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The Federal Reserve chairman has appeared before the Financial Crisis Inquiry Commission in Washington

• Lehman boss Dick Fuld was defiant in the hotseat yesterday

The man at the helm of America’s central bank, Ben Bernanke, will spend the morning under examination over his actions to steady the US economy at the height of the global financial crisis back in September 2008.

Starting at 9am ET (2pm UK), Bernanke will be questioned by a bipartisan panel chaired by Phil Angelides, a former Democratic state treasurer of California, as part of a series of evidentiary sessions entitled “too big to fail: expectations and impact of extraordinary government intervention and the role of systemic risk in the financial crisis”.

Following up from yesterday’s appearance by the former Lehman Brothers boss Dick Fuld, the panel are sure to ask Bernanke about the US government’s controversial path in allowing Lehman to file for bankruptcy – despite putting together rescue packages for other banks including Bears Stearns, Wachovia and Washington Mutual.

A cerebral figure, Bernanke has a habit of speaking in tortuously lengthy sentences. But I’ll be following and interpreting his remarks here live, to see what new insights can be gained about the worst financial crisis since the Great Depression of the 1930s.

2.01pm: Bernanke’s taking his seat, pouring himself a glass of water and the proceedings are about to start. Phil Angelides is gavelling us in. Bang, bang.

2.04pm: The Federal Reserve boss has 10 minutes to make some opening remarks.

He kicks off immediately by talking about big banks: “So called too big to fail financial institutions were both a source, although by no means the only source, of the financial crisis, and an impediment to resolving it.”

The most prominent factor, he recalled, in precipitating the crisis was the prospect of big losses in subprime mortgages – but although mortgage losses were large, they weren’t large enough to account for the entire crisis. The effect was greatly increased by existing weaknesses in the system, plus gaps in the government’s “tool box”.

2.07pm: Financial institutions, says Bernanke, were too reliant on unstable short-term funding – the “shadow banking system” – which made them vulnerable to classic “run on the bank” situations.

Poor risk management, excessive leverage of households and firms, misuse of certain financial instruments all played a part. Plus, in the public sector, gaps in the statutory framework and “flaws in the performance of regulators and supervisors” both in the US and elsewhere.

Bernanke says there weren’t enough oversight powers over the shadow banking system – including big Wall Street broker-dealerships (a clear reference to Lehman Brothers and Bear Stearns). He says bank capital and liquidity standards were insufficiently stringent.

2.09pm: In the longer term, the existence of “too big to fail” firms creates severe moral hazard problems – and an uneven playing field between large firms and their smaller competitors.

In other words, Bernanke is saying you can’t have a situation where big banks take risks in the knowledge that, at the 11th hour, they will always be bailed out by the government in extremis. That’s not fair on smaller financial institutions which can’t rely on such a backstop.

2.10pm: We need a framework providing an appropriate mix of “prudence, risk-taking and innovation” in the financial system, Bernanke concludes in his opening remarks.

2.13pm: The panel’s Democratic chairman, Phil Angelides, kicks off the questioning. Angelides is a clever fellow and he takes his role seriously – his questions tend to probe matters of detail, rather than to elicit grand expressions of emotion from his witnesses.

He’s waffling on for rather a long time. But the essence of his question is – “was this a substantial miss” for regulators? Did the Fed fail to see weaknesses in the system in the run-up to the crisis?

2.15pm: Bernanke says “too big to fail” institutions were popping up not only in the US but globally – as financial supermarkets grew – classic examples being Citigroup or firms in the UK such as RBS. He says there wasn’t sufficient anticipation of the systemic risk of these huge institutions.

“There was a combination of the structure of the system, the underlying trends towards greater and more complex firms, together with some mistakes and shortcomings on the part of regulators.”

2.18pm: A blunt point, now, from Bernanke on the international race towards deregulation – he says Wall Street and the City engaged in a damaging race to offer the lightest touch in financial oversight.

“Before the crisis, one of our main concerns was London and Tokyo – were they taking away financial industry from the US and was excessive regulation doing that?”

2.20pm: Bernanke’s back on the sheer size of banks and on the need for a mechanism to wind down failed institutions in an orderly way: “The most important lesson of this crisis is we have to end ‘too big to fail’.”

2.24pm: Now we’re beginning to zero in on the failure of Lehman Brothers. Reviving a topic of discussion from yesterday’s hearing with Dick Fuld, panel chairman Phil Angelides wants to know whether it was an active policy decision by the US authorities to allow Lehman to fail – or, presumably, just a cock-up.

Angelides isn’t buying previous claims that the Fed didn’t have the legal authority to backstop Lehman’s liabilities. What were the factors the Fed was weighing up?

2.29pm: The Federal Reserve boss says before he took the job, he was an academic and that he studied the Great Depression. He believed “deeply” that a failure of Lehman would be catastrophic:

“I never, at any time, wavered in my view that we should do absolutely everything possible to prevent the failure of Lehman.”

But on the fateful Sunday in September 2008 when Lehman failed, Bernanke says he was told there was a run on the bank – and that Lehman fundamentally didn’t have enough capital.

“Lehman did not have enough capital to allow the Fed to lend it enough to meet that run. Therefore, if we lent them money, all that would happen would be the run would succeed because it wouldn’t be able to meet those demands, the firm would fail and not only would we be unsuccessful but we would have saddled the taxpayer with tens of billions of dollars of losses.”

