2%

[pongo]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

 

Ludicrous. You absolutely cannot be serious. You're making it up as you go along.

 

The govt would have been vilified in the media and portrayed as anti-market, anti-capitalist, un british, practically communist etc etc. The ruling would have been challenged in law - and just about everyone with a vested interest in house prices (ie everyone with a property) would probably have marched on Downing Street. The govt would have been forced out of office within days.

 

Ultimately I think the thing had to collapse on it's own in order for it to be properly understood.

 

ETA: and the reason that the banks are not lending to each other - and therefore on mortgages is to do with uncertainty about how much bad debt they are sitting on. Northern Rock and the UK housing bubble is, in many ways, a side issue. Properties in the UK will probably end up being worth even more in the long run because of the lack of space to build. Very different from the US where there is virtually unlimited space.

[P.K.]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

Come off it Sebrof. The BofE is now independent. There is no way they could dictate to the likes of Northern Crock how to run their business. Same with the "legislation" you propose. What's in it? Don't lend to those who can't afford it perhaps? Total bollocks mate. Western economies are dependent on the US. It bellies up and they're all in trouble. Simple as. Is it Brown's fault the US economy is in trouble? Don't think so...

 

Of course, the long term mis-management of the UK financial institutions has made it worse, no question, but while they were fooling their shareholders any government interference would have been viewed as "unneccesary meddling in private business", especially by rags like the Daily Wail.

[Sebrof]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

 

Ludicrous. You absolutely cannot be serious. You're making it up as you go along.

 

 

Leadership is about making unpopular decisions sometimes. Otherwise, what is the point of leaders?

 

We are at the begining of a crisis that may yet turn out to be worse than the Great Depression, and you think the leaders should have done nothing?

 

Golly.

 

S

[Sebrof]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

Come off it Sebrof. The BofE is now independent.

 

So why is the Treasury advertising for a new member of the MPC in this week's Economist?

 

There is no way they could dictate to the likes of Northern Crock how to run their business. Same with the "legislation" you propose. What's in it? Don't lend to those who can't afford it perhaps? Total bollocks mate. Western economies are dependent on the US. It bellies up and they're all in trouble. Simple as. Is it Brown's fault the US economy is in trouble? Don't think so...

 

Oh dear. I have repeatedly said that I acknowledge the global aspect of this crisis. But Britain would be in a much better shape if the housing bubble had been nipped in the bud.

 

Of course, the long term mis-management of the UK financial institutions has made it worse, no question, but while they were fooling their shareholders any government interference would have been viewed as "unneccesary meddling in private business", especially by rags like the Daily Wail.

 

As I said to Pongo, leadership involves making tough decisions sometimes. Plenty of people remember the previous house crash. I think it would have been much easier to pop this bubble while it was still in its infancy.

 

S

[pongo]

We are at the begining of a crisis that may yet turn out to be worse than the Great Depression

 

It's not a crisis, it's an opportunity.

[gazza]

We are at the begining of a crisis that may yet turn out to be worse than the Great Depression

 

It's not a crisis, it's an opportunity.

 

A vary gd opportunity at that for some

[P.K.]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

Come off it Sebrof. The BofE is now independent.

So why is the Treasury advertising for a new member of the MPC in this week's Economist?

Dear me Mr S, at least try and keep up....

 

Yes, the labour government passing control of interest rates to the BOE was inspired. Basically the BOE take advice on the economy from the government and use it to decide the rates. So, indirectly the government still control the rates but don't get the blame. Inspired!

Actually you couldn't be more wrong. The "advice" the BoE gets from government is about their last economic tool - taxation. A very interesting piece on Prof "Danny" Blanchflower who will be leaving the BoE MPC. He saw what was coming but the rest of the MPC wouldn't shift, to wit:

 

The Treasury will miss him. Officials there have watched helplessly this year as Blanchflower has tried to cajole his (MPC) colleagues into cutting rates - something they were desperate for.

