Two more reflections before the New Year gets into its stride from
commentators I respect greatly.
I am going to take today’s more political and immediate postings
separately.
There's a shortage of optimism around!
xxxxxxx cs
========================
TELEGRAPH 5.1.09
1. I’m partly to blame for the recession
Edmund Conway spotted a frightening graph in the Bank of England back
in the balmy summer of 2006
By Edmund Conway
Daddy, what did you do in the credit crunch? As we sit around the
embers of the financial system it is time I got something off my
chest: I must take some responsibility for the economic crisis.
This may come as a surprise to friends and acquaintances, given how
many hours I have spent over the past year droning on that
journalists cannot be blamed for recession.
I don't agree with the hysterical moaning that newspapers are to
blame for denting public confidence and sowing the seeds of economic
doom. This is rubbish. If people took that much notice of headlines
they would have sold their homes en masse three or four years ago
when so many of us started warning that property prices were heading
for a slump.
But we were guilty of a more fundamental failing – one about which
most of the financial press has remained shamefully silent. We should
have made more noise about the risks of a crisis before it erupted.
And I feel this more keenly than most. You see, I was among the few
writers privileged to have been shown the evidence that the crisis
was heading our way – more than a year before its earliest impact.
I remember the moment that I twigged that something was wrong. I was
sitting in a wood-panelled room in the Bank of England on a rather
warm July morning. In front of me were three of the Bank's leading
experts in financial stability – the emergency room surgeons of the
City. On the table was an intriguing chart. What it seemed to be
saying was rather alarming, or at least that is how it struck me.
Cast your mind back to summer 2006, when the idea of a run on a
British bank was among the most peculiar conceits imaginable.
Although we had issued plenty of warnings on the levels of debt being
taken on by anglophone households around the world, the notion that
the entire British banking system could, in little more than a year,
find itself on the brink of collapse would have sounded ridiculous.
But on this chart was a wiggly line screaming that something was
going very wrong: the banks and building societies were lending
significantly more than they had in their vaults.
Wasn't this, well, a bit of a worry? I asked (in the Bank of England
understatement is the modus operandi – or at least it was then). The
faces that stared back looked drawn, fearful and rather weary. They
pointed me towards another set of figures, even more worrying. They
implied that if there was an unexpected shock that made it difficult
to fill that gap by borrowing short term from other investors, home
and abroad, the consequences would be disastrous: we were talking
about a year's worth of profits – £40 billion – being wiped out;
about house prices falling by a quarter and the economy shrinking by
1.5 per cent.
The boom went on for another year and a bit, and the eventual slump
looks like being even worse, but the fact remains: there was a
distinct bat-squeak of worry in the Bank of England in 2006 – and it
was more or less ignored. Granted, the Bank had not identified all of
the details, nor precisely how this crisis would become the worst
since the Great Depression, but it did enough; it identified the root
cause of the credit crunch.
So what went wrong? There was enough time to have prevented Northern
Rock from embarking on the horrendous borrowing and mortgaging spree
that led to its destruction; enough time to have ensured that a fatal
breath was blown into the housing bubble; enough time to ensure that
while a slowdown was inevitable, it needn't have been so panicked and
painful.
The large part of the answer was the failure of the Bank's experts to
send out a louder clarion call to chief executives; the failure of
Gordon Brown to take seriously this threat, relayed directly by his
central bank; the failure of City regulators to turn this worrying
little chart into action.
It was the media's duty to make more noise, to scream rather than
mutter our worries about the instabilities of the economy. We did our
fair share of screaming – in fact, we made rather a lot of that Bank
of England report in 2006 – but in hindsight we all ought to have
done more. The politicians and policymakers who ignored the warnings
might not have been able to so had the commentators and analysts in
the City made it too embarrassing for them to have done otherwise.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
commentators I respect greatly.
I am going to take today’s more political and immediate postings
separately.
