Written by Harry Phibbs
In his report for the Adam Smith Institute, entitled Credit Crunch: The Anatomy of a Crisis, John Redwood uses the analogy of a car journey to describe what happened. After 2001 the Government went on a borrowing splurge itself and caused the same to happen in the private sector. ‘It was an era of off-balance-sheet financing for Government and of the multiplication of wild instruments for gearing in the private sector. It was as if driving a car a breakneck speed could suddenly become safe because they were on straight and empty piece of road,’ he wrote.
In 2007 they saw they had ‘overdone the easy credit binge.’ So they ‘slammed on the brakes’ and we crashed. Then last year they poured money into the banking system but stopped the banks lending it out, as though they were ‘seeking to drive a car by putting your foot to the floor on the accelerator while still keeping the other foot on the brake.’
Published in the Daily Mail here.