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Politicians need a history lesson from 1929

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Politicians need a history lesson from 1929


Though I am no expert on the stock market crash of 1929 or the Great Depression that followed, what a pity that senior bankers and politicians did not study this subject and learn some of the lessons. There are so many parallels that it is uncanny and implies that people who should know better never learn their lessons.

In the run up to the Great Depression, ordinary people were allowed to purchase shares, whereas in the past it had been an exclusive club. In doing so, they increased demand and share prices started their relentless rise. This started to encourage more and more people to buy shares and, you’ve guessed it, the prices started to rise even further. The inexorable rise in share prices encouraged people to start to borrow in order that they could take advantage of the wealth creation that the stock market appeared to provide. The vast majority of these ordinary people had absolutely no idea how the stock market worked, it just looked like a one way bet. Brokers extended credit to share purchasers, in what became know as ‘margins’ whereby the purchaser could buy for example, $60,000 worth of shares, with just $6,000 of cash, the rest was borrowed.

The people of America felt rich, lifestyles improved after the austerity of the first world war and few people raised any doubts, those that did, such as President Hoover, tended to keep it to themselves, rather than be see as the Cassandra. Millions of people were encouraged to invest in the new gold rush that was the New York Stock Exchange, with little or no knowledge of the risks and inevitably with a ringing in their ears that you have to be ‘in it, to win it’. Banks and brokers stoked the money fever by extending loans secured on the shares. Inevitably the bubble burst, some were smart enough or lucky enough to get out before the crash, but they were few and far between. The vast majority of people lost all of their savings. There followed
the Great Depression, which lead to mass unemployment and affected virtually every corner of the world and it lasted 10 years. Some would argue that it also encouraged fascism and communism, if true, then it could well have been a precursor to the second world war.

If we exchange shares for houses, the parallels are uncanny. Many people have jumped on the housing bandwagon for fear of being left behind and a concern that if they were not a property owner, then they were nothing. In fact, there is some irony with that last statement because, as we all know, if you went to a bank and were a home owner, even if you owed £300k on your house, you were more likely to be able to secure another loan, than if you had no such liabilities because you rented. Somehow, owning a home had become the primary goal of a good proportion of the people of this country, actively encouraged by the banks. Loan to Value (LTV) ratios increased from around 75% to, in some cases, 125%. This implied that the banks felt that their investment was safe, because house prices would continue to rise, which meant that in a relatively short period of time, their risk would be covered by the rise in house prices.

If the banks felt that way, why would the buyers not? The ratios were also increased, allowing people to buy a house with multiples or 5 or 6 times their earnings, where previously this had typically been 2.5 times joint, or 3 times a single income. If that were not enough, many of the banks introduced ‘buy to let’ schemes, which allowed people with little or no money to build up a property portfolio in no time and of course, lead to an even greater demand for properties, leading to a further increase in house prices. So, everyone was making money, homeowners, the banks, mortgage companies, estate agents and of course, your friend and mine Gordon Brown, in the form of the Treasury.

After the 1929 stock market crash, Hoover introduced the Securities & Exchange commision to regulate US markets, this had the desired affect. However, over the past 20 years or so, the rules and regulations have been relaxed, seen as no longer necessary and much of what we witness in the United States today can be attributed to the easing of those regulations. Similarly, the much vaunted deregulation of the City was also a pre-cursor to the problems we all face today. Light regulation and a hand-off approach by government and the regulators has allowed the banks to enter very high risk transactions which many people struggle to understand. Yet, in doing so, they have clearly bet everything on it, presumably because they also though they couldn’t lose. Now, clearly all of us must take personal responsibility for our respective levels of borrowings, but easy money is difficult to refuse especially when it is being rammed down your throat on a daily basis, in the newspapers, on TV, in the shops and via direct mail campaigns.

However, when people hold senior positions, in banks, commerce and government, we could all be forgiven for believing that they are well read, experienced, shrewd and knowledgeable. In fact, we tend to take it for granted, how else would they have secured senior positions with such huge responsibilities? As chancellor, Gordon Brown in particular and the Labour government in general have let us down, their collective naivety lulled us all into a sense of false security, with Gordon Brown using the oft repeated mantra that his government policies would lead to an end of “Tory boom and bust”.