The BoE MPC sounds rather too independent to me Mr C...

[Sebrof]

It was very clear to me how to stop the bubble. I would simply have instructed the BoE to call a meeting of all bank chairmen and instruct them to stop lending imprudently, failing which legislation would be passed to force them to behave. One way would be to make a repayment of a loan unenforceable if it could be shown to have been irresponsible - as defined by a number of criteria.

Come off it Sebrof. The BofE is now independent.

So why is the Treasury advertising for a new member of the MPC in this week's Economist?

Dear me Mr S, at least try and keep up....

 

Yes, the labour government passing control of interest rates to the BOE was inspired. Basically the BOE take advice on the economy from the government and use it to decide the rates. So, indirectly the government still control the rates but don't get the blame. Inspired!

Actually you couldn't be more wrong. The "advice" the BoE gets from government is about their last economic tool - taxation. A very interesting piece on Prof "Danny" Blanchflower who will be leaving the BoE MPC. He saw what was coming but the rest of the MPC wouldn't shift, to wit:

 

The Treasury will miss him. Officials there have watched helplessly this year as Blanchflower has tried to cajole his (MPC) colleagues into cutting rates - something they were desperate for.

The BoE MPC sounds rather too independent to me Mr C...

 

Who appoints the governor of the BoE?

 

Sometimes you seem rather naive to me. Labour are desperate to get across the story that the BoE is independent, and that this mess therefore isn't their fault. You appear to have swallowed it whole.

 

S

[Mission]

Any idea if this latest drop is being passed on?

 

It's proving a good way to save some cash (albeit small amounts) at present.

[P.K.]

Who appoints the governor of the BoE?

 

Sometimes you seem rather naive to me. Labour are desperate to get across the story that the BoE is independent, and that this mess therefore isn't their fault. You appear to have swallowed it whole.

Who took interest rates away from government and gave control of them to the BoE MPC?

 

You always seem very naive to me. Merv et al are Civil Servants and as such are there to serve the government of the day. No doubt they have their own political persuasions but at no time should these interfere with them carrying out their duties in a totally non-partisan way. And be in no doubt that the likes of the appalling Wail, Excess and Torygraph would be climbing all over them were it otherwise. Plus their appointment is for a specified period of time during which the gov may well change. Although Cameron and the rest of his chinless wonders seem incapable of fighting their way out of a wet paper bag at the moment. Every time he spouts off about the economy it just sounds like he wants a return to the Thatcher years. Prat.

[Sebrof]

Who appoints the governor of the BoE?

 

Sometimes you seem rather naive to me. Labour are desperate to get across the story that the BoE is independent, and that this mess therefore isn't their fault. You appear to have swallowed it whole.

Who took interest rates away from government and gave control of them to the BoE MPC?

 

What the Gord gave, he can take away tomorrow. Merv knows that.

 

Although Cameron and the rest of his chinless wonders seem incapable of fighting their way out of a wet paper bag at the moment. Every time he spouts off about the economy it just sounds like he wants a return to the Thatcher years. Prat.

 

Agreed. Cameron seems to be beholden to that limp lettuce, Osborne, who isn't worth a damn. He could well lose the Tories the election, whenever it comes, because he seems to the one man in the kingdom who is even more clueless than Bruin.

 

S

[Ringwraith]

Rubbish, they'll go down to zero before they go up. Down to zero then we start printing money.

 

You are absolutely right Slim, that is where we are heading.

 

However James Caan made the perfect point on Newsnight this week in that is it the correct destination?

 

Why are people not miffed that the banks have been bailed out by OUR (taxpayers money) for their poor investments (derivatives etc) and are now stockpiling that cash to save themselves.

 

All the talk of quantitative easing and THEN buying up the toxic debt that is still hanging in the ether WAS supposed to be dealt with by the previous bailouts.

 

Question is, where will all this lead in the long run? Hyperinfaltion, global currency collapses and as Chinahand so aptly put - it a whole new world at the end of it all. But what kind of world, and at what price?

