Labour is to blame for austerity according to….

…errr Labour.

Blair favoured deregulation of the banking industry – leading to one of the worst crashes in modern history. While spending on public services was higher, his legacy will ultimately be the austerity that followed his failure to stand up to big finance.

Blair favoured deregulation of the banking industry – leading to one of the worst crashes in modern history.

While spending on public services was higher, his legacy will ultimately be the austerity that followed his failure to stand up to big finance.pic.twitter.com/rSemofHhOK

— Momentum (@PeoplesMomentum) June 14, 2019

I suppose you could argue that Gordon Brown’s over spending is to some degree responsible for the current debt we’re dealing with [1] but it was small beer compared to the crash and there’s no credible economist who thinks Labour directly caused the 07/08 global crash.

Even if they think it’s true, there could be an election any day now. Is taking the blame for austerity politically wise?

[1] That wasn’t an issue with Labour, it would have happened to a Leader of any political complexion, Brown needed a spendathon for the early election which never happened and then another spendathon for the election that did.

Gordon played a big part in the crash, well documented.

Not surprised by this ^^

Not sure why this is coming out now?? Political action imminent??

Gordon Brown’s over spending is to some degree responsible for the current debt we’re dealing with

The (necessary) bailing out of the banks caused (most of) the debt. It could be argued that the laissez-faire regulatory scheme adopted by the Labour Government gave rise to the behaviours by the banks that led to the crash and the (necessary) bailout.

Austerity is/was a means of tackling the debt (and the deficit, there’s a difference). There were other options that may have worked, but the Tories chose that one.

So, who’s to blame for the policy of austerity? It’s complicated.

Gordon played a big part in the crash, well documented.

Gordon Brown played a big part in the worldwide response to the crash, and was/is pretty well respected for it.

Agree ^^

He did play a big part in that too.

Yeah I witnessed Momentum putting another boot into the millions of people who voted in the party they supposedly support 3 times.

I really feel for Gordon Brown, make no mistakes he is an incredibly talented economist, it’s rare, in fact almost unheard for the US to listen to anyone else, let alone a foreign Leader – but they were all ears after Lehmans fell and some very smart, very influential economists have said publicly if they’d agreed to his plan to save them then we might just have avoided it all.

The Tories always like to say that during the good years it was despite his policies, but the Global Crash that started in the US, was certainly his fault.

Oh yeah and the old chestnut about how he sold all the Gold when prices were low because he doesn’t know how Buy Low, Sell High works – well I challenge anyone to say they predicted 9/11

The (necessary) bailing out of the banks caused (most of) the debt.

Is that true? There was a massive bail out but I *thought* the UK ended up in overall profit from the 2008 rescue package.

So, who’s to blame for the policy of austerity? It’s complicated.

I don’t think any sane commentator would dispute that. That’s why it’s interesting that Labour would cheerfully take the blame, potentially 5 minutes before an election.

@ P-Jay, why did he sell all that gold?

I don’t subscribe to him not knowing about high/ low etc but didn’t he claim to have ended the boom bust economic model?

Agreed, and it’s illustrative of the strange place Labour finds itself in at the moment, eh?

I *thought* the UK ended up in overall profit from the 2008 rescue package.

Really? I wasn’t aware of that (I’m not saying it’s not true, I’ve just never heard it said)

As for the claim by Monentum, I think that’s more down to the fact that Labour Party politics at the moment is mostly concerned with the problems of the Judean People’s Front. Luckily there’s no other pressing problems of state that they’re being distracted from…

Really? I wasn’t aware of that (I’m not saying it’s not true, I’ve just never heard it said)

The media mainly focus on RBS which was a loss, but I’m pretty sure the UK made a fortune out of the Lloyds baleout which more than offset the loss on RBS, not sure if any other banks took part so overall the UK should have made a profit. I’ve just googled and can’t find a specific set of numbers so maybe there’s some aspects I don’t understand/am not aware of.