In other words, the patient was dead on the operating table and no amount of blood infusion would bring it back to life.

He bluntly adds: “Any attempt to lend to Lehman within the law would be futile and would only result in loss of cash.”

Its going concern value, he adds, was melting away as customers deserted.

2.32pm: Legally speaking, Bernanke says, the Fed was not allowed to lend without a reasonable expectation of repayment. This was before the days of bail-out funds and “Tarp” investments. The Fed chief says Lehman simply didn’t have enough collateral to backstop any injection of

“It wasn’t just a failure of legality it was a question of whether there was anything we could conceivably do to prevent the failure of the firm.”

He describes it as a “myth” that the government could have saved Lehman and adds: “If I could have done anything to have saved it, I would have saved it.”

This is a bluntly opposing view to the agitation of Dick Fuld, who insisted to the panel yesterday that Lehman was “mandated” into bankruptcy by the government, which refused to give it access to cheap liquidity from the Fed’s discount window.

2.34pm: By the way, the text of Bernanke’s written testimony has been posted on the FCIC’s website here.

It’s fairly dense stuff though and I wouldn’t recommend it for bedtime reading.

2.38pm: So what’s changed? Well, nowadays, Bernanke says, firms will have “living wills” giving instructions on how to wind them down.

But a key problem, he says, is the international dimension – one bank supervised by the Fed has offices in 109 countries, each with its own bankruptcy rules and codes. Bernanke wants more global co-operation:

“We’re going to need to develop the moral equivalent of tax treaties” with other countries, frameworks on how to wind down firms. This should be a “top priority”, says Bernanke.

2.41pm: There are 4 or 5 countries which are the most important that the US has to work with on solving the problem of ‘too big to fail’ banks, Bernanke says. Presumably (hopefully) that includes the UK. “There a lot of work to be done and I think we have a way to go” but there’s plenty of co-operation and goodwill from international partners.

2.44pm: Meanwhile, outside the Washington inquiry panel room, there’s an interesting report today on an extension of Bernanke’s powers. Bloomberg Markets magazine says that the Fed is going to oversee two non-bank firms which are considered systemically important to the US economy – General Electric and Warren Buffett’s Berkshire Hathaway.

That’s on top of its oversight of top banks and 440 “thrift holding companies”, the magazine reports.

2.47pm: How was Lehman Brothers’ failure different from AIG, which was bailed out by the government? The question is asked by panel vice-chairman Bill Thomas.

Bernanke says there was a “fundamental difference” – while Lehman lacked collateral, AIG was in trouble because only a relatively small part of its business had gone up the creek (a financial insurance division largely based in London). He insists the Fed will be paid back for its $185bn plus bail-out package of AIG.

A bit of mutual loving as Thomas thanks Bernanke for his “bravery and willingness” in taking such political risks during the financial crisis. Bernanke smiles wanly.

2.54pm: Suddenly an uncharacteristic dig at Wall Street “rewards for failure” from Bernanke.

“For capitalism to work, you have to have incentives tied to performance,” declares Bernanke. “One of the things people are very upset about is the fact that it seems like a lot of people who drove their companies into the ditch walked off with a lot of money and that’s not good capitalism – it’s not a good ethical outcome, either.”

3.04pm: Republican panelist Douglas Holtz-Eakin, a former economic adviser to President Bush, wants to know Bernanke’s view of the factors behind the housing bubble.

Bernanke is saying something opaque and academic about the “interaction of expectations, optimism on the one hand and innovation of mortgage instruments on the other”. That’s a posh way of saying that homebuyers’ greed was matched by lenders’ greed.

He says there were “increasingly sketchy instruments” such as Option ARM and interest-only mortgages, previously reserved for sophisticated investors, which became available to first-time buyers. When house prices stopped rising, the whole pack of cards came tumbling down.

3.06pm: It would have been “questionable”, says Bernanke, to raise interest rates in 2003 or 2004 to deflate the mortgage bubble, given what was going on in the broader economy. It would have been better, he says, to have addressed it through tighter regulation on homeloans.

3.09pm: The Fed boss is asked why, in the early days of the credit crunch, he kept insisting that the fallout could be “contained”. He says it’s because the cost of delinquent mortgages was only going to reach about $300bn to $400bn – Bernanke admits he didn’t expect reverberations to spread further.

“What I did not recognise was the extent to which the system had flaws and weaknesses in it that were going to amplify the initial shock from subprime and make it into a much bigger crisis.”

3.18pm: Former Lehman trader Lawrence McDonald, author of “a colossal failure of common sense” which chronicles the collapse of Lehman, is tweeting outrage at Bernanke’s testimony.

McDonald is adamant that it was contradictory for the Fed to let Lehman fail, yet bail out the insurer AIG: “Mr. Ben Bernanke, just like Lehman $AIG did NOT have the collateral to justify using tax payer funds to save it, not $180 bln!”

3.25pm: Under questioning from former Florida governor Bob Graham, the Fed chairman says in principle, he’d like to see capital surcharges on firms that are systemically critical – which would “both make them safer and would make it more onerous to be a systemically cricial firm”. Plus greater discipline imposed by the authorities.

This would reduce the incentive for huge mega-banks to become “too big to fail”. And he adds that under its new power, the Fed theoretically has the power to break up firms it believes are threatening the financial system.

3.35pm: Bernanke concedes there were two areas in which the Fed could have done more to ease the crisis – in enforcing standards at the mortgage underwriting level and in the general risk management of firms to help them understand their own potential losses.

