The right wing (and those who've fallen over the right wing edge) love to claim that the current crisis was not caused by bankers. George Osborne is included in their number. According to these people it's all Labour's fault. Which indicates extraordinary faith on their part on the power of they UK and social democracy, but it is also absolutely wrong.
How do I know so? Because the Bank of England are sure of it. As the Guardian report, Mervyn King yesterday told the Treasury Select Committee:
that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector.
I think that closes the debate.
Unless you have, like George Osborne, fallen off the edge of reason.
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As a good social democrat who believes in tax and regulation – surely you believe that the “financial services sector” includes the regulatory system.
Bankers didn’t get together and decide to cause a crisis. The fact they were able to do so simply by following their own short-term interests points out a structural failure in the system. That system was designed and implemented by Gordon Brown and Ed Balls.
Labour shouldn’t take all the blame, at the same time they aren’t blameless.
Can we also assume that the ‘financial services sector’ includes the various ratings agencies and auditors who were blindly signing off on the values of securities they didn’t understand?
Of course, the previous government, and the one before it, and the one before that (etcetera) were all part of the cause really, because they encouraged asset bubbles – particularly housing – incentivised debt over savings, and subcontracted the money supply to the pinstriped pillocks with no appropriate regulation.
Oh, and then there was the part that we lowly proles played.. with our super mortgages, obsession with house prices, and unending appetite for consumer credit. Also, ‘we’ consistently vote for governments that pursue broadly the same ‘borrow borrow borrow’ economic model that we’re so fond of ourselves. The turkeys had their say, and Christmas eventually came.
Where labour did fail, was in not using the boom to put us in a sound position to deal with the bust. It’s all well and good to talk about Keynes when demanding public spending in the bad times, but in the good times we should have been reducing our indebetdness to prepare for the rainy day that we knew would come.
@James
Of course Labour is not blameless, but let’s be entirely realistic. This system was not designed and implemented by Gordon Brown Ed balls alone, clever as they might be. others, including an enormous number of bankers, and influence upon the structure, not least because far too many of them sat on committees advised on this issue, and vast amounts of their cash was spent to influence the outcome. Please do not see bankers as independent third parties who have no interest in the consequences of government. That is a naive position to adopt, and wholly untrue.
So yes, Labour has some blame to take, but it was the neoliberal construct which they did, unfortunately, buy into that has to accept all the blame. It was neoliberalism that fail. Labour, unfortunately, bought it. Labour has now to reject it. It has failed, spectacularly, Mervyn King, amongst others, needs to accept that too.
@lee
I am not seeking to exonerate Labour, not for a moment, but I also have no interest in sloppy analysis and that is what you are offering.
First, Labour did repay debt for some years during its period in power
Second, you seem to forget that we had a major economic crisis in 2000 after the dot-com bubble burst. Labour had to deal with that, and did
Third you entirely ignore the fact that almost all of Labour’s borrowing was used to finance investment, not current spending. That is an entirely appropriate course of action.
Fourth, you failed to note that actually we have very low borrowing rates in the UK and the only rose because of the failure of the financial sector
Fifth, the Tories wholly endorsed this position and wanted to spend as much as labour. Remember that.
In other words, your analysis simply does not stack. Labour did what it thought was right at the time. In retrospect it was wrong. And yes it did not behave as Keynesians should have done. I have said that, but at no time was anyone in Labour claiming to be a Keynesian at the time that the spending was arising. you can’t criticise somebody for something they did not claim they were doing.
so please get your facts right
@Richard Murphy
I largely agree with your points, and am not wishing to bash Labour… I don’t believe for a moment the crisis would have been avoided if the Tories had been in power, and whether we might have been better placed to deal with it is moot. On the issue of the capital investment Labour made, you could go further and point out that underinvestment in infastructure during the Thatcher era meant that they had to spend even more to catch up. Of course, on the flipside to that the real cost of investment is obscured by PFI.
I would perhaps disagree with your assertion that almost all of the borrowing was for investment rather than current spending – there has been a big increase in the size of the public sector (disproportionately attributable to back-office roles in many places), and we’ve had a war ot two. Again, I do not wish to suggest that the tories would have behaved very differently.
