Friday, 25 January 2008

Anatole Kaletsky on Gordon Brown

I read Anatole Kaletsky' columns in the Times for years until I became too irritated by the political slant of his columns. Now this one has been brought to my attention. It is a fine demolition of Gordon Brown's Northern Rock policy as I have read; and all the more brutal coming, as it does, from a formerly fairly Brownite commentator. Do read the while article but the last few paragraphs I think bear repetition (my emphasis):

"he has chosen the worst of all possible worlds, described by Vince Cable, of the Liberal Democrats, with his customary precision as “nationalisation of risks and losses, combined with privatisation of gains”. In effect, Mr Brown is offering £55 billion of public money to Sir Richard Branson and other shareholders in Northern Rock, whether present or future, with which to speculate on the housing market and the stock market. If these speculations work out, these private individuals will pocket 90 per cent or more of the profits. If the speculations fail (which is much more likely) taxpayers will bear the entire loss. Looting of public wealth on this scale has not been seen in Britain since the South Sea Bubble.

If you think I exaggerate the egregiousness of the announcement, consider the following facts. The so-called bonds that will be used to “repay” Northern Rock's £25 billion in borrowing from the Bank of England will be guaranteed by the Treasury and will therefore be indistinguishable from any other government borrowing. In addition, the Treasury will maintain indefinitely the present guarantees on £30 billion of other Northern Rock obligations. In other words, not a penny of taxpayer money will be repaid by the proposed “rescue bids”. That much is obvious. What is much worse politically, however, is that Alistair Darling will keep claiming that these bonds constitute some kind of repayment - yet this falsehood is so transparent that what little is left of the Government's economic credibility will be completely lost. Mr Brown is sliding out of an embarrassing admission by insulting the intelligence of the British public. We all know about using our Mastercard to pay off the Visa debt. This is an insult that voters are unlikely to forget.
Once people fully understood that the Government, far from receiving any repayment as part of this “rescue”, will be offering a long-term operating loan to Northern Rock for five years or beyond, the politically embarrassing questions will pour in. If this kind of money is available for a minor bank in Newcastle, what else could the Treasury have done with £55 billion? Here are a few ideas: it could have rescued MG-Rover and turned it into the worlds strongest car manufacturer after Toyota. It could have acquired control of the Airbus programme and shifted its headquarters to Bristol from Toulouse. And even after these industrial subventions there would have been plenty of change from £55 billion to set up a permanent endowment fund to finance Britain's universities, or build a new high-speed rail system covering much of Britain, or a new London airport in the Thames estuary to replace Heathrow or underwrite the entire economic risks of a new generation of nuclear power stations. And what about rescuing the pension funds wrecked by Mr Brown's previous excursions into high finance?
Even if such embarrassing questions die down, behind them will loom an even bigger challenge to Mr Brown. By piling another £55 billion of government debt on top of a government deficit that is already exploding, Mr Brown will explode the entire fiscal framework on which Labour has built its tax and spending policies. By lavishing unthinkable sums of public money on the shareholders of Northern Rock he will directly repudiate the warnings from Mervyn King about the “moral hazard” of subsidising irresponsible banking. It is hard to see how the Prime Minister and the Governor could continue to work together given this fundamental, and enormously expensive, difference of views.

The Northern Rock bailout will demolish or, at best, discredit the entire economic policy framework created in 1997. Since the creation of this framework was his one unquestionable achievement, it seems fair to say that Mr Brown's career as a serious politician ended yesterday."

Well said Anatole Kaletsky; it is a shame that the BBC consider the matter too difficult for the general public to understand and too embarrassing to their beloved Prime Minister to try and explain.

Thanks to Edland for bringing this article to my attention. Edland is a blog that is fast becoming worth a daily visit.

1 comment:

Old BE said...

Thanks for the Hat Tip. Pretty devastating article eh!