“One of the lessons of the crisis is that innovation isn’t always a good thing,” the Fed chief adds.

3.40pm: One of the panellists, John Thompson, asks a blunt question: “In hindsight, would you have preferred to have saved Lehman?”

“It’s really hard to know what would have happened, um, I mean one possible scenario is that…,” begins Bernanke, then he switches tack.

“The only way we could have saved Lehman would have been by breaking the law and I’m not sure I’m willing to accept those consequences for the Federal Reserve and for our system of laws. I just don’t think that would have been appropriate,” he says. “So, I wish we had saved Lehman but it was beyond our ingenuity and capacity to do it.”

He’s re-asserting his earlier view that the Fed isn’t allowed to lend when there isn’t a realistic possibility of getting its money back – and that Lehman didn’t have the collateral to back a loan of public money.

3.52pm: A bit of scepticism here on the Fed’s claim that it couldn’t have bailed out Lehman because it lacked collateral. A Republican panellist, Peter Wallison, wants to know if the Fed did an actual study on Lehman’s capital at the time.

Unusually, Bernanke looks a bit uncomfortable and starts muttering about stress tests. Then he admits that he doesn’t have any actual hard evidence to back up his assessment of Lehman’s capital shortfall: “To my knowledge, I don’t have a study to hand you but it was a judgement made by the leadership of the NY Fed and the people who were charged with reviewing the books of Lehman that they were far short of what was needed to get the cash to meet the run. That was the judgement that was given to me.”

The debate about whether Lehman should have been rescued is coming down to this – was this simply a short-term liquidity crisis caused by a run on the bank? Or did Lehman have a bigger, broader, underlying capital hole that justified the panic by customers?

4.04pm: Here’s a take on Bernanke’s performance from Reuters:

Federal Reserve Chairman Ben Bernanke said on Thursday he could not have legally saved Lehman Brothers from bankruptcy and the firm’s catastrophic failure in 2008 was a source of sadness.

4.06pm: Democrat panellist Brooksley Born wants to know if inter-connected derivatives positions were a key concern in the decision over whether to rescue Lehman.

“It was a significant concern,” says Bernanke, who says the Fed worked hard with over-the-counter markets to try to “put foam on the runway” in preparation for winding down thousands of complex positions on Lehman’s books.

4.13pm: Did Lehman and Bear fail only because of “unjustified liquidity runs” or were their genuine insolvency problems, asks Keith Hennessey, a Republican former Bush White House economist.

Bernanke says there were “clearly losses and liquidity issues” at both Bear Stearns and Lehman Brothers. He says Lehman had struggled to raise additional capital over the spring and summer of 2008.

“It was a combination of general fear, certainly, but also some legitimate concerns about both the asset position of the company, its balance sheet, but also some concerns about the longer term viability of the firm, its business model.

“It’s the nature of financial institutions that they live on confidence. When their counterparties and customers and creditors don’t believe they are sustainable, then the pressure mounts very quickly.”

The phrase “legitimate concerns” is key. It’s Bernanke-speak for a slapdown of Lehman’s boss Dick Fuld, who claimed yesterday that the run on his bank was caused by “uncontrollable market forces”, incorrect perceptions and rumours.

4.20pm: Here’s a slightly off-beat question – what are the best books and speeches to read about the crisis? It’s a chance for Bernanke to endorse a few works!

“Not to sound too professorial, there is some academic work,” says Bernanke, mentioning research on bank runs done by a Yale professor, Gary Gorton.

He’s also a fan of Markus Brunnermeier, a Princeton economics professor, for his scholarship on panic in the Repo market. And for a historical perspective, Bernanke recommends Lords of Finance – a Pulitzer prize-winning history of the Great Depression by Liaquat Ahamed.

4.29pm:
“A lot of the Wall Street guys are like greased pigs – they’re hard to catch,” remarks the panel’s Democratic chairman, Phil Angelides, apropos of nothing in particular. Nice phrase. Angelides wants to know if the Fed has sufficient resources to police Wall Street.

Bernanke doesn’t really answer directly – he’s meandering off on a soliloquy how much experience and expertise there is in the Fed, and his organisation’s multi-disciplinary approach. He adds, though: “It’s never going to be the case that the government can pay what Wall Street can pay.”

4.32pm: Bernanke on toxic mortgages interacting with the US economy: “The e.coli got into the food supply and that caused a much bigger problem.”

4.41pm: Mark-to-market accounting “exacerbated somewhat” the financial crisis, Bernanke says. It’s the nature of the market that asset prices move up and down at times of stress.

“I don’t think we should conclude from that we should abandon mark-to-market accounting.”

4.42pm: That’s it – it’s all finished – Phil Angelides is thanking Bernanke for his appearance before the commission. The Fed chairman is getting up and leaving the room. I’ll wrap up the main points of Bernanke’s testimony in a few minutes but things seem to have gone relatively smoothly for old Ben – there haven’t been too many flashpoints or embarrassing gaffes.

4.57pm: Ben Bernanke’s appearance before America’s financial crisis inquiry commission clocked in at two and three quarter hours. It’s been a typically calm and measured performance by the Federal Reserve chairman who isn’t known for intemperate outbursts – perhaps thankfully, given that he’s in charge of the stability of the world’s largest economy.

Bernanke did produce a few gems, though, largely on the subject of Lehman Brothers’ collapse and the Bush administration’s decision not to step in with a rescue.