There's a shortage of optimism around!
xxxxxxx cs
========================
TELEGRAPH 5.1.09
1. I’m partly to blame for the recession
Edmund Conway spotted a frightening graph in the Bank of England back
in the balmy summer of 2006
By Edmund Conway
Daddy, what did you do in the credit crunch? As we sit around the
embers of the financial system it is time I got something off my
chest: I must take some responsibility for the economic crisis.
This may come as a surprise to friends and acquaintances, given how
many hours I have spent over the past year droning on that
journalists cannot be blamed for recession.
I don't agree with the hysterical moaning that newspapers are to
blame for denting public confidence and sowing the seeds of economic
doom. This is rubbish. If people took that much notice of headlines
they would have sold their homes en masse three or four years ago
when so many of us started warning that property prices were heading
for a slump.
But we were guilty of a more fundamental failing – one about which
most of the financial press has remained shamefully silent. We should
have made more noise about the risks of a crisis before it erupted.
And I feel this more keenly than most. You see, I was among the few
writers privileged to have been shown the evidence that the crisis
was heading our way – more than a year before its earliest impact.
I remember the moment that I twigged that something was wrong. I was
sitting in a wood-panelled room in the Bank of England on a rather
warm July morning. In front of me were three of the Bank's leading
experts in financial stability – the emergency room surgeons of the
City. On the table was an intriguing chart. What it seemed to be
saying was rather alarming, or at least that is how it struck me.
Cast your mind back to summer 2006, when the idea of a run on a
British bank was among the most peculiar conceits imaginable.
Although we had issued plenty of warnings on the levels of debt being
taken on by anglophone households around the world, the notion that
the entire British banking system could, in little more than a year,
find itself on the brink of collapse would have sounded ridiculous.
But on this chart was a wiggly line screaming that something was
going very wrong: the banks and building societies were lending
significantly more than they had in their vaults.
Wasn't this, well, a bit of a worry? I asked (in the Bank of England
understatement is the modus operandi – or at least it was then). The
faces that stared back looked drawn, fearful and rather weary. They
pointed me towards another set of figures, even more worrying. They
implied that if there was an unexpected shock that made it difficult
to fill that gap by borrowing short term from other investors, home
and abroad, the consequences would be disastrous: we were talking
about a year's worth of profits – £40 billion – being wiped out;
about house prices falling by a quarter and the economy shrinking by
1.5 per cent.
The boom went on for another year and a bit, and the eventual slump
looks like being even worse, but the fact remains: there was a
distinct bat-squeak of worry in the Bank of England in 2006 – and it
was more or less ignored. Granted, the Bank had not identified all of
the details, nor precisely how this crisis would become the worst
since the Great Depression, but it did enough; it identified the root
cause of the credit crunch.
So what went wrong? There was enough time to have prevented Northern
Rock from embarking on the horrendous borrowing and mortgaging spree
that led to its destruction; enough time to have ensured that a fatal
breath was blown into the housing bubble; enough time to ensure that
while a slowdown was inevitable, it needn't have been so panicked and
painful.
The large part of the answer was the failure of the Bank's experts to
send out a louder clarion call to chief executives; the failure of
Gordon Brown to take seriously this threat, relayed directly by his
central bank; the failure of City regulators to turn this worrying
little chart into action.
It was the media's duty to make more noise, to scream rather than
mutter our worries about the instabilities of the economy. We did our
fair share of screaming – in fact, we made rather a lot of that Bank
of England report in 2006 – but in hindsight we all ought to have
done more. The politicians and policymakers who ignored the warnings
might not have been able to so had the commentators and analysts in
the City made it too embarrassing for them to have done otherwise.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
2. To be a good Jeremiah, it's all got to go wrong
By tradition, the first task of a business columnist in early January
is to concoct some exciting predictions for the next 12 months.
By Jeff Randall
In previous years I have happily played this game, but no more. The
crystal ball has been locked away with other evidence of my
judgmental frailties, including shares in a well known football club,
a dozen or so "never-duff-it-again" golf wedges and a certificate of
part-ownership in an astonishingly slow racehorse.