We can be forgiven for believing that a man in such a position would be best placed to know whether that was true or not, but instead, we have all come to realise, that politicians do not earn their position because of their knowledge, but instead, where they sit in the party. In other words, they learn on the job. Imagine placing a 10 year old in charge of a London bus if you will! Similarly, bankers have created new financial products, which are so complicated, that few, if any, could actually understand the risks associated with bundling mortgage securities. At best their actions could be described as reckless, but a far better description maybe of a desperate gambler playing for high stakes.

The regulators appear to have either been overwhelmed at the scale of these new securities or, more likely, unable to understand the complexities. As a consequence, those that were entrusted with our financial security, government ministers, regulators and banks, have seriously let the people of this country down, as well as shareholders, many of whom are you and I with pension funds invested in the stock market.

What is particularly galling is the fact that no-one wants to accept responsibility. On top of that, the same people that got us into this mess are, for the most part, still in the same positions. Asking us to believe that they have all the answers. Even though, had they studied their subject matter better and read up on the stock market crash of 1929 and the Great depression, many of the problems we are facing today could have been anticipated and perhaps even avoided. Governments around the world want us to believe that their solutions will work, but how do they really know, what confidence can we have in their solutions? They are spending £trillions on propping up banks, business and economies, but all of this money is borrowed, have they learnt nothing?

The rest of us are having to tighten our belts, but our governments are spending our money in what appears to be a last throw of the dice. They are all frightened of another depression, aren’t we all, but sometimes it is necessary for a period of reflection, instead, governments around the world appear to be thrashing around, panicking in a last throw of the dice. We all find ourselves asking where will it all end, not when?

We must all learn lessons from this. But one fundamental lesson is that no member of parliament should be allowed to take up a position unless they have prior experience. For example, no current cabinet minister has ever run their own business, so what do they know of the problems being faced by business people? When was the last time that an experienced person was placed in charge of the second largest employer in the world, the National Health Service? Take a look at Miliband, he is wet behind the ears, lacks depth and credibility, he may be ‘smooth’ but he does not look like someone that is well read. In fact, he even managed to offend the Indian government on his last visit, are these the sort of people we want to be representing us on the world stage? What of Jacqui Smith, she finds it difficult to string a sentence together has allowed the police and other agencies to trample all over our civil liberties and lacks any obvious gravitas? Little wonder that we are in a mess.

In my view, government ministers and bankers must be called to account because they have demonstrated what appears to be a reckless disregard for the interests, respectively of the people of this country and the interests of their shareholders.

It is a time for change and this must include a look at how or on what basis members of parliament are given key cabinet posts. In no other business or industry I know of do people with little or no experience get elevated to such senior positions based on nothing other than a handshake. Never again should the people of this country be lead by donkeys. We will come out the other side, most likely in spite of this government intervention rather than because of them, but when we do, the people’s voice must be heard. We must demand change.

Posted in Featured, General, Labour, World | Comments (13)

Public must call time on Big Brother Britain

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Public must call time on Big Brother Britain


Enough is enough, the UK is becoming a police state by our control obsessed government and we are sitting back and allowing it to happen. It makes me angry to see such lethargy. Everytime a new act is brought in, far more sinister aspects are buried in the detail, which further curtail our civil liberties, freedom and privacy. This has got to stop and now, state should not be permitted to control the people, it should be the other way around. As it stands, just 650 members of parliament are pushing some 65m people around, yes, I mean 650, because whilst this government may have a majority, the MP’s from other parties are not making enough noise about this massive intrusion into our lives, they should be fired, the lot of them. We are quick to condemn the bankers (rightly so in many cases), but we do nothing about the MP’s that have consistently introduced or supported Acts of Parliament that intrude into our lives, in a way that will affect us for many years to come. We must put a stop to it.