• It would have been “illegal” for the Federal Reserve to bail out Lehman Brothers because the bank didn’t have collateral to back a loan from taxpayers’ money: “The only way we could have saved Lehman would have been by breaking the law and I’m not sure I’m willing to accept those consequences for the Federal Reserve and for our system of laws.”

• Bernanke doesn’t agree with Lehman’s boss Dick Fuld, who testified yesterday that the run on his bank in September 2008 was unjustified and irrational panic. The Fed chairman says there were “legitimate concerns” among customers and counterparties about Lehman’s asset position, balance sheet and business model.

• The demise of Lehman was a different situation from the crisis that gripped insurer AIG. Bernanke argues that the government was legitimately able to rescue AIG because it had solid insurance assets to put up as collateral for bail-out funds. He says AIG was undermined by problems in a relatively small financial products division.

• In future, banks considered systemically important will have a “living will” making an orderly wind-down easier, and there could be capital surcharges on financial supermarkets that get too big – all measures to stop any firm being “too big to fail”.

• Lehman’s demise was a source of “sadness” for Bernanke and he wishes he could have saved the bank with “cheery words”.

• And an autumn reading list recommended by the Fed chairman – work by Princeton economist Markus Brunnermeier, Yale professor Gary Gorton and Liaquat Ahamed’s book on the great depression, “Lords of Finance”.

Originally published here

Hurricane expected to reach North Carolina later today as states from Virginia to Massachussetts prepare to batten down hatches

Barack Obama yesterday declared an emergency as states along the eastern seaboard of the US prepared evacuation plans to be put in to operation if hurricane Earl moves inland instead of glancing the shoreline.

The US president authorised the US Department of Homeland Security and the Federal Emergencies Management Agency (FEMA) to co-ordinate disaster relief – a move that should allow rapid movement of equipment and other resources if the hurricane threatens the most densely-populated area of the country.

Storms are expected to reach North Carolina later today before moving north-east as states from Virginia to Massachussetts also prepare to batten down the hatches.

The governors of North Carolina, Virginia and Maryland have already declared emergencies. The Virginia, governor Bob McDonnell, activated the National Guard, sending troops to the Hampton Roads area on Chesapeake Bay. “I’d rather be safe and get our troops and state police in place by Thursday night,” he said.

Winds of up to 140mph were reported as Earl gathered strength yesterday.

A mandatory evacuation ordered 30,000 residents and visitors to leave Hatteras Island, in North Carolina. About 5,000 tourists were ordered to leave Ocracoke Island, to the south.

Earl is at present a category four hurricane – one short of the most powerful category, category five – the classification for storms hitting 155mph and higher.

Authorities are hoping the storm will stay offshore, but forecasters have warned that it could come closer and pass over New York Island, Boston and Cape Cod.

“Everyone is poised and ready to pull the trigger if Earl turns west – but our hope is that this thing goes out to sea and we’re all golfing this weekend,” Peter Judge, a spokesman for the Massachusetts Emergency Management Agency, said.

Red Cross officials in New York are ready to open up to 50 shelters, housing up to 60,000 people, in an emergency.

Obama’s declaration of an emergency comes days after the fifth anniversary of hurricane Katrina, which wrecked New Orleans and prompted criticism of federal agencies’ slow response during George Bush’s presidency.

Federal agencies were also accused by residents of Louisiana of being slow in reacting to the Deepwater Horizon oil spill in April.

Originally published here

New Labour dogma pervades Tony Blair’s biography. Bringing it into the leadership race is a depressing mistake

Nearly over now, then – so let us count the cliches used to decry the Labour leadership contest. “Interminable,” claims the Daily Telegraph. “The least inspiring contest ever,” says a columnist in the Independent. “A bunch of clueless clodhoppers,” reckons the characteristically emollient Mail. Now, the hysterically received Blair memoirs add another commonplace to the noise: that beneath the alleged tedium lurks grave danger – and if it isn’t careful, Labour will stray from the New Labour path, and lurch into irrelevance.

I dutifully bought my copy of A Journey today, and eventually reached the postscript, in which Blair sets out his vision of the future. What awaited was a mess of suggestions, most of which seemed to favour a model of debate that would effectively be meaningless. For Labour, the ideal path entails “remaining flexible enough to attack the government from left and right”. Even as the welfare state is hacked down and our few remaining social democratic institutions put under threat, “defining where you stand by reference to the opposite of where the other person stands is not just childish, but completely out of touch with where politics is today”. The “statist, so-called Keynesian response to the economic crisis” is a busted flush; even starting to rein in pay at the top would do “more harm than good”. Labour, as he sees it, “should criticise the composition but not the thrust of the Tory deficit reductions”.

Behind all this there is a mindset that is closer to a pathology than thought-through politics. Even after the crash, all that is contemporary, sensible and electorally advantageous is reduced to what Blair calls “liberal economic policies, market reforms in welfare and public services, and” – note the graceful use of language here – “engagement and intervention abroad”.

Anyone who questions this is is in danger of slipping back into the disgraced past. Under every bed, there lurks an “old Labour” red; even in the highest circles (witness an early reference in the book to Alastair Campbell: “much more old Labour” than some people, apparently) there is a constant danger of a return to a nightmare world of picket lines, nationalised everything, and serial Labour losses. In Blair’s rather paranoid account, even Lib Dems have “old Labour” instincts: and the coalition will prosper only if it squashes them.

