Media Spotlight: The Storm by Vince Cable
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The man regarded as one of our top economic commentators gives us his insight into what caused the credit crunch in his book The Storm - The World Economic Crisis & What It Means.
Vince Cable, shadow chancellor for the Liberal Democrats, is a rare commodity in the political world - having been chief economist at Shell he understands the inner workings of the business world.
Cable prides himself in having predicted the credit crunch in the late 1990s, having issued a warning to then-chancellor Gordon Brown that growing consumer debt and rising house prices were a recipe for disaster. His warning was ignored.
Throughout the book he draws on lessons from history from which it appears we have learnt little.
Cable sets the scene by drawing on the work of Karl Marx.
“Owners of capital will stimulate the working class to buy more and more expensive goods, houses and mechanical products, pushing them to take more expensive credit until their debt becomes unbearable,” Marx predicted.
“Unpaid debt will lead to the bankruptcy of banks which will have to be nationalised and the state will have to take the road which will eventually lead to communism.”
Well, his predictions haven’t quite come true but they are not far off.
Cable does not enlighten us by providing a fresh explantation as to why the economy collapsed but rather explains the mechanism in such a straightforward way that it makes the reader almost embarrassed for the government for letting itself get into such a mess.
But Cable writes as an economist rather than a politician and looks at the issue on a global scale, not something that can be solved by now-Prime Minister Brown.
The first chapter, entitled Trouble on the Tyne, takes us back to September 13 2007 - the day the credit crunch gripped the man in street.
Unfortunately, many of these were queuing outside branches of Northern Rock trying desperately to withdraw their savings.
Cable offers an insight into what went wrong at Northern Rock and unsurprisingly refers to its infamous Together mortgage.
As the book takes us through the events that led to the crisis it becomes like a fictional blockbuster Although we know the ending, it still makes for a gripping read.
Cable also offers remedies for the crisis but having written the book during the summer and autumn of 2008, many of what he predicts has already come to pass.
An opponent of demutualisation Cable suggests the solution could be for high street banks to bear the brunt of regulation and receive most of their funds from depositors.
In contrast, investment banks and hedge funds should shoulder more risk.
His chapter on the world’s emerging economies is perhaps the most complicated.
“The tension between globalisation and nationalism is becoming extreme and the outcome is not predictable,” he writes.
Cable warns that the UK is not as forward-thinking as other countries before closing the book by saying the political class must unblock the financial plumbing. But as with most plumbers, he’s not convinced they can do the job.
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