

“that the Government may, almost casually, have bitten off more than they can chew. The process of setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[ Official Report, 11 November 1997; Vol. 300, c. 731-32.]

That was what my right hon. Friend said in 1997. The warning was there; it was clear; it was on the record; and it has, alas, proved to be absolutely prescient.

The second main reason for our current plight is the level of indebtedness that we as a country, collectively through our Government and as individuals, have incurred. Here, too, there were warnings, and they, too, are on the record; I am afraid that some of them came from me. I drew attention on 9 July 2002 when I was shadow Chancellor to the savings ratio, which was then at an all-time low; it has hit many more all-time lows since. On 30 July 2003, I warned that savings had halved under Labour, that the Government were borrowing more and that families were getting deeper in debt. On 17 March 2004, replying to the Budget, I said that it was

“a credit-card Budget from a credit-card Chancellor”—[ Official Report, 17 March 2004; Vol. 419, c. 337.]

When I proposed at the 2005 election that a Conservative Government would make £12 billion of savings, I said that £8 billion of them would go not to cut taxes but to reduce Government borrowing, which was far too high.

Of course, I was not always thanked—I suppose I did not expect to be—for my pains. Anatole Kaletsky in The Times, for example, complained that throughout my tenure as shadow Chancellor, I had been issuing dire warnings about the economic and financial outlook. I had said, he complained, that Labour economic policies were doomed to failure, that overtaxed consumers were living in a fool’s paradise of unsustainable borrowing and that the British economy and the Government’s popularity were kept afloat artificially by a bubble of house prices and mortgage debt. He said that if the Tories started thinking along those lines, we would be making a big mistake. Well, of course, in terms of the outcome of the 2005 election, he was absolutely right, but was he right in the wider sweep of history? I simply set what I said on the record and leave others to decide who it was that was making the big mistake.

Throughout all this time, of course, the Prime Minister was proclaiming that he had put an end to boom and bust—and you know, Mr. Deputy Speaker, I do not think he was trying to deceive us; I think he genuinely believed it. Perhaps the worst thing he did was deceive himself. It was because he was genuinely convinced that he had ended the economic cycle that he did not fix the roof while the sun was shining. After all, if we think that the sun is never going to stop shining, why on earth would we bother to fix the roof? As we know, the Prime Minister is still in a state of denial. That is not the least of the reasons why he is incapable of leading the country out of the mess we are undoubtedly in. It is, I am afraid, a very big mess indeed.

A good deal of the comment on the current crisis seems to revolve around the question: how long will it last? It seems to me that another question is at least as important: what will come after it? The suggestion that is often implicit in the first of those two questions is that next year or the year after, we shall return to the world that we knew two or three years ago. That notion seems to me to be completely misplaced. We will be in a new world, a different world, with challenges every bit as formidable as those we face at the moment. We will be able to overcome those challenges only if we have leadership that is prepared, in the words of the excellent speech made the week before last by my hon. Friend the shadow Chancellor,

“to confront some uncomfortable truths and tell people what they may not want to hear.”

The mess that my right hon. Friends will have to clear up after the next election will present them with a very difficult task, but I am sure that they will not be daunted. They will, after all, simply be discharging the age-old and historical responsibility of the Conservative party to clear up the mess that Labour has left behind. That is something that we have done before, time after time. It is, in essence, what the Conservative party is for. It is what we exist to do: to clear up the mess that Labour always leaves behind.

The sooner we have that election, and the sooner my right hon. Friends can get on with discharging that historical responsibility, the better it will be for everyone in our country."

It's depressing to look back at just how much of this disaster could have been averted. (h/t ConservativeHome).

Foreign Policy Fail

For all of Brown's sins - and his rather jarring insistence on referring to President Obama as 'Barack' - he came out of his little transatlantic sojourn rather better than his counterpart. Let's hope the Obama administration's future foreign policy efforts are an improvement on this fiasco.

Mr. Benn

Iain Dale links to an interview of Hilary Benn by Joshua Chambers, a student reporter at the University of York's radio station; they are discussing the release, and alleged torture, of Binyam Mohamed, it is definitely worth a listen. Hilary Benn - the son of one of the finest Parliamentarians, most deluded ideologues and incompetent ministers of the Twentieth Century, Tony Benn - is repeatedly made to look an uncaring prat by a student radio reporter; Benn clings to a useless script, a brief he appears not to have taken the trouble to research beyond the sophistic soundbite he clings to throughout.