Some salient facts. Between 1997 and 2010, Labour lost 5 million votes, of which 4 million went under his watch. In the eight years up to 2005 the party also mislaid over half its membership (often maligned as a rabble of unrepresentative anoraks – but still the chief means by which Labour actually wins elections). At his last general election, moreover, Blair led the party to a truly hollow victory: the support of 22% of the electorate, an outcome sufficiently chastening that he stood outside Downing Street and claimed to have “listened and learned”. In both the noise surrounding publication or the text itself, almost none of this has been mentioned.

A typical leader in one of today’s papers paid tribute to his three “emphatic” victories, and in his Andrew Marr interview Blair looked back on the 2010 defeat with the same black-and-white analysis. “If we departed a millimetre from New Labour, we were in trouble,” he said, as if he bore none of the blame. Far from what the memoirs call “an approach based on reason, on the abstinence from ideological dogma”, this is its complete reverse: the thinking of the zealot, as full of dogmatic stupidity as the hard-left politics Blair still sees round every corner.

Of late – as evidenced by warnings from Blair, Mandelson and those voices who share their view of things – this has resulted in one of the more depressing aspects of the Labour leadership contest: claims that “Red” Ed Miliband is a dangerous old Labour throwback. No matter that his handful of policy proposals – for the tentative roll-out of a living wage, or a graduate tax, or the high pay commission also supported by his brother – are modest and somewhat cautious. In the wake of an editorial claiming that even his brother was in danger of drifting too far to the left, one Times columnist – the venerable David Aaronovitch – compared him to Michael Foot.

On Monday, I turned on the Today programme to hear another pundit say: “He is properly leftwing. Really leftwing. He wouldn’t admit this now, but if you’d asked him a few years ago who his political hero was, he’d have said Tony Benn. And I don’t mean cuddly, modern Tony Benn, I mean Tony Benn in his pomp, in the 1960s and 1970s.”

The Labour party, I would imagine, has the sense to understand that this is the stuff of fear, voiced by people with no real understanding of either the real world, or the problems Labour has to address, and soon. At least twice in his book, Blair parrots a rollcall of English towns – “Hastings, Crawley, Worcester, Basildon, Harrow” – whose people, he seems to imagine, have experienced no downside of his beloved “liberal economic policies”, and even as the cuts bite, will not want anything significantly different. One is reminded of a priceless sentence, uttered circa 2008 by an unnamed Labour minister, seemingly convinced that the stockbroker belt ran far wider than once thought. “£150,000 isn’t much money in Reading,” he reckoned. Just to set the record straight, half the people who work in that town earn less than £21,000 a year.

No housing shortages in “middle England”, surely; no insecurity at work, or time poverty, or fretting about the debt that people’s children now rack up in pursuit of an education; come to think of it, none of the bundle of worries that always sit under all those concerns about immigration. Even with the application of work and imagination, Blair and his cheerleaders allege, modern social democracy has no hope in these places; and by implication, it has no realistic chance at all. This is not just a counsel of despair, but a desertion of Labour’s most basic mission. In A Journey, the basics of the party’s fate are summed up with the unbending simplicity of a dalek: “Labour won when it was New Labour. It lost because it stopped being New Labour.”

Towards the end of the book, its author says he has come back to the fray to find politics in disarray, and feels more motivated to impart his gospel than ever. “I find my old world in a state of despair and feel shocked and galvanised by this,” he says. “Perhaps that is because I am removed from it and so think I see it more clearly.”

The next bit is in parentheses, but it’s among the most telling sentences he writes: “This could be an illusion.”

It is, of course. It probably always was.

Originally published here

Comments seen as signal to voters not to choose left-leaning Ed Miliband as new leader

The Labour party risks getting stuck in an “electoral cul-de-sac” if it takes a “pre-New Labour” direction under its new leader, Lord Mandelson warned today.

His comments were seen as a warning against the election of Ed Miliband, who has positioned himself to the left of his brother David as the pair have emerged as front-runners to succeed Gordon Brown.

The former business secretary – and architect of New Labour – warned that the party risked a long period in opposition if it swung to the left and failed to recreate the wide-ranging coalition which took Tony Blair to power in 1997.

Mandelson’s intervention could give a boost to David Miliband’s campaign at the start of the week when MPs, MEPs, party activists and members of affiliated organisations will start voting in the postal ballot to elect a new leader on 25 September.

The shadow foreign secretary will today seek to build momentum with a call to turn Labour into a “living, breathing movement for change” when he addresses supporters at a Westminster rally.

David Miliband will dismiss David Cameron’s “big society”, insisting what is needed is the “good society” typified by the community organisers he has been fostering with cash raised for his campaign.

Meanwhile, Ed Milliband has called for Labour to end its caution over tax, telling the Independent newspaper that the balance between public spending cuts and tax increases for the rich should be shifted in favour of public services.

The shadow energy secretary said New Labour had become “ideologically beached” because it was haunted by old ghosts from the past, when the party was viewed as tax-raising and anti-American. Its desire to hide the views of some of its members from voters had led to a damaging “control freak” mentality.

“What always happens in politics is that a generation is shaped by particular events,” he said. “Then the danger is that you get stuck in a particular period. What happened to New Labour is that we got stuck – defending flexible labour markets and not understanding the limits to markets at a time when the world had moved on.

