Friday, 20 March 2009

A bit unfair, Robert

Robert Peston is in a bad mood this morning. He claims that the National Audit Office's report on Northern Rock shows that Brown and Darling "didn't make adequate preparations for the possible collapse of banks", "didn't expect a recession" and "had a hopelessly naive view" about the Rock's 100% loans.

It makes a nice story. The problem is, it isn't really true. I've read the NAO's summary of the report. Here's a notable phrase from it:
This report does not consider:
  • the causes of Northern Rock’s problems
Indeed, all that the report does consider is the response of the Treasury to the problems that arose in late 2007, and whether it made the right choices and managed things in the right way.

And on those counts, it mostly gives its seal of approval. Some exceptions are:
  • The Treasury's worst case scenario planning was not quite bad enough. Instead of a base case loss of £270 million, Northern Rock lost £585 million last year (although the Treasury did also allow for a "recession case" loss which was closer to the real figure, so they were not that far out).
  • After the bank went into public ownership, a further £1.8 billion of high loan-to-value ratio mortgages were issued - though £1 billion of these had already been committed before the problems, so the issue is over just £800 million of loans.
Other than those, which are small numbers in context, the NAO finds that Treasury's actions were pretty much spot on. And subsequently, the Northern Rock rescue has worked out quite well with taxpayers quite likely to make only minor losses or even a profit from it.

There is nothing in the report about political supervision or the government's understanding of economic risks, despite what Peston says. And even if there were - he can hardly blame Brown and Darling for not anticipating the 2008 crisis in 2004 when the rest of us didn't see it either. Yes, you can tell me about Nouriel Roubini again - but if you cry wolf long enough, sooner or later one will show up.

The risks run by individual property investors were reasonably clear for the last few years, but it was not at all apparent that this would lead to systemic problems. Politicians don't have any more crystal balls than anyone else, and it's rather unfair to blame them for this. Especially when the "evidence" of the NAO report provides no support for the assertion.


Shenzhen Adam said...

I'm glad this post puts the matter more in context. Whilst I do not believe that everything the UK government is the correct response to the extraordinary scenario that the UK faces, it is unfair to knock them for invented reasons. I think Mr Peston is struggling to find the kind of news that he likes, at the moment. His reporting on China was quite frankly a load of tosh on occasions. He missed the point here too.

Anonymous said...

Seems like this post is a little unfair itself. It's unfair to claim that those warning about house prices in 2004 were 'crying wolf' given that prices are falling back to price levels lower than those in 2004.

Leigh Caldwell said...

It's the stopped-clock phenomenon. If someone sticks to the same point of view long enough, it will come true eventually. But if you don't know when, the prediction isn't especially useful.

However, maybe I am being slightly unfair - Roubini did foresee many of the problems, at least from late 2006 onwards. But he wasn't at all a mainstream figure then, and it would be very unrealistic to suggest that the Treasury should have listened to him and not to the opposing views of nearly everyone else.

We can credit Roubini with foresight without blaming Brown for having a different point of view.

Marcin said...

I am sorry but I think we didnt read the same report. You are claiming that

There is nothing in the report about political supervision or the government's understanding of economic risks

Report clearly states in point 31 that Treasury (read - GB) "...had been aware of potential shortcomings in the arrangements for dealing with a financial institution in difficulty prior to the crisis at Northern Rock..."

further to that

"..Prior to 2007, work on improving the existing arrangements was not, however, judged by the Treasury to be a priority in a benign economic environment, compared with other financial crisis response planning..."

Presumably Treasury was too blinded by city bling bling to look after ordinary taxpayer money and drafting "what if" plans.

You also claim that Brown and Darling can not be blamed for "not anticipating the 2008 crisis in 2004 when the rest of us didn't see it either."

Here is a newsflash, those 2 clowns are there to anticipate those things, that is what we pay them for. If they ignored all signs of looming economic disaster and did not anticipate what over a half of political blogosphere anticipated then they should be sacked on the spot. And if they dont want to be remembered as incompetent hypocrites they should also forfeit their fat public servant pension packages, that way we will only remember them as incompetent but honest.

Fat chance of that happening.

Anonymous said...

Marcin's post just typifies the blinkered approach as his qoutes from the report actually proves what the blog said but he allows his own personal agenda to try to suffocate what is self evident.

Anonymous said...

anyone who didnt see this economic colapse coming is either blind or diluded we downsized in 2004 because we knew inflated property prices ,liberal borrowing were unsustainable.

Anonymous said...

RE ABOVE - The issue isn't whether Gordon forsaw the credit crunch but whether he prepared the nation's finances to withstand a downturn.

Gordon is like the young prince in a centuries old royal dynasty who sells the crown jewels and uses them to pay for a five/ten year party. Whilst the young prince is having a party, the young prince's nation is also having a brilliant party...good times... THEN THE PARTY FINISHES...

The simple question is who had the power/ responsibility to control the party?