The issue I have with Labour now choosing to cite Keynes, is that they do not seem willing, as you are, to admit that they got that bit wrong at the time. Of course they thought they were doing the right thing.. just like the tories think they are doing the right thing now. However, it seems that Mr Balls & Co still defend their policies when in government, whilst promoting Keynes as the model going forward.
@lee
OK – we agree – quite a bit
Labour does have to ‘confess its sins’ before it can move on
And don’t also deny that the growth in the public sector was also what people wanted – because I think you’ll find it was
Absolutely. The last I heard, this was a democracy.
Mind you, I apply similar logic when people get outraged about the tax bills of Vodafone and Mrs Phillip Green.. and, to an extent, the behaviour of the banks. We have the power to withdraw our custom if we don’t like how they behave.. and whilstever most people aren’t motivated enough to do that, they have something of a mandate to carry on. We may not entirely agree there, of course.
You are correct, Richard, the whole problem stemmed from the activities of Lehman Bros, Goldman Sachs, AIG etc and the inability of the SEC to control them. The credit rating agencies gave false reports and appeared to be acting in collusion. When an analysis is made of the ownership of these organisations, the same senior shareholders are in evidence.
A modest “out of court” settlement was paid by GS (on the scale of a parking ticket to them) and a few pawns are about to be sacrificed for insider trading etc but the controllers remain untouched.
While we argue about whether Brown or Cameron chose the correct path, I imagine the banking controllers are amused that we are distracted from investigating what their next steps may be.
@lee
In a democracy we should all have one vote each. In a market that’s not true. That’s why market solutions do not work. Only regulation, enforced by democratic government, does.
I’d recommend Whoops!: Why everyone owes everyone and no one can pay by John Lanchester. It’s a straight-forward, in-depth study of the financial sector and the whole crisis. I’m in no doubt it was caused by pilfering bankers, egged on by fee-hungry credit agencies, ignored by supine and stupid regulators and not forgetting the cheerleading of the donation-and-patronage-eager politicians.
Brown’s public sector spending (ignoring the bank bailots – endorsed by the Tories, by the way) is peanuts compared to how much the finance sector stole from the taxpayer.
We should also remember that the growth in the public sector employment under Labour was in a large part caused by having to bail out RBS and Lloyds as shown in this graph.
http://www.statistics.gov.uk/cci/nugget.asp?id=407
Also Public Sector Employment actually peeked under the Tories in 1993 so let’s stop bashing the public sector and start bashing the bankers. for the record I have always worked in the Private Sector so have no direct interest apart from wanting a fair society.
ok, but there were nine years of labour government before that graph starts. public sector growth comfortably outstripped private sector growth between 1999 and 2005.
http://www.statistics.gov.uk/articles/nojournal/PublicSectorEmploymentTrends2005.pdf
(fig 3.7)
of course, this was reversing a trend of public sector shrinkage beforehand – and there’s little question that much investment was absolutely necessary, but let’s not misrepresent what happened with such selective data. the challenge is to say if/why the growth in the public sector wasa good thing, not to pretend it didn’t happen.
@theboynoodle
And what is wrong with public sector growth?
If it supplies what people wanted – and it did – why complain?
Most people voted for it to continue in 2010
i’m not making a value judgement, merely pointing out an unnecessarily selective use of data. i think that was pretty clear in my response.
i agree, people did vote for parties who promosed more public spending (of course, they all usually promise more public spending).
A minority voted for a Labour government. but whatever they voted for nobody offered to pay more tax and the shortfall in tax receipts compared to the higher spending *is* the deficit.
@MarkT
How do you know?
All made clear taxes would rise
And now services are being cut how do you know they would not have voted for more?
Your claim is without foundation
@theboynoodle
I wasn’t being deliberately selective but was limited to the data available on that particular website. The data you supplied spans more of the time that Labour was in power and that is what I was trying to find.
I for one am glad to see that they employed so many people in Education and the NHS. That is why one votes labour.