The only (sane) accusation of overspending against Brown I’ve ever seen was that he was a bit flash with the cash because he had to spend £££s to look good in case of an early election. That election never happened so there were 2 solid years of high spending instead of the blip needed to keep the voters happy before an election. (I’ve no idea if that accusation is true or not, but it sounds plausible whereas the idea that Labour singlehandedly caused the global crash is bat poo mental AFAIC.)

@ P-Jay, why did he sell all that gold?

There is a claim about that he did it to bail out a bank who made a very bad call and would have started the 2008 crisis early. Or it was just selling something off without knowing the hoarders would go crazy about it shortly afterwards due to specific events.

As for this post. Its a tricky one really since the tories often use the look at what Labour did excuse. So by saying bad judgements were made around going the deregulation approach is a starting point especially if they point out the only objection the tories had was the deregulation hadnt gone far enough.

Thanks dissonance

While I’m no economist, I believe one of the bigger criticisms of Brown is how he and Blair put us all in hock with costly PFI schemes.

When good old fashioned overspending would have been better VFM.

Gordon played a big part in the crash, well documented.

An analysis of the timeline of event would suggest otherwise….

It all started in the sub prime US mortgage market. From Jan 2008 the Fed was trying to prop up the collapsing housing market. Things got worse and worse for a good 7 months before it was really noticed in the UK. The first big thing most people saw was RBS collapsing in Nov 2008 when the Government took a 58% state in the bank.

A quick potted history of stuff Labour / Gordon Brown had nothing to do with…

January 2008, The Fed began lowering Fed fund rates. However this failed to stop the foreclosure rate in US homes (which rose 57% in Jan 2008).

Feb 2008: President Bush signed a tax rebate bill to help the struggling housing market. The bill increased limits for Federal Housing Administration loans and allowed Freddie Mac to repurchase jumbo loans. Foreclosures were up 60 percent year-over-year. It was about the same as January’s 57 percent foreclosure increase.

On March 11, the Fed announced it would lend $200 billion in Treasury notes to bail out bond dealers. They were stuck with mortgage-backed securities and other collateralized debt obligations. They couldn’t resell them on the secondary market. The subprime mortgage crisis dried up the secondary market for these debt products.

Beginning March 14, the Federal Reserve held its first emergency weekend meeting in 30 years. On March 17, it announced it would guarantee Bear Stearns’ bad loans. It wanted JP Morgan to purchase Bear and prevent bankruptcy. Bear Stearns’ had about $10 trillion in securities on its books. If it had gone under, these securities would have become worthless. That would have jeopardized the global financial system.

On July 11, the Office of Thrift Supervision closed IndyMac Bank. Los Angeles police warned angry IndyMac depositors to remain calm while they waited in line to withdraw funds from the failed bank. About 100 people worried they would lose their deposit. The Federal Deposit Insurance Corporation only insured amounts up to $100,000.

On July 23, Secretary Paulson made the Sunday talk show rounds. He explained the need for a bailout of Fannie Mae and Freddie Mac. The two agencies themselves held or guaranteed more than half of the $12 trillion of the nation’s mortgages. Wall Street’s fears that these loans would default caused Fannie’s and Freddie’s shares to tumble. This made it more difficult for the private companies to raise capital themselves.

September 7: Treasury Nationalizes Fannie and Freddie. The FHFA placed Fannie and Freddie under conservatorship. It allowed the government to run the two until they were strong enough to return to independent management.

September 15, 2008: Lehman Brothers Bankruptcy Triggered Global Panic

September 29, 2008: Stock Market Crashes as Bailout Rejected

Nov 2008, RBS collapses….

As for the UK deficit sky rocketing, prior to the Sep 2008 crash, increased public spending was pretty modest compared with GDP and the Tories has promised to match the same spending on public services if elected. Only when GDP collapsed and the defecit rose did the Tories suddenly change their tune and try and blame excessive spending on Labour (which they managed successfully even though they had agreed to match the same figures).

