The banking industry seems to have been hit by a ‘perfect storm’. Some people warned it years ago that the development of derivatives was heading it in that direction, but it didn’t listen much as big bonuses were to be made out of ever more and more tortuous financial instruments which disguised bad debt. This led ultimately to a collapse of trust in the sector by the sector itself.
Curiously this turn of events seems to be benefiting Gordon Brown, if some polls are to be believed. BBC commentators especially are seizing on it almost to blame the Tories for the crisis or at the very least for not having solved it. The aggressive tone of Emily Maitlis’s interview with George Osborne last night betrayed a hostility not in evidence last week when Labour politicians were being interviewed. On wonders why.
David Cameron has struck the right note for a Leader of the Opposition and PM in waiting in this situation. ‘We are a responsible opposition’ who will not seek party advantage. It’s hard to see what else he could do under the circumstances.
But we must not, and the BBC must not, lose sight of the following:-
- The Tories are no more responsible for any part of this than the Man in the Moon. They’ve been out of office for 11 years.
- The present government encouraged people to believe that it had abolished the economic cycle. It was GB’s proudest boast, oft repeated, and believed by many people including himself.
- Brown directed the ‘independent’ Bank of England to concentrate its attention and interest rate policy on a price index that deliberately ignored the most sustained period of house price inflation in living memory. Low interest rates thus fuelled the massive boom in house prices and general debt that caused the economy to become the subject of a financial bubble that was bound to burst some day.
- Brown threw money at unreformed public services more lavishly than any previous Chancellor. He had the most benign economic circumstances for Britain since 1914 in which to do so and his profligacy has left the cupboard bare. This policy gave him a vested interest in stoking house price inflation because of the revenue it brought in stamp duty and inheritance tax.
- The bursting of that bubble – entirely foreseeable to anyone with a smattering of economic history – has led to collapse of tax receipts and a black hole in the public finances.
- Nevertheless at Manchester last week Brown was making unfunded spending pledges galore.
So is Brown really the best man to deal with the crisis?