[Alias]

Largely the same world, but with different valuations of products

[Chinahand]

Gordon Brown's culpability arises because he did nothing to prevent the bubble getting bigger and bigger. It was blindingly obvious to everybody with half a brain that there was going to be a mighty crash when the bubble finally burst, and burst it has.

 

Prudent bankers would not have lent so much and to such unworthy borrowers, and a prudent chancellor would have curbed their excesses as soon as they became apparent.

 

I suspect that Brown never imagined it would take so long for the Tories to become electable (I'm not sure if they are now), and thought he would be back in opposition by 2005, having left a nicely baited trap for the Tories. That's if he thought at all, which is open to doubt.

 

S

Sebrof, I've been mulling over what you've been saying about it being so blindingly obvious that the bubble was going to burst and anyone with half a brain could see it coming.

 

I'm not convinced, but now with hindsight it is difficult to understand why.

 

This article has a go.

 

Fewer than a dozen prominent economists saw this economic train wreck coming — and the Federal Reserve chairman, Ben Bernanke, an economist famous for his academic research on the Great Depression, was notably not among them. Alas, for the real world, the few who did warn us about the train wreck got no more respect from the rest of their colleagues or from decision-makers in business and government than prophets usually do.

 

How could the economics profession have slept so soundly right into the middle of the economic mayhem all around us? Robert J. Shiller of Yale University, one of the sage prophets, addressed that question ... [and] finds an explanation in groupthink, a term popularized by the social psychologist Irving L. Janis. [who] theorized that most people, even professionals whose careers ostensibly thrive on originality, hesitate to deviate too much from the conventional wisdom, lest they be marginalized or even ostracized.

 

If groupthink is the cause, it most likely is anchored in ... a ”vested interest in an analytic structure,” the prism through which economists behold the world.

 

This analytic structure, formally called “neoclassical economics,” depends crucially on certain unquestioned axioms and basic assumptions about the behavior of markets and the human decisions that drive them.

 

An inference drawn from the profession’s credo is that private markets invariably are self-correcting and are driven by rational human beings whose careful decisions serve to allocate scarce resources efficiently — that is, these decisions maximize a nebulous thing economists call “social welfare.”

 

“Social welfare” in this view is thought to increase when those who gain from a change in the economy — e.g., a corporate restructuring or deregulation of the financial sector or increased foreign trade — gain more from the change than those who lose from it, even if the gainers had already been wealthy before the change and the losers poor.

 

[The boom] was just the efficient market at work, rewarding ... executives for the “value” they were creating. With their model of how the economy works, economists seem to have great difficulty recognizing bubbles in asset values and often are the last to recognize such bubbles, which is why the Fed has never addressed them.

 

[The] entire 21st-century banking sector, managed as it is by graduates of the nation’s top business schools, supported by highly trained financial engineers, and monitored around the clock by thousands of allegedly bright financial analysts, immolated itself with highly toxic assets, purchased with borrowed money, and in the process infected the entire world economy.

 

And thus the economics profession slept comfortably as Wall Street was imploding. One can only hope that the medical profession would do better, should America ever be struck by a serious epidemic.

 

I don't necessarily agree with the analysis - anyone who like me has studied foreign exchange markets will disagree that they are invariably self correcting - markets blow bubbles up and deflate them, you may call that a self correction, but I see nothing in "neoclassical economics" that says that markets can't produce extreme volatility. But I feel in some ways my quibbles aren't particularly relevent - for all Sebrof's claims anyone with half a brain could have seen this coming, most people and most especially most policy makers did not.

 

It is vital to try to understand why and just dismissing the bubble as something only the brainless could have missed is as useless as saying there was nothing policy makers could have done to stop the imbalances building up.

[Slim]

Largely the same world, but with different valuations of products

 

Na, don't agree. There's plenty of financial products that just won't sell now, and probably never again.