The fact that Mohamed is not a British subject, but is instead a man who resided here from 1994 until he decided to travel to Afghanistan in June 2001 to attend an Al-Qaeda training camp, and that his much-discussed "torture" falls into the same blurred debate as the treatment of all the Guantanamo detainees is never mentioned by Benn. Chambers is able to run rings around him precisely because Benn's script is so short and so limited; it is painfully obvious that he has been instructed not to mention George W Bush's tenure in office, and consequently any interviewer worth his salt is able to jab a well-placed knife into Benn's nethers and twist, while the less that is said of Benn's confused defence of a "long-established principle" regarding intelligence gathered from torture the better.

In truth, this embarrassing display is just another symptom of a government in terminal decline; Benn went forward to be interviewed without really knowing what he was talking about and not caring enough to find out. However, crucially, as a politician nurtured by New Labour's culture of spin and control-freakery, he lacked the imagination or the self-reliance to give even an excuse of an answer without falling back on endless repetition of the same pathetic dictum. These rats don't have the guts to swim; they're going to cling to the sinking ship.

Fred Thompson on the Economy

I've always had a soft spot for Fred Thompson; from his portrayal of a sympathetic, yet hard-nosed, District Attorney on Law & Order, to his self-deprecating humour during his short-lived election campaign, he always comes across as good-humoured and sincere. He is rightly generating some positive comment now with his judgement of the political response to the current economic turmoil, and his interpretation is equally relevant in the UK. (h/t Guido Fawkes).

Time to go.

What I like most is how he corrects Boulton with exactly the same quotation that Boulton just read out; essentially he agrees that he misquoted Osbourne but says that what he said was right all the same.

Then he says he wanted a market solution over Northern Rock; a market solution he knocked back twice when it was presented to him. At least he learnt his lesson when it came to HBOS, but should HM Government really be run by trial and error?

"Against Racism"

Pascal Bruckner has written a good article about the obscene spectacle that was the Durban conference and about what our reaction should be to its repeat next year:

Europe must take a firm stand against this buffoonery: boycott it, plain and simple. Just as Canada has done. Perhaps we should also think about dissolving the Human Rights Commission or only letting truly democratic countries in. It is intolerable that in the year 2008 - like in the thirties - nations which recognise justice, the multi-party state and freedom of expression are being brought before the tribunal of history by the lobbies of fanatics and tyrants.

Litterers "are like the Wests"

People who drop sweet wrappers are acting like a Gloucester couple who tortured, raped and murdered at least 12 young women, an Anglican bishop has said.

In a letter featured in parish magazines in the Diocese of Lichfield, the Bishop of Stafford, Gordon Mursell, wrote: "Fred and Rosemary West represent merely the most extreme form of a very common philosophy of life: I will do what makes me happy, and if that causes others to suffer, hard luck."

"In fact you could argue that, by our refusal to face the truth about litter, we are as guilty as they were - we are in effect kidnapping young women and submitting them to a brutal ordeal of torture and rape before murdering them and burying them in the garden."

He said people were "right to be disgusted at these crimes" but that "mere disgust is too convenient".

"There are lessons for all of us to learn," he added.

A Popular Choice

David Thompson has a post up about the horror of Guardianistas at Boris Johnson's election. The 'racist' and 'snob' epithets continue to be popular - all that hard-hitting research by Compass must have really swayed opinions - but the comment that really underlines the left's problem with Boris is Vivienne Westwood's:

"Boris as mayor? Unthinkable. It just exposes democracy as a sham, especially if people don’t vote for Ken."

Johnson won a bigger mandate on a bigger turnout; democracy hasn't been exposed as a sham, it has been demonstrated in action.

An Unfortunate Choice

The LibDems probably ought to regret their choice for London Mayoral candidate; from Iain Dale:

"Unbelievable. Brian Paddick just admitted on BBC London that he had given his second preference to Lindsey German, the Left List Candidate! Words almost fail me."

"Without firing a shot..."

This footage underscores pretty well just how foolish John Reid was when he described the prospect of Britain's deployment in Helmand. That we could come out of that place without a battle is not just unlikely, believing such an obvious fairy tale demonstrates a wilful ignorance. Not believing it, but asserting it anyway, demonstrates a much more serious problem.

The footage comes from At War, an upcoming documentary about the war in Afghanistan. Proper coverage of the fight for Afghanistan's future is slowly trickling out now, but it is long overdue.