“If you don’t move with it, we end up being ideologically beached – defending bankers’ bonuses, saying you can’t have a top rate of tax on earnings above £150,000 and a living wage. You end up being out of touch with the public … We became overly cautious. Government does that to you.”

But speaking to the Times, Mandelson said anyone who tried to take Labour back to the era before Blair’s election as leader in 1994 would wreck the party’s chances of a swift return to power.

Addressing Ed Miliband’s criticisms, the peer said: “I think that if he or anyone else wants to create a pre-New Labour future for the party then he and the rest of them will quickly find that that is an electoral cul-de-sac.”

He said Lord Kinnock and Lord Hattersley – the former leader and deputy leader, who have both voiced support for Ed Miliband – wanted to “hark back to a previous age”.

“We’re a political party, not a church, and we require the support of voters actively to embrace us, and if we stop recognising that, then we’re going to be taken back into those long years of opposition that served us and the country so ill.

“If you shut the door on New Labour you’re effectively slamming the door in the faces of millions of voters who voted for our party.”

Ed Miliband suggested Labour could raise £5bn from the banks by making the one-off tax on bonuses permanent and introducing a levy on the industry and a tax on financial transactions. But he insisted any tax changes should not hit ordinary families.

David Miliband is today expected to use his speech to brand Cameron’s vision of a big society as no more than a recipe for a “do-it-yourself society”.

“Thanks to a Labour government, people in this country have come to expect more. Cameron is offering them less. I don’t want a big society, I want a good society,” the shadow foreign secretary will say.

That means “good schools, good hospitals, good policing, good estates, good Sure Start programmes, good housing, good childcare”.

“But most of all, the good society is built on people, decent people, inspiring people, like all of you in this hall today – good people doing good deeds.

“I want the Labour party to be a living, breathing movement for change in every community up and down the country.”

David Miliband will criticise the previous Labour leadership for failing to pay enough attention to grassroots organisation, calling on it to adopt the community organising spirit harnessed by Barack Obama in his successful run for the US presidency.

“Let us say to the government: this is the real coalition in Britain today – a coalition of the people, not a coalition of cuts and convenience, not a coalition without principle or morality, but a coalition of people fighting for fairness, fighting for dignity, fighting for safety, fighting to put power, wealth and opportunity in the hands of the many, not the few, fighting for the good society.”

Originally published here

Ben Bernanke, chairman of the Federal Reserve, says the Fed needs help to revive the US economy. But it won’t get any

What did the chairman of the Federal Reserve say in Jackson Hole? According to much of the reaction, Ben Bernanke said the “Fed stands by to boost US growth” (FT), or that the “Fed is ready to prop up economy” (NYT) or even that the “Fed stands ready to support recovery” (WSJ).

In other news, a man was bitten by a dog. And by that I mean: the reverse would actually be news.

Yes, Bernanke said the Fed would act if the economic outlook deteriorated further, or if there were signs of deflation. He doesn’t appear to think that either of those events are likely to occur, especially the deflation, but if they do, the Fed will do stuff. Which is exactly what you’d expect a modern central bank governor to say.

But what was missed was Bernanke’s low-key plea for help – from the government.

Bernanke kicked off his Jackson Hole speech by detailing the problem the US faces, notably: “In many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high.”

He followed that by saying: “This list of concerns makes clear that a return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector. Central bankers alone cannot solve the world’s economic problems.”

Now, appointed technocrats such as Fed chairmen have to avoid getting involved in politics. They can’t come out and say “what the US economy really needs is another fiscal stimulus passed by Congress”, even if that’s what they believe.

Americans, more than the citizens of other advanced economies, are particularly spooked by the prospect of unemployment because, as the FT’s Martin Wolf observes, “jobs are, in the US, the only safety net for those of working age.” So consumers react to economic uncertainty by cutting back on spending and saving money or paying off debt. Bernanke noted: “Households, collectively, are even more cautious about the economic outlook and their own prospects than we previously believed.”

To combat this there’s only so much that can be done by monetary policy, the part of the economy under Bernanke’s domain. There’s an old joke that relying on monetary policy to run an economy is like playing golf with only one club. The missing club is of course fiscal policy.

The White House and Democrats could exploit Bernanke’s plea by pushing for further fiscal stimulus and allowing monetary and fiscal policy to work in tandem. Given the fervour of Republican opposition, the chances of Barack Obama passing another stimulus package worth serious money – in the hundreds of billions of dollars – are non-existent, despite the fact that the bond market’s appetite for buying US Treasuries means it could be cheaply financed. And once the Republicans take control of the House and possibly Senate after the 2010 midterm elections in November, the chances are less than zero. So the Fed is going to have to do all the heavy lifting by itself.

There’s little the Fed can do that it’s not doing already about the central problem of the US economy: its housing market. Some 29% of all houses with mortgages in the US are “under water” – that is, the resale value is less than the outstanding mortgage. That’s a dead weight around the economy’s throat but US policymakers mistakenly believe that the housing market’s distress is a symptom and not a cause.

Bernanke thinks the housing market will pick up, if prices fall far enough and credit remains easy, but the problem there is that a further fall in house prices drags more mortgages under water, and puts off the day when house building starts adding new jobs to the economy.

In the meantime, Bernanke’s Fed doesn’t have much powder left in its locker, with monetary policy already extraordinarily easy. Earlier this week Alan Blinder, a former Fed official and a very smart economist, outlined steps the Fed could still take – all of which Bernanke ticked off in his Jackson Hole speech.

