Financial saviours
I see that John Wright (Letters, 13 June) is perpetuating the old right-wing canard that Labour were responsible for the 2008 economic meltdown. The truth is precisely the opposite. It was caused by the sale of sub-prime mortgages in the USA with the banks and other lenders over-reaching themselves and then finding themselves with too little capital to repay their investors as loans were called in. This financial problem gradually built up in 2007 and then became a fullscale crash, which was triggered in the US by the collapse of Lehman Brothers in September 2008 and then in the UK a run began as first Northern Rock, and later the Royal Bank of Scotland, reached the point of bankruptcy.
In contrast to right-wing economists, who were calling for capital controls to be tightened – which would have led to an even worse situation and a probable global economic meltdown – Gordon Brown and Alistair Darling, with only hours to act, correctly diagnosed the problem and realised the solution required a Keynesian approach. They instructed the Bank of England to pour money into the banks and then required them in future to increase their capital ratios, and they nationalised Northern Rock and RBS.
As the situation stabilised their example was followed (though too slowly) by the USA and then by EU countries and the European Central Bank. Paul Krugman, the
Nobel economist, said “Britain ended up setting the template for everyone else’s response, which is quite amazing”. It took a while, though, for the penny to drop everywhere and the crisis rumbled on for another year. In the UK GDP fell sharply in 2008 but gradually recovered and by the election of 2010 was rising swiftly. However, George Osborne then introduced austerity, the last thing we needed, and the economy has flatlined since.
So, far from being criticised, Labour deserve only praise for the way they saved the economy in 2008 and for their reform of banking legislation, so that similar collapses are less likely in the future. Barry Hughes
Edinburgh