Drudge Report decides to break OPSEC

In case you've missed it, the Drudge Report is boasting about its scoop on Prince Harry's tour in Afghanistan and the rest of the media have now broken their silence and are reporting the story. The Drudge Report's headline ends with "3 MONTH TOUR", and of course, such is the self-fulfilling nature of this headline, it will now only be a three month tour. It is more than likely that Prince Harry will soon have to leave Helmand, where he has been operating as a JTAC since December 14, as the man known as 'the bullet magnet' is forced to fulfil that nickname. Jon Snow thinks this is marvellous and tries to draw a link between this and the recent loss of trust in the media, asking "whether viewers, readers and listeners will ever want to trust media bosses again."

However, this isn't a matter of faked footage or contrived competitions; this is a British Army officer who, through no fault of his own is of particular interest to our enemies and whose life - and the lives of those around him - is now placed at greater risk because of one desperate blogger. A great many people knew he was there; it takes a very special kind of egomania to release that information for one's own benefit.

Update: Channel 4 News' desperate hunt for a negative spin to put on Cornet Wales's deployment knows no end; now they think British Muslims might be offended by Harry's description of his mission there as "killing the bad guys." For British Muslims, as fellow members of the Ummah, must surely feel some affinity for the mass-murdering, medievalist and misogynist fanatics that make up the Taliban's ranks?

The Channel 4 News website reads like the ramblings of a series of competing personalities manifested in a muddled stream of consciousness; it describes its competing - but equally odious - opinions as "voices" and one of these voices is not so sure that Harry's words don't apply to all "Muslim fighters". Quite who Channel 4 News means by "Muslim fighters" is another, more pertinent, question that they fail to address.

Fascists, fakers & funds

Oliver Kamm has a good little roundup post over at his blog; in it he makes a fine summation of what will be Gordon Brown's negligible legacy and outlines exactly how I feel about the Oxford Union furore.

The only addition I'd make to what he says is to express how much I disagree with some of the more militant attitudes I've seen displayed in the blogosphere on the issue. The Drink-soaked Trots have been typically bellicose and therefore make an excellent illustration: they call for those making racist remarks to be met with "a fist, boot, or bottle." At some point, when I have more time and I don't feel like death, I'd like to write what I think about the idea of 'hate crime', but in short our right to freedom of speech should extend to and include even the most repulsive of our personal convictions. As Kamm describes, "Griffin is a demagogue and Irving is a racist faker; but the offence you and I are caused by their views is entirely irrelevant to civic affairs."

We shouldn't meet any opinion with violence because - despite what the Trots say - there is a qualitative difference between calling someone a "nigger/paki/yid/poofter" and genocide; a person's right to express a personal belief - and as Kamm points out, their right to hold one - does not extend to a right to act on it, and definitely doesn't provide a tacit mandate for murder. The crimes that fascists would have done to people based on attributes given them by virtue of birth are already covered by ample laws; we cannot attempt to silence our opponents by force with the possibility that we are averting mass homicide as a fig-leaf to salve our moral conscience.

P.S. Nick Robinson and Kamm's description of Labour's current, self-inflicted, donation scandal as "gob smacking" couldn't be more apt.

Gordon Brown: A silence for the underappreciated, the underfunded and the unarmoured...

Of all Gordon Brown's attempts to change his public image (if not his policies), none have angered me more than this. That Brown - in another vain attempt to paint himself as the statesman he'll never be - has the nerve to pose as the champion of the fighting man is beyond contempt.

Lest we forget the squeeze that this man put on our armed forces while he headed up the Treasury, there are some choice examples to remind us: first and foremost, Government underspending has directly resulted in the loss of British soldiers' lives, from missing body-armour, from fratricide caused by a lack of combat ID equipment, from the lack of casevac and from faulty aircraft amongst other causes.

Training, and the equipment vital to carry it out properly, has also been at a premium since 2001, inadequate funding leading to the cancellation of major exercises as far back as the run-up to the Iraq war, and worsening as the intensity of current operations increased. And this money isn't just held back at source, it's also clawed back later, sometimes with disastrous results: much of the £1 billion worth of funding the Treasury promised for the invasion of Iraq was demanded back just a year later, resulting in the sale of WMIKs at below cost in order to refund the Treasury's money, WMIKs that would later be in short supply in Helmand.

And, considering his praise for the new national war memorial in Staffordshire, it is perhaps strange that only in 2001 was he charging £200,000 VAT bills to the builders of the Memorial Gates monument to Commonwealth servicemen.

These few examples represent only a small sample of the disrespect that this Government in general, and Gordon Brown in particular, have shown our brave men and women in uniform over a decade in power. It's just a little bit too late for all his fine words about the courage and heroism of men he's spent so long shafting.

"Strength to change Britain"

All this talk of strength sounds very familiar...