A few weeks back I found this fantastic January 09 article by Norman Lamont. Despite my delay in commenting on it, this type of material is unfortunately set to have a rather long shelf life, unfortunately for us Britons; Gordon Brown is set to wreak further havoc in the economy before the fat lady sings eventually.

Lord Lamont argues that Brown is “like an arsonist posing as a firefighter”. What does he mean by that?

What Lord Lamont is highlighting is what we have seen in bucketfuls over the past 6 months: promises to save the world, grand posturing, and high profile crisis management; yet scratch the surface and we know that really, the government has no idea how to handle the present crisis. What is particularly scary is the potentiall threat to our country’s solvency:

the banking crisis is metamorphosing into one about Britain’s solvency. In standing behind banks, the Government, with its already massively overstretched finances, is effectively guaranteeing institutions whose liabilities, particularly in foreign currency, dwarf Britain’s GDP or annual tax revenues.

And of course, this being the Labour government, there is no talk of cutting spending, even of the obviously wasteful sort of which I wrote recently. We are still told that the government will spend its way out of the recession, a claim that is sounding increasingly scary given the recent spending sprees, declining revenues, worsening balance of payments and a mountain of debt this country has acquired.  

Today, Britain’s flagship banks have been officially reclassified as publicly owned institutions. And consider what an asset the public now owns! We’ve seen shocking losses announced by the RBS and Lloyds in the past few weeks. RBS might go down in financial history as the bank that made the worst deal ever when buying ABN Amro in 2007 for £50bn; Lloyds has made a possibly lethal – and very recent – high profile mistake in buying HBOS and hence starting to get dragged down by its toxic assets that are only now coming out of the woodwork.

But bear in mind that both mergers were ultimately very visible to Gordon Brown as they would have been done under the auspices of UK’s FSA and the rules devised by Brown. In fact Brown specifically agreed very recently that competition rules can be broken to allow the Lloyds merger to proceed. The result is a possible fiasco for Lloyds – a healthy institution infected by HBOS’s bad assets. This is a shocking recent development that further removes our confidence in Brown’s alleged ability to crisis-manage. Yet now we have been forced as the public to own a stake in these institutions – that frankly are looking like a very scary bet both for the content of their balance sheets, courtesy of Mr Brown, and the quality of its present management – we are faced with a triple whammy of a credit crunch in the private sector, a deepening recession throughout the economy, and the government looking increasinly less solvent.

Gordon Brown expresses frustration about the lack of transparency and disclosure of bad news. The widely accepted view is that until we know the extent of financial toxicity out there, the credit crunch will continue. The quote I heard somewhere is that “in present circumstances, forcing banks to lend more is a bit like ordering water to flow upstream“. Gordon Brown has so far not been able to suggest a solution on how to improve information disclosure and quantify the exposure to bad assets. The FSA looks suspiciously quiet – beancounting? Where are the regulators? Where is the true leadership when we need it most?

I will finish with another quote from the same article by Lord Lamont:

The longer this crisis lasts the more ridiculous seems the Prime Minister’s oft-repeated boasts about “the longest period of expansion since records began” or the longest growth “since the eighteenth century”. Now we can see this illusion was built on a mountain of debt by individuals and banks. We were heading for trouble, even if there had been no US sub-prime crisis. The Prime Minister now looks like an arsonist, posing as a firefighter.

Say  no more…


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