@ P-Jay, why did he sell all that gold?

Sort of simply.

Gold had (and still is) used as a hedge against inflation, but in the late 90s it was seen as being too volatile (Gold price fluctuation has caused the previous large crash and we’d had to pull out of the Exchange Rate Mechanism).

Gold prices had been flat / falling for years and of course it pays no dividend. We (The UK) was sitting on literal tonnes of it, at the same time as a large national debt (although nothing like it is now).

By selling about half our reserves and reinvesting them in various foreign currencies we’d have a better, less volatile hedge against inflation.

At first The City, being The City saw an opportunity to make money out of nothing and shorted Gold and reduced the value by 10% so it cost us, but by the end of the sale GB had made a deal with various central banks to prop up the value for 5 years.

The only objections at the time were nationalistic – we’d sold real tangible gold which conjured imagines of Crowns and Coins to the hard of thinking and bought, amongst other things Euros which were only a few years old and was already a hot political topic in the UK. Some of the red tops tried to make out he was selling the actual Crown Jewels.

The plan worked well, we reduced our debt and interest payments and had a better hedge against inflation.

Unfortunately 9/11 happened mere months later and a nervous market did what it always does in times of panic, bought up lots of Gold sending the price sky rocketing. Our multi-currency hedge worked and the £ didn’t dive as worse than any other western currency, but we didn’t make a fortune from the rise in Gold prices (which you could argue is only a value until you actually try to convert it into currency).

I’ll let you decide whether or not it was a mistake, or just a missed opportunity because he didn’t bet on a large scale terrorist attack.

but didn’t he claim to have ended the boom bust economic model?

Also for this, yeah he did but then lots of people made bad predictions in that period.
The problem was they looked at a slightly extended good period and the collapse of the Soviet alternative to think history really had changed in their favour.
Sadly people still keep making not dissimilar predictions about their favourite economic/political model ignoring how short a time they have been around.

Thanks P-Jay.

@ footflaps – I read somewhere that the subprime mortgages were a response to the dot.com bubble bursting and US treasury/ large companies looking for a new revenue stream. So the time lines starts even further back in that case

I don’t subscribe to him not knowing about high/ low etc but didn’t he claim to have ended the boom bust economic model?

One of his first acts as Chancellor was to hand over control of interest rates to the BOE.

For years The Tories had used them for political reasons, rising rates mid-term and then dropping them a few months prior to an election to pump up the feel-good factor. This sort of reckless movement was, in part, the cause for very high rates of the 80s.

The plan was that the BOE, using a pre-agreed mechanism would meet once a quarter to set the rate to, at least try, to warm/cool the UK economy to avoid the boom/bust of the past.

It worked very well, we enjoyed the longest period of continued growth in British history. Sadly the US sub-prime scandal brought at end to it. Even now though the BOE (who do come under pressure from No10 and No11 to do certain things) control rate to try to smooth the waves.

Not saying it caused the crash, but PFI was (and remains in some cases) shit.

The media mainly focus on RBS which was a loss, but I’m pretty sure the UK made a fortune out of the Lloyds baleout which more than offset the loss on RBS, not sure if any other banks took part so overall the UK should have made a profit. I’ve just googled and can’t find a specific set of numbers so maybe there’s some aspects I don’t understand/am not aware of.

There are stats on the national statistics site about how much they’ve got back etc. I’ve never crunched all the numbers, but I think the above is broadly correct. RBS is close to being back to even too.

@ footflaps – I read somewhere that the subprime mortgages were a response to the dot.com bubble bursting and US treasury/ large companies looking for a new revenue stream. So the time lines starts even further back in that case

Keep digging until you start reading about Tulip Bulbs and you’d understand that behind all the science it’s all human greed that drives things.

P-Jay – do you think these efforts with low interest rates will contribute to another economic issue later down the line as the private debt builds up?

