Gordon’s speech to Congress
6 March 2009
SUGGESTED
Monetary Policy
5 March 2009
Monetary Policy
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Economic Theory
11 November 2024
Surely Gordon Brown needs a new speech writer. Apparently the US Congress voted with their feet, with the empty seats being filled up with staffers but, had they stayed, what would they have made of it? At one point, he said: “So let us work together for the worldwide reduction of interest rates.” Why exactly? Monetary conditions are different in different countries and, if the 1930s show anything, it is that countries that pursue the right monetary policy do better. We don’t have to work together as such. But, even if we did, how could we go further? Japanese and US interest are as close to zero as makes no difference and the UK is more or less at the same point – with the focus now being on the quantity of money. Where has Gordon Brown been for the last six months?
And then he talked about markets: “And when banks have failed and markets have faltered, we the representatives of the people have to be the people’s last line of defence. And that’s why there is no financial orthodoxy so entrenched, no conventional thinking so engrained, no special interest so strong that it should ever stand in the way of the change that hard-working families need.” Has the people’s last line of defence not failed also – the regulators and the central banks? Whether you think they have regulated badly, too much or too little, they have failed big time. Not a very good last line of defence if you ask me. Perhaps the entrenched orthodoxy that should be challenged is the very entrenched orthodoxy that we need to regulate financial markets more. Another couple of millions of paragraphs to add to the 1,100,000 I estimate we already have might just do the trick.
And then the most ridiculous of the lot: “But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?” The answer is, of course, they would not be any safer. Why should they be? There is no evidence of any problems caused by offshore tax havens (though there are a lot caused by the over-taxation of company equity that leads to excess gearing). As for outlawing all takers of credit except for retail banks, that is an unbelievable suggestion. It is the failure of the clearing banks that has caused the real trouble not the failure of the unregulated sectors. Brown might say, “surely we should regulate the institutions that clearing banks have relationships with because we do not want a hedge fund (say) to bring down a high-street bank.” This is completely wrong. Insofar as you need to regulate banks at all, regulators should raise clearing banks’ required capital if they have dodgy counterparties – not regulate the counterparties. Otherwise the FSA would end up regulating (say) Marks and Spencer in case its failure brought down a bank.
And then he talked about markets: “And when banks have failed and markets have faltered, we the representatives of the people have to be the people’s last line of defence. And that’s why there is no financial orthodoxy so entrenched, no conventional thinking so engrained, no special interest so strong that it should ever stand in the way of the change that hard-working families need.” Has the people’s last line of defence not failed also – the regulators and the central banks? Whether you think they have regulated badly, too much or too little, they have failed big time. Not a very good last line of defence if you ask me. Perhaps the entrenched orthodoxy that should be challenged is the very entrenched orthodoxy that we need to regulate financial markets more. Another couple of millions of paragraphs to add to the 1,100,000 I estimate we already have might just do the trick.
And then the most ridiculous of the lot: “But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?” The answer is, of course, they would not be any safer. Why should they be? There is no evidence of any problems caused by offshore tax havens (though there are a lot caused by the over-taxation of company equity that leads to excess gearing). As for outlawing all takers of credit except for retail banks, that is an unbelievable suggestion. It is the failure of the clearing banks that has caused the real trouble not the failure of the unregulated sectors. Brown might say, “surely we should regulate the institutions that clearing banks have relationships with because we do not want a hedge fund (say) to bring down a high-street bank.” This is completely wrong. Insofar as you need to regulate banks at all, regulators should raise clearing banks’ required capital if they have dodgy counterparties – not regulate the counterparties. Otherwise the FSA would end up regulating (say) Marks and Spencer in case its failure brought down a bank.
4 thoughts on “Gordon’s speech to Congress”
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I think perhaps Philip Booth is being over-respectful in seeking to ‘analyse’ the Prime Minister’s speech; though his comments are, of course, pertinent. When I saw pictures of Gordon Brown’s American audience regularly rising to their feet, I thought of the word ‘claptrap’, which I believe refers precisely to deliberate attempts to provoke applause in an audience. It is an art I have never mastered in my own speeches, which may partly explain why I am not Prime Minister.
I think perhaps Philip Booth is being over-respectful in seeking to ‘analyse’ the Prime Minister’s speech; though his comments are, of course, pertinent. When I saw pictures of Gordon Brown’s American audience regularly rising to their feet, I thought of the word ‘claptrap’, which I believe refers precisely to deliberate attempts to provoke applause in an audience. It is an art I have never mastered in my own speeches, which may partly explain why I am not Prime Minister.
Agreed. I see you managed to resist the temptation to make the obvious joke.
Agreed. I see you managed to resist the temptation to make the obvious joke.