My reason for abandoning clairvoyance is that after years of
forecasting disaster, I can reflect on the precipitous descent of
Gordon Brown's bubble economy in 2008 and say, albeit with perverse
satisfaction, "I told you so". From here, Nemesis beckons.
Britain's lighter-than-air prosperity was really a flawed zeppelin,
an economic Hindenburg, doomed to crash and burn. For too long,
irresponsible lenders, reckless borrowers and complacent regulators
had flown in a balloon of cheap and easy money. Finally: kaboooom! It
exploded.
The problem with being a perennial Jeremiah is that in order to be
proved right, everything has to go wrong. This, I confess, took much
longer than I had expected.
On 23 November 2002, I wrote in The Sunday Telegraph that "Britain's
remarkable consumer boom is about to go bust". Provoking my concerns
were a "dizzying spiral of rapidly rising house prices, an
unprecedented level of remortgaging and soaring consumer debt."
In 2003, however, the British economy defied gravity. Far from ending
in tears, the country's orgy of unaffordable excess produced new
forms of debauchery, such as equity withdrawal and 100pc-plus mortgages.
Undeterred by the failure of events to reflect my profound pessimism,
I continued to warn (with ill-founded certainty) that the roof was
about to collapse on the residential property market, crushing over-
borrowed households and shattering illusions of wealth.
On the BBC's website in December 2003, I wrote: "Rising debt, both
individual and governmental, will increasingly undermine economic
confidence... consumers are living in a never-never land of very high
personal borrowings. They simply cannot carry on... without a hard
landing."
Head down, I had another go on the same website in December 2004:
"With house prices likely to fall, taxes expected to go up, and
unemployment showing signs of increasing (albeit from a low base),
those who have over-stretched themselves financially could be in for
an uncomfortable 2005."
Not so. In 2005 and 2006, eager shoppers carried on borrowing and
spending. Banks kept letting out more rope on credit limits. House
prices burst through the commonsense barrier, and just about anyone
who could fill in a buy-to-let form joined the rentier class. At the
same time, Government encouraged a binge mentality, dressing up
wasteful consumption as sound investment. Mr Brown set the tone for
fiscal incontinence. His erstwhile arm-candy, Prudence, was debased
and degraded like a performer in a freak show.
As far as this column is concerned, the Prime Minister's credibility
as a steward of the nation's finances is beyond salvation. While
masquerading as a promoter of hard work, thrift and personal accounta-
bility, he has presided over a growing addiction to welfare and the
destruction of our savings culture. He is wedded to the power of
form over substance. It's not the content of the message, but how
the message is perceived that concerns him.
For instance, when will he tell us the true cost of the bailing out
Northern Rock? Contrary to Government assurances, he must know that
the bank's rapidly deteriorating mortgage book will condemn taxpayers
to footing a huge bill for writedowns. So what's the damage? £5bn,
£10bn? More?
That's my view, but out there in the country the polls are suggesting
that it's not too late for Mr Brown. Like a wayward vandal, he has
one last chance to redeem himself. Defeat at the next election is not
unavoidable What's required is an unmistakeable change of behaviour.
In short, he needs some New Year resolutions to take him through the
turbulence of 2009.
Gordon, here are three for starters. They are vote winners. I dare you.
1 As the private sector makes ever greater sacrifices in terms of
employment, pay and pensions, halt the public sector's runaway gravy
train. Does Haringey Council really need an Equalities Officer
(salary: £38,000-£41,000), the job description for which states: "You
do not need to be an equalities expert"?
2 Stop penny-pinching on defence, the cost of which is only 5pc of
Government expenditure. You praise our Armed Forces, send them on
Mission Impossible, and then let them die through lack of proper
equipment. Adding £10bn to a budget of £33bn would make a huge
difference. Finding that money should not be hard: start with
handouts to the Karen Matthews set.
3 Make all pensioners' investment returns tax free. The vast majority
of those with savings have accumulated their nest-eggs through taxed
income. It's morally indefensible to make them pay again. They are
being penalised for acting responsibly. The Tories will move on this,
so get in first.
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