Global problem or self-inflicted wound?

January 19, 2009

The government has unveiled a second package of measures aimed at getting the banks to start lending again and helping the economy off its knees.

The new package follows last October’s 37 billion pound bank bailout which ministers have reluctantly had to concede was not enough. It may have shored up their capital positions but it did not prompt them to start lending again. The latest plan aims to give them a hefty nudge in that direction by offering them insurance against losses and guaranteeing their debt.

“This is a global financial problem affecting us all,” Gordon Brown insists at every possible opportunity as the Tories press their austerity line and seek to blame Labour for helping to create the conditions for the credit crunch.

Do you agree? Is Brown doing the best he can in a bad position caused by factors outside the government’s control? Or should the government have been more aware of what British banks were doing? And what do you make of the latest bank package?


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This is the inevitable consequence of stoking up a ridiculous decade-long credit expansion-driven asset bubble known as the UK housing market.

Brown’s Britain is now reaping the whirlwind and even those of us who didn’t take part in the speculative feeding frenzy will now have to suffer the government sticking its hands even deeper in our pockets.

Posted by Neal | Report as abusive

Who is to blame?
Sir Fred Goodwin, Adam Applegarth, Andy Hornby et al. These guys couldn’t run a whelk stall. But they have already made their millions (in the form of bonuses…for what?) and are sitting pretty while they have just about destroyed the British economy.

Posted by Paul Hemsley | Report as abusive

I expect the banks will say thank you very much and carry on as before. When I have borrowed from the bank I have had to give commitments. When the future British public have their, yet to be earned, money lent for them by a government seeking re-election there seems to be no guarantees as to how this money will be used.
The reason that the credit crunch is effecting the UK more than most countries is because Gordon Brown allowed credit to get massively out of synchronization with the real wealth of the country. He refused to listen he is to blame. Election Now!

Posted by stephen cole | Report as abusive

The Scrooges in Hard Times

It is the banks
That are the scrooges
This Christmas past
Tightening the screws
On credit fast
Customers squeezed
Businesses strangled and seized
Starved of credit, entangled
In this credit crunch pain and unease
Homeowners who face repossession
Retail chains facing a tough recession
Yet these Hard Times are the hauntings
From the Spirit of Greed Past
Billions of pounds in bonuses vast
And short-term profit nets recklessly cast
Unregulated, unchecked
Bouncing to a taxpayer bail-out cheque
And now it’s all hands on deck
As the shrinking sinking ship of the economy
Bound, anchored and drowning in debt
Is fast in danger of becoming
A wreck
Ps I blame the government as well as the banks.

Posted by Jane Air | Report as abusive

I agree with all these comments, the banker’s short term greed led the way, followed by the Government gleefully joining in the greed fest racking up even more debt to fund their ludicrous spending frenzy. Now the rest of us are paying the price for their stupidity not only now but in the future – can we have an election soon! I say “Weapons of Mass Destruction” – yeah right. Also this is a well known past phenomenen called the “Austrian Business Cycle Theory” – see Wikipedia – “Austrian economists assert that inherently damaging and ineffective central bank policies are the predominant cause of most business cycles, as they tend to artificially set interest rates too low for too long, resulting in excessive credit creation, speculative bubbles and artificially low savings. This expansion of credit casues an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable monetary boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas that would not attract investment if the money supply remained stable. A correction or credit crunch then occurs when credit creation cannot be sustained”. If the Government were doing their job properly they should have seen this coming a mile off.

(Miss Not Liz Jones)

Posted by Clare Fox | Report as abusive

Most of us are to blame in one way or another. The fact is that we and the Americans, especially, but others as well in the western world, have been living way beyond our means for at least 25 years. We have been conned by successive governments into thinking that their “prudent management” of the economy has given us a level of affluence previously unheard of. In fact, we are on the verge of bankruptcy, and that affluence was all provided by smoke and mirrors. The truth is we can’t afford it. Now we’ve got to get used to reality again, which frankly for the 21st century is a pretty mediocre one.