“The bad news is that the Fed has already spent its most powerful ammunition, only the weak stuff is left,” Blinder warned. And he’s right.

Bernanke, though, is also right that a durable recovery is underway. The prospects of a “double dip” into a second recession are far fetched. Unemployment remains weak but the jobs market always lags behind the rest of the economy.

The only surprise is that the economy has not recovered more quickly, based on its revival from previous slumps. But that, I believe, is because of the housing market, which has never seen such a dramatic collapse in the course of US history. Fixing that needs the “appropriate and effective responses from economic policymakers” that Bernanke is asking for.

Originally published here

We look back at last month’s pet photography assignment and introduce this month’s – housing photography

We now put the dogs back in their kennels and the cats in wheelie bins and bring the horse blanket down on pet photography. It has proved very popular, despite some bitching (ha,ha) on the flickr threads. We have had some tender, personal pictures of some well-loved furry friends. Although I think I’ve seen enough tabby cats to last me a lifetime.

We especially liked Matthew Roberts’s ferret and Thomas Stevens’s cat.

Moving on to this month’s assignment. The housing market seems to be constantly in the news, prices dropping, rising, stagnating. So we are often sending our photographers out to shoot general, illustrative pictures for the never-ending series of housing stories that appear in the paper.

Now we’d like you to have a crack at this subject. Have a look at Alicia Canter’s film and top tips for some ideas. Don’t worry about being too abstract, newspapers these days are far less conventional when it comes to chosing purely illustrative photographs. And you probably won’t have to travel too far. Why not start down your street?

Originally published here

Markets rally as Federal Reserve chairman tells conference “the committee will use its tools as needed” to support recovery

US central bank boss Ben Bernanke today vowed to step in to prop up a fragile US economic recovery if needed as he conceded growth had been weaker than the Federal Reserve had expected.

Amid growing talk that the world’s largest economy is headed for a double-dip recession, the Federal Reserve chairman said that the recovery around the world still had a long way to run and that unemployment remained “too high”. But the US central bank was ready to help if needed, Bernanke said in his speech at the Jackson Hole symposium of central bankers in Wyoming.

His remarks helped stock markets rally as they looked to the Fed to pump money into the US economy, although they had initially fallen as traders digested his gloomy remarks on the recent slowdown in growth.

Having taking radical action to rekindle growth during the recession, Bernanke denied that policymakers had run out of options now the recovery was faltering.

“The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools,” he said in his speech, entitled The Economic Outlook and Monetary Policy. “Should further action prove necessary, policy options are available to provide additional stimulus.

“The committee will certainly use its tools as needed to maintain price stability – avoiding excessive inflation or further disinflation – and to promote the continuation of the economic recovery.”

Economists had been divided ahead of the speech as to whether Bernanke would provide any hints on the prospects of the Fed embarking on more quantitative easing (QE) – the system whereby it buys assets such as government bonds from banks and the commercial sector, pumping more cash into the financial system while at the same time cutting market rates.

As expected, Bernanke steered clear of giving the market any strong hints on what might prompt more QE or any other stimulus. “At this juncture, the committee has not agreed on specific criteria or triggers for further action,” he said.

Speculation of more QE has risen over this week as a number of closely watched US economic indicators, particularly relating to the housing market, have come in worse than expected.

Bernanke highlighted several weak spots in the US recovery, including “slower-than-expected growth in consumer spending, as well as continued weakness in residential and non-residential construction”.

He said: “Although private final demand, output and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected.”

In the longer term, he was more optimistic, predicting “some pickup” in growth in 2011 and subsequent years, although he conceded that “the economy remains vulnerable to unexpected developments”.

He also outlined global problems. “For much of the world, the task of economic recovery and repair remains far from complete. In many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high. Financial conditions are generally much improved, but bank credit remains tight; moreover, much of the work of implementing financial reform lies ahead of us,” he said.

Bernanke’s remarks follow news earlier today that the US economy grew at a much slower pace than first estimated in the second quarter.

The US government said GDP grew at an annual pace of 1.6%, down from the 2.4% it had estimated a month ago. But that figure was above the 1.4% forecast by a Reuters poll of analysts. Some had been expecting an even weaker reading after the slew of downbeat indicators in recent weeks.

While the US recovery lost pace in the second quarter, the UK was accelerating – although it tends to lag developments in America by several months. Official UK figures this morning showed that the British economy grew at the fastest pace in nearly a decade in the second quarter, higher than initially estimated, thanks to a pick-up in the construction industry and strong household spending.

The Office for National Statistics’ second estimate for the second quarter put quarterly GDP growth at 1.2%, up from the initial estimate of 1.1% released a month ago.

Originally published here

This week, somebody broke into Linda Carty’s replica death row cell in London, showing just how desperate many homeless are

Linda Carty is waiting to die on Texas’s death row, her appeals for the most part exhausted. She may face execution in the death chamber at any time. While she dreams of breaking out of her cell, on Wednesday someone broke in to stay the night.

The human rights charity Reprieve has a replica of the cell where Linda has spent the last decade. It contains her entire world: a narrow metal bed, a blanket, a metal sink and a metal toilet. The folk at St Martin-in-the-Fields have been kind enough to let us put the cell there until 5 September, so Londoners can experience some sense of Linda’s privation. I had hoped that languishing in the cell for an hour might inspire visitors to reach out and help save Linda’s life.

