Economic Crisis fault of Banks, not Labour Government claim

Two of the key oneliners upon which the Conservatives are fighting the election campaign were cast into doubt at the weekend. In a Guardian article on Sunday, the permanent secretary to the Treasury reiterates that the 2008 financial crisis was of the banks’ making, not the incumbent government.

Sir Nicholas Macpherson is of the opinion that the economic meltdown was:

“a banking crisis, pure and simple”.

His comments followed Ed Miliband’s grilling over overspending of the last Labour government when the party leader appeared on Question Time last week.

True, the situation was aggravated by the “no money left” note left to his successor by the outgoing Treasury chief secretary Liam Byrne back in 2010. But Sir Nicholas’ latest comments take on board aspects from William Keegan’s latest book, “Mr Osborne’s Economic Experiment”.

Thatcher lives on in Tory policy

Thirty years ago, Keegan wrote a similar tome on reflection of the Thatcher Government’s monetary policy. The theme, aggravated deflation to suppress the lower classes, carries on in this sequel.

It’s not that Macpherson is publicly recommending the book. He does, however, cite elements that ‘resonate’ in line with recent economic policy.

Mr Cameron is often heard reminding the electorate that it was the Labour government’s overspending was much to blame for the 2008/9 crisis.

In truth, his opinion is that it was unstoppable. The gap between taxation and spending had grown so vast, it was foolhardy to expect the market to return back to its former size.

It may be that the government could have made greater efforts to monitor banks more closely. But neither financial institutions nor the public approve of politics interfering with day-to-day business.

So even if Gordon Brown’s party had got involved, it’s unlikely that the banks would have said yes to their recommendations.

‘Excessive risk’ had gone unchallenged in the banking industry for years. Not only in the UK, but across the globe. If you live in a country with a massive banking network, when risk hits the fan, you’re going to cop a lot more than those with less to lose.

This specific point raises a question over Mr Cameron’s second dig, and that’s likening the state Labour left the country in unto Greece’s situation. Stronger institutions and a floating exchange rate are two key differentiators between the UK and debt-hit Greece.

OBR concurs that finance crisis was down to banks

To back up what Keegan and Macpherson argue, last year’s Independent Office for Bureau Responsibility came to a similar conclusion. They also suggest overspending was not the cause of the crisis.

However, it does note that other countries were less optimistic about their economies. This put them in a much better position to deal with the fallout when the bubble burst.

What is clear is that the resultant deficit in GDP needs addressing, whoever takes over in number 10. All parties have acknowledged this need, it’s just they differ in ways of generating the extra taxes to bring the economy back into surplus.

How long will that take? Longer than their manifestos state, I bet; and you can take that to the bank.

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