Posted by Matthew | Report as abusive

Never mind who is to blame, the only question now is just how low can shares fall. RBS 20p, will the shares have to be suspended. can the government support all the banks


Posted by john | Report as abusive

Don’t entirely blame the banks.

This is a problem created by Brown.

As chancellor, he removed from the BOE resposibility for money supply control, and then continually allowed money supply inflation to run at up to 14%.

The banks merely danced to his tune.

It’s also interesting to note that the ‘big three’ banks did not need or want any bail out whatsoever.

That catastrophic nonsense has been forced upon them.

And my God, will we all pay for it.

Posted by John Ball | Report as abusive

Two sets of people are to blame:
the ‘expert financiers’ who knew what was happening and did nothing to stop it- indeed encouraged it
The greedy, ‘won’t wait, want-it-all-now-on-credit’ particularly younger generation. They were encouraged in this thinking/attitude by banks & credit cardc companies

Those of us brought up to be careful, cautious, save up for what we want, who aren’t terribly materialistic are now suffering as much as the spendthrifts above.

Everyone knows who the really guilty financiers were- they should be tried in criminal courts for their activities.

Posted by Suzy | Report as abusive

Most of the problems are due to things happening abroad and not in the UK, however we (I work for the RBS group) on the High Street are still getting the blame for everything.
However I do agree with a previous comment, that we have been living beyond our means for along time, buying now and worrying about it later. Previous generations bought only when they had the money to pay for it.

Posted by Debbie | Report as abusive

Here’s my view on Bankers M

Posted by terry mechan | Report as abusive

There are a lot of people to blame… in the widest sense, there are more to blame than are blameless. A few people stand out, IMHO.

Thatcher/Regan governments – for embracing the internationalisation of banking.

Senators Gramm, Leach & Bliley – for their 1999 act repealing Glass Stegall and exposing commercial banking to investment banking risk and creating the greatest moral hazard mankind has ever seen.

Greenspan & cohorts – for creating a debt bubble by preposterously reducing interest rates at the time of the collapse of the TMT bubble ~2001.

Blair and Brown – for stripping the functioning Bank of England of its role as a regulator of the operational aspects of UK banking – while establishing a toothless and unaccountable FSA to give the appearance of lip service being paid to regulation… all the while embracing a classic game-theoretic move to avoid accountability with the “Tripartite agreement”. (~1997)

Blair and Brown – for adopting a ‘European harmonisation’ – resulting in an artificially stable exchange rate with the Euro – leading to debt financed from Euro denominated countries. Culpability can also be seen in the reckless moves to relax inflation targets in 1997 (from RPIX under 2.5% to a 2.5% +/- 1% symmetric target) and in 2003 to adopt CPI – a metric that can’t be directly compared with RPIX – but which has consistently resulted in significantly lower figures than RPIX… and which fails to embrace any aspect of the price of houses… thus adding more fuel to a dangerous asset bubble.

The boards and voting shareholders in every significant bank worldwide must accept some ethical responsibility for their direct/indirect reckless behaviour – which the regulators failed to keep in check.

The regulators – including, but not limited to the SEC and the FSA – for what can only be interpreted as wilful incompetence and dereliction of duty – if not wholesale corruption.

There’s also a foreign policy angle here… do we really think that managing our affairs in such a way as to establish Asia as a preposterously cheap source of labour for manufacturing and off-shoring for the supposedly wealthiest countries to exploit? Is it really a surprise that our economies look set to implode?

Posted by Steve | Report as abusive

Anyone who was over 40 years old in 1997 and did not rely on the state for a living but voted for Labour, can blame themselves for the current situation.

Labour’s history of driving the country into debt and recession before and during their lifetime was well established and a leopard doesn’t change its spots.

A country gets the government it deserves and a combination of stupidity and greed for the fools gold promised by Blair has brought us the inevitable result.

The latest bank bailout plan is nothing more than another grotesque waste of taxpayers’ money dressed up as “prudent” financial management in an effort to buy votes.

There will be no sustainable recovery until a different government with sound financial policies is elected.

Posted by Peter | Report as abusive

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