This week, someone reached in. Cracking the lock – to be sure, it is not the kind of electronic bolt that keeps Linda on Texas’s women’s death row – a homeless person used the facilities, and stayed the night.

Perhaps there was no more space at The Connection, the wonderful, charitable homeless centre round the corner from the church. No matter what the explanation, life must be grim for someone to break into death row.

There’s a difference between homelessness and rough sleeping. At least a quarter of a million people find themselves homeless each year, but they are often able to find shelter, sometimes in the houses of relatives. More than 3,600 people slept on the streets of London last year, up by a thousand since 2006. This English summer has been like many others – rarely warm or dry – but winter looms, when lying down in a doorway is a nightmare, whether you manage to snatch some sleep or remain awake. Rough sleepers have a life expectancy of just 42 years – Linda Carty and I would both have been dead for a decade – and take their own lives at 35 times the rate of the rest of us.

The coalition government has mouthed support for Boris Johnson’s goal: ending this crisis in London by 2012. Yet, when times get rough, the numbers rough sleeping inevitably rise. It is wishful thinking to suggest that charities can shoulder the extra load, as donors simultaneously feel they have less to give.

Our society talks about basic human rights. Politicians fall over each other to “ringfence” certain spending, such as on the NHS. I enjoyed the benefits of a free, excellent local doctor today, for some inconsequential ailment. How much more important is the right to sleep somewhere other than death’s waiting room?

Originally published here

Former National Union of Miners president one of several people to have received letters saying they no longer qualify for membership

Arthur Scargill, one of the most controversial union leaders of the 20th century, was today told he is being expelled from the National Union of Miners.

The former NUM president, who led the miners during their year-long strike in the 1980s, is one of several people to have received letters saying they no longer qualify for membership.

He has been in dispute with the union over the perks he has continued to receive since he left office, with the union contesting his right to certain payments relating to housing and fuel.

Scargill, who stood down as the union’s president in 2002, has told friends he intends to fight the move to oust him.

He retained an honorary position within the NUM after standing down as a full-time official and has been engaged in work for the union.

Ken Capstick, who has worked for the NUM for 30 years and currently edits its Miner magazine, has also been told he is being expelled.

“We have been told that the reason we are being expelled is that we don’t qualify under the union’s rules,” Capstick told the Press Association.

“A number of us have been raising claims of financial irregularity in the union, and I believe we are now being subjected to a witch-hunt because of this.

“We will definitely challenge this decision, which has been made on extremely spurious grounds.”

Scargill was seen as one of the most powerful union leaders in Britain when the miners called a strike in 1984.

It was the most bitter industrial dispute of the Thatcher era, but Scargill was criticised for not balloting the NUM’s members and the miners eventually went back to work having failed to halt the government’s pit closure programme.

Although once idolised by his members, Scargill has been criticised for continuing to claim a union subsidy for his flat in the Barbican, in London.

He has insisted that all former leaders have been entitled to keep their union accommodation after their retirement.

Originally published here

• Durable and capital goods orders come in well below forecast
• FTSE 100 losses deepen as US double-dip fears continue
• Dow Jones drops 0.3% for fifth session of losses in a row

Financial markets were spooked again today by US double-dip fears as orders for durable goods were weaker than expected and American companies appeared to cut back investment sharply.

Stocks opened lower on Wall Street, the FTSE 100 extended its losses, oil prices fell and the dollar weakened as the US government said new orders for durable goods such as cars, machinery and household appliances rose a meagre 0.3% last month. This was much lower than the 2.8% rise forecast by economists in a Reuters poll.

Excluding equipment for the transport sector – seen as particularly volatile – orders fell 3.8%, the biggest drop for 18 months, and confounded expectations for a modest 0.5% rise.

The weak readings bode ill for US manufacturers and will intensify fears that the American economy as a whole is headed for a double-dip recession .

Economists homed in on worrying signs for investment trends as capital goods orders unexpectedly slumped 8%, excluding the defence sector and aircraft.

Rob Carnell at ING Financial Markets said the durable goods numbers “throw more doubt on the resilience of the US recovery” and that business investment growth was likely to slow in the third quarter, “which will cost around 1 percentage point of GDP growth, and keep fears of a double dip and more quantitative easing on investors minds”.

Aneta Markowska at Société Générale painted a similar outlook: “After strong business investment figures in the second quarter which look on track to be revised up, we are likely to see a significant loss of momentum in the second half of the year. Durable data reaffirms the recent weakness in regional manufacturing surveys and suggests that the resiliency in industrial production figures is unlikely to last.”

The data follows news yesterday that US home sales slumped twice as fast as expected last month, to hit a 15-year low. Those figures rattled stock markets in the US and Europe, and government bonds rallied as investors sought out safe-haven investments.

The US is being closely watched for signs of trouble to come in the UK and the rest of Europe, as it typically leads other economies by several months. Recent downbeat news from the US has ranged from signs that unemployment remains stubbornly high to weak activity across most business sectors.

Today the FTSE 100 was down more than 1.2%, or 64 points, at 5091.5, extending losses of about 50 points before the durable goods data. The Dow Jones industrial average dropped about 30 points, or 0.3%, to 10009 at the opening bell on Wall Street, putting it on track for the fifth straight session of losses.

On UK government bond markets, yields on 10-year gilts set a fresh record low of 2.79%.

Traders will have more to go on at 3pm in the UK when US new home sales data is published.

Originally published here