The media mainly focus on RBS which was a loss, but I’m pretty sure the UK made a fortune out of the Lloyds baleout which more than offset the loss on RBS, not sure if any other banks took part so overall the UK should have made a profit. I’ve just googled and can’t find a specific set of numbers so maybe there’s some aspects I don’t understand/am not aware of.

Lloyds could have made a lot of money, but there were only a small select number of buyers allowed… funny that.

RBS is still partly state owned. It could be used as an investment for the UK, but it goes against Tory dogma to have a publicly owned Bank. They’d rather sell at a loss (to their mates) than keep it and sell at a profit, or worse retain ownership and enjoy the dividends as it goes against the myth of privatisation equals better, always.

P-Jay – do you think these efforts with low interest rates will contribute to another economic issue later down the line as the private debt builds up?

Yes, but it’s the least worst option now.

If the Ref had gone the other way we’d be at 1.5% now at least. The Banks have put their houses in order, we’re building again and were ready to weather a house price correction to try to fix the housing problem. Brexit put everything on hold. There was an argument to put up rates 3 years ago to have somewhere to go if/when there’s another recession, but didn’t happen.

Tbh though there’s more behind the rise in private debt that rates. Everyone costs things monthly now instead of in total and indebtedness is counted in terms of affordability and not total debt.

If I was Germany I’d be more worried about the size and position of VW FS and BMW FS than say credit card debt.

we’re building again and were ready to weather a house price correction to try to fix the housing problem.

There is also the desperate boosting of the housing market, sorry help to buy (I get confused between those terms) which has had the taxpayers throwing money at parsimmion and co and keeping the market inflated.

Brown and Blair were in bed with the banks (and the consequent house price inflation which got them re-elected), but then again, so would have been the Tories.
The issue really goes back to the Big Bang and deregulation of the financial sector, and how this related to engineered house price inflation to secure re-election; Cameron and Osbourne pulled the same trick with Help to Buy.
There is a debate as to whether John Smith (had he lived) would have taken on the financial sector which labour traditionally is suspicious of…instead we had Gordon End of Boom and Bust Brown.

Gordon played a big part in the crash, well documented.

An analysis of the timeline of event would suggest otherwise….

I’m well aware of Gordon’s actions and timeline. Working for a prominent Bank throughout the whole crisis pre-post 2008 we were very aware of his daily actions and initiatives.

Agreed it all started in the US, that’s well documented, but Gordon was chancellor here and made some questionable decisions that adversely affected both the UKs outcome and the landscape we now face.

I too (begrudgingly) agree he was dealt a poor hand during his campaign, but he was more than well versed with the political stance and restrictions that lay at his feet when making his decision.

What I do admire about him, is that he’s a very prolific supporter of local charities and initiatives and always has been.

Overall, I think (looking back) he’s probably one of the best chancellors the UK has ever had.

Its a shame the situation he found himself in was way over the list of requirements when he landed the job.

For a clear eyed and focussed analysis of the crash read Fool’s Gold by Gillian Tett; FT journalist.
She was one of the few who predicted it.
Lots of other books but hers is, I think, the clearest exposition of the background followed by the events and then the aftermath.

Does this all come back to poor regulation of individuals greed by government because governments are made up of greedy individuals? Did some digging ( I see what you did there! ), it seems nothing has been learned from the secondary housing crisis regarding regulation of the financial sector.

It looks like the tulip model has been refined in finance to make it easier to pull the wool over the eyes of the general population.

For my part, I find economics hard to get my head around. I heard a saying once that if you put 7 economists in a room, you will get 8 solutions to the problem!

Austerity wasn’t caused by the crash, though. The crash just created the excuse- or the opportunity- for the tory/lib dem government to smash through reforms under that allpurpose justification of “austerity” Even when they were doing things that cost money overall like selling national assets for cut price, or removing cost effective parts of the state, or slowing the recovery it was all “we have to live within our means”.

