"Gordon Brown Helped Cause the Crisis "

THe Wall Street Journal have an article by Keith Marsden that analyses the UK economies collapse and lays the blame firmly at the feet of Gordon Brown. Do read the whole piece but here are a few telling extracts:

"Britain's economic downturn began when its house price and household debt bubbles inevitably burst, beginning with the run on Northern Rock in September 2007. These bubbles had swollen to higher levels, relative to average price and income levels respectively, than in the U.S. and other major economies.

In relation to their long-term average, British house prices soared by 88.5% between 1997 and 2007, according to the OECD. In the U.S. the rise was 64.5%. Britain's household debt rose to 176.9% of disposable income in 2007 from 104.8% in 1997. During the same period, U.S. household debt rose only to 105.8% of disposable income from 64.3% in 1997. The increases in Germany and France were considerably lower.

Gordon Brown tolerated and even encouraged the formation of these bubbles for several reasons. The traditional sources of Britain's economic strength, the mining and manufacturing industries, shrank during his term as chancellor. Total mining sector output, including oil and natural gas, dropped by 31% between 2000 and 2007. Total manufacturing production was stagnant during this period.

The gross value, in inflation-adjusted prices, of output from all production industries combined fell by 3% between 2000 and 2007. Their employment level dropped by nearly 1.1 million over the same period. These trends were not an inevitable result of shifts in comparative advantages that are said to occur in advanced economies. Real manufacturing output rose at an average annual rate of 2.2% in the U.S., 1.2% in Germany and 1.1% in France between 2000 and 2006, according to the World Bank.

Eager to achieve the illusion of steady progress in the overall economy, Mr. Brown needed the rapid expansion of financial services, and the real estate and business services industries. Their output soared by 48% and 33% respectively from 2000 to 2007, compared with 19% for the overall economy. Their combined employment level reached nearly 6.7 million in 2007, an increase of more than one million.

Rapid expansion of consumer credit in turn boosted demand for wholesale and retail products and services. The booming financial and real estate sectors, with their inflated salaries, bonuses, and profits generated by unsustainably rapid credit growth, also filled Mr. Brown's tax coffers.

Thus, despite the decline in corporate and personal income and national insurance tax revenues from the production industries, he was able to fulfill Labour's 1997 election promise of expanding public services....

So the boom in the financial and real estate sectors served Mr. Brown's political interests well. And he was by no means a passive bystander to their growth. He urged them along in several policy speeches. Introducing on April 1, 2005, a policy document entitled "Homebuy: Expanding the Opportunity to Own," he insisted that "this Britain of ambition and aspiration is a Britain where more and more people must and will have the chance to own their own homes."

Ignoring the inability of many house buyers to pay their mortgages, he touted this message to City bankers in successive annual speeches at the Mansion House in London, promising them "light-touch regulation." Already in 1997 he transferred the responsibility for bank regulation from the Bank of England to the inexperienced Financial Services Authority. He also curbed the central bank's ability to keep asset inflation in check by removing housing costs from the price index.

Mr. Brown also repeatedly praised the City's "innovative skills," bragging in 2006 that it was responsible for 40% of the world's over-the-counter derivatives trade -- which includes the now infamous repackaged subprime mortgages. He gave financial institutions a false sense of security by telling them on June 16, 2004, that "I am determined to ensure that we can lock in greater stability not just for a year, or for an economic cycle, but in this generation.""

Blame for this "bust" can be laid at the feet of Gordon Brown and if the Labour party are still in denial, the British public are not. This is the line of attack that David Cameron should take at PMQs, blaming Gordon Brown is the right thing to do.