It is expected that plans to collect more data on people’s phone, e-mail and web-browsing habits will be included in the innocuously sounding “Communications Data Bill”, due to be introduced in the Queen’s Speech in November. By all accounts, these proposals are supported by Home Secretary Jacqui Smith, Gordon Brown and much of the Labour government. Once again, the government is expected to justify this gross intrusion into the personal lives of 65m people under the auspices of ‘counter-terrorism’, this is utter garbage, they know it and we know it. Yes, there are terrorists out there and they don’t wear badges, but this country has faced terrorism before and the security forces managed to investigate and prosecute without such laws.

I don’t know how many terrorists are out there, but it is not 65m and is probably less that a couple of thousand, why should the privacy and personal of 65m people be invaded by this government because of a few people that mean us harm? This whole thing needs to be put in perspective, more people in the UK die on the roads than as a result of terrorism, more soldiers are killed abroad, than in the UK as a result of terrorism, in fact, more people are killed in farming accidents than as a consequence of terrorism. This government has invested massively in the security services, allowing them to go on a substantial recruitment drive, there should be no need for a massive Big Brother surveillance operation of the entire population of the UK. Before some smart-arse suggests that it is this surveillance and investment in the security services that has reduced the number of terrorist incidents in the UK, I would ask them to provide further evidence that this is the case and then to put it into perspective. For example, it is well know that the airline industry work out whether safety mechanisms are worth introducing on their planes on the basis of a cost/benefit analysis. In other words, will the costs associated with an accident outweigh the cost of implementing the safety programmes. Fact of life, they all do it, they just rarely tell us!

Of course the government will issue the usual platitudes and assurances that they will not misuse this information, but can we believe them. The Icelandic authorities had their assets frozen using anti-terror laws, in spite of the fact that there were other laws that could have been used and would have been just as effective. A local council used anti-terror legislation to spy on the parents of a child that they throught was in the wrong ‘catchment area’. This list, trust me, goes on and on. We also know that this government and it’s private sector partners are incapapble of securing data, which means our personal lives could be open to all and sundry. Some will argue that if you have nothing to hide, then there is nothing to hide, these same people probably still believe in Father Christmas. As we know information, any information can be used in different ways, depending on the intepretation of the recipient, how many times have we all said or done something that was completely misrepresented?

I have nothing to hide, but I object strongly to my personal calls, web browsing habits and email being monitored and invaded by the state. Government’s could even misuse this information to find out how we intend to vote! It is an appalling proposal and it is high time the British public called time on this control obsessed government and it’s supporters, irrespective of which party they represent. This goes beyond party politics, it is a direct attack on the very fabric of our society and no-one will be safe from government interference if it is allowed to pass into law. If the government believe that this act is so important, then they should allow the British people to vote on it through a referendum, I believe they will get a resounding No…and they know it!

People often tell me that there is “not much we can do”, but there is. Our members of parliament are worried sick that they may lose their seat at the next election, we must emphasise to them that if they support this attack on our civil liberties that we guarantee they will. We must demonstrate to our MP’s that they should be more in fear of the wrath of the British public that the Chief Whip of their own parties. Opposition MP’s should do their jobs and oppose this draconian piece of legislation. We must also warn our local members of parliament that if they vote for this Act, then we will not vote for them, we must make it clear, that we have a voice, not once every 5 years, but throughout their tenure and that we will have it heard. Everyone that feels this Act is a direct infringement of our civil liberties, right to privacy and an attack on the very fabric of our society, should write to their MP and tell them so. I have provided a ‘draft letter’ which can be viewed, personalised and sent to your MP. Draft Letter to MP

I would also invite all fellow bloggers that feel as strongly as I do on this issue to reproduce this article in part or full, topped and tailed if they wish, to publicise this issue to as many people as possible. Let us all stand up and fight in this issue, and remind this government who is actually in charge.

RESIST!

For more information on how the UK government is steadily eroding our rights to privacy and our civil liberties, I would recommend that you take a look at these articles. Privacy Controls – Nothing to Hide

 

 
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Posted in Big Brother, Civil Liberties, Featured, General | Comments (51)

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