THM actually had this one right, in a way- he kept saying there was no such thing as austerity because the government was actually following a loose, high spending fiscal policy. Of course, that’s a wrong assumption- austerity did exist and did ruin lives, it’s just it didn’t lead to “balancing the books”, and wasn’t ever supposed to.

Disaster capitalism isn’t supposed to fix the disaster.

I suppose you could argue that Gordon Brown’s over spending is to some degree responsible for the current debt we’re dealing with

The debt is not the main issue. Or even the issue at all. The main issue and ultimate cause for the need for austerity was the deficit which was Blair and browns fault. The country wand in. If debt before the crash and with a crippling deficit. Austerity doesn’t fix debt, it fixes structural deficits. We cannot carry on indefinitely spending more than we earn. It’s fine to carry debt if your spending is under control but before the crash it was spiralling out of control.

There is also the desperate boosting of the housing market, sorry help to buy (I get confused between those terms) which has had the taxpayers throwing money at parsimmion and co and keeping the market inflated.

Boosting / lifeline, I don’t suppose it matters in real terms.

But yes, HTB and near zero interest rates weren’t used to help young people get on the ladder so much as to keep our banks liquid at a time of national crisis.

As above, the banks are liquid now and diversified enough to handle a correction. The public might not like it, but thanks to more stringent affordability checks they can to.

If we’d voted for remain we might have finally put the ‘Great Recession’ behind us by now.

The debt is not the main issue. Or even the issue at all. The main issue and ultimate cause for the need for austerity was the deficit which was Blair and browns fault. The country wand in. If debt before the crash and with a crippling deficit. Austerity doesn’t fix debt, it fixes structural deficits. We cannot carry on indefinitely spending more than we earn. It’s fine to carry debt if your spending is under control but before the crash it was spiralling out of control.

The deficit fell for the first half of the Blair/Brown period and was fairly for (as a % or GDP) for the second half. It rose massively when we bailed the banks out of course, but continued to rise until about 2 years ago.

Contrary to legend, Deficts tend to fall under Labour governments and rise under Tory governments. Our Debt was about 65% of GDP (GDP 2.4tn) when Cameron came to power, peaked at 85% when GDP was and is now about 82% (GDP 2.8tn)

So, despite all this austerity and GDP growth our national debt has risen since the end of the credit crunch.

I remember in the years before the crash, we had a budget surplus that Gordon Brown chose to spend to grow the economy rather than pay down the national debt, on the assumption that the boom bust cycle had been finally solved. After the crash he maintained his actions were sound, and it was Johnny Foreigners woes that brought us down, but everything is interconnected now and I don’t think the UK economy was in a robust enough state to weather a global storm. He did do what he needed to do post crash, but it’s not like there were a lot of alternatives.

Would have been nice if he hadn’t sold our gold at rock bottom prices.

Would have been nice if he hadn’t sold our gold at rock bottom prices.

Yep, as per an earlier post, fancy not predicting 9/11. Silly Gordon.

Would have been nice if he hadn’t sold our gold at rock bottom prices.

Did you buy a load of gold when gold was at rock bottom prices? If not why not? Was it because you can’t predict the future so you only know the price was rock bottom in hindsight? Or some other reason?

Austerity wasn’t caused by the crash, though.

All the more reason why Labour shouldn’t post tweets taking the blame.

Contrary to legend, Deficts tend to fall under Labour governments and rise under Tory governments. Our Debt was about 65% of GDP (GDP 2.4tn) when Cameron came to power, peaked at 85% when GDP was and is now about 82% (GDP 2.8tn)

This – and if it’s one thing Labour were guilty of was not defending this record against the Tories.

I think Labour had 3 surpluses too at one point.

I wish that Corbyn and the puerile student bell ends in momentum expended as much time and effort on fighting the Tories as they did slagging off Blair, Brown and Tom Watson, or anyone else who doesn’t express enough love for the glorious leader

It’s pathetic! Which is why the Labour Party are presently polling at 19%. Not a problem Blair ever had to deal with. The treacherous electable bastard