We still need to ask the big credit crunch questions
Playing the ‘blame game’ is mostly viewed as a contemptuous pursuit. But a credible version of Credit Crunch Cluedo will be vital to our long-term prospects.
After the dotcom boom, instead of watching the banking system’s ever more elaborate risk-multiplication ruses, the DTI and Treasury pumped out reports about how to copy the enterprising success of Silicon Valley.
One of the few useful insights was that learning the lessons of failure was the surest way to ensure long-term success. In the context of companies, that led to a change to bankruptcy law in the UK. But the concept is as true for a person, or indeed a country.
Which is why I find today’s Treasury select committee report a letdown.
It’s not quite a whitewash, but it doesn’t really ask the very big questions which need to be answered if we can begin to rebuild our economy in the coming decades.
Obviously the bankers are blamed at every stage as being the principal agents of their own destruction. But bankers will always try to make as much money as they can bend the regulations to allow them to make. That is a constant. It is utterly to be expected.
The opposition will jump up and down about the prime minister’s establishment of the tripartite system, stripping the Bank of England of responsibility for financial stability. But we need more fundamental questions.
It strikes me that we have a political culture that lionised house prices and the success of the City as ends in themselves rather than means to an end.
Is Germany really worse off for having had no housing boom at all? And is it any coincidence that politicians, dependent on the votebank of the feel-good factor, might be tempted into benign neglect of a system that made everybody feel rich?
There may well be structural problems in the manner that politics and economics in Britain interact with one another, problems that were not solved by the independence granted to the Bank of England in 1997.
Now that the prospective cost of the banking bailout for taxpayers could plausibly range from £50bn to £200bn (that’s real money, not a theoretical cost), the credit crunch could reasonably described as the biggest failure of public policy in living memory.
The events of the past two years need to be seen in a two-decade-long context to establish whether it’s a temporary failure of bank bosses, or a more fundamental failure of the way we run the economy.
Errors as epic as this, need a similarly-sized inquisition. A credit crunch catharsis, if you like.
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Its a more fundamental failing, spaning at least three decades. What really bothers me, is that the policy at the moment seems to be to reflate the old, discredited debt/credit fuelled consumer-driven system.
That’s the single biggest mistage that the Government is making at the moment.
We need to move on from that world. I’m not saying that debt /credit is bad, but it should not be the one thing that keeps the global economy going.
Governments across the world need to think outside the box a bit a more. The G20 conference last month didn’t seem to do that.
The credit crunch was originated in UK and USA by Sub Prime Mortgage, Hedge Fund systems and Trade with Derivates. The hidden bomb is the Carbon International Bussiness, where virtual volumes of the product without value is traded with real money. Except of the mortgages no regulation was produced for the Derivate Business and Hedge Fund Management. Why the Government is sleeping?
Lesson to learn ….Years ago there used to be an advert for a company which was doing well over here as well as over there in the US. ( Hanson Trust). Many firms have tried and got their fingers burnt.
It seems Sub Prime is the latest thing we have got got caught in, I would look elswhere to do business.
As described in “The Daily Show”, a tapestry of regulation was imposed on the financial sector to protect us from a repeat of the Wall St. crash of 1929.
This held good for 50 years – no major financial institutions failed – there was stability – but then greed raised its ugly head again (as it does) and the likes of Thatcher and Reagan started to pull at the threads of the tapestry. They were keenly followed by others (Bush, Blair, Brown) and the result is now staring us in the face.
So Ray Turner is right – we’ve been asking for this for about three decades.
Sadly, the real inquisition into this state of affairs will not be for our eyes. Our grandchildren’s children will witness some really interesting documentaries about how it all happened and the many decades it took the tax payers to re-balance the books. They’ll learn about the real cost of the bale-outs, about those who were really responsible and about what happens when you try to eradicate debt with more debt.
I would imagine the documentaries will be shown because interest in the subject has been aroused by the system going full circle as yet another financial crisis hits the globe!
As systems go, capitalism isn’t so bad. But it needs to be regulated by a democratically elected body and it needs,above all, to be kept regulated. Sadly I don’t think human nature, being the greedy way it is, will let that happen.
Why do we gesticulate over the banking crisis so much, when no-one really asks the meaningful questions.
I liken the ‘purported’ collapse like this… ‘A postman delivers post through a letterbox of a home, day after day after day, no-one picks up the post for ages, then one day, you go to get the post, but alas, its not there…!!
I know that investments can go up as well as down, so, where did the money go to…? Banking, its a confidence trick, this time, of unprecedented proportions. We are witnesses to one of the biggest high finance frauds of all time…!!
We are mere puppets in a new world, the new world of such imbalance, inequality and greed. Welcome to the machine. How will they talk of this civilisation of ours in years to come..?
The banking model known as capitalism is fatally floored. The public, the people need to develop their own mechanisms, to live as a collective instead of striving to trounce over and suppress the less fortunate in life. If we fail to do so, we have no means to achieve a more cohesive and conscious state of mind.
It is hard to separate economics from politics, given that the economic management of the country is always carried out with half an eye on the timing of the next election instead of the long term good.
If we have to learn anything, it may be that economics is not, actually, manageable, that cycles exist and always will. Also, political involvement is almost always bad and cannot do much other than exaggerate the cycles.
The issue of “blame” is way too simplistic in my view. The bust would have come even without leveraged sub-prime mortgage investment pools. The signs were already there that the economy was over heating after the enormous free-credit bubble. We need to separate the bankers’ follies from the general. Bankers destroyed their banks, or would have done but for a panicky government response and the usual money throwing contest. These banks should have been stripped of their savings accounts and loan books with the rest being allowed to go to the wall. Pain for shareholders, who failed to control their boards,would have seen replacement institutions appear very rapidly.
There is no escaping the fact that regulation was inept and over-complex. This was entirely the fault of Brown and Balls in this country. There is nothing wrong with sensible regulation at all. It merely requires application and teeth.
The UK has become excessively reliant on house prices, indeed asset prices generally. It is our culture to accumulate assets: houses, equities in our savings and pensions. This is an imbalance, but caused by the rampant inflation of the seventies when the only defence was assets, which inflate too. It may well be that this time lies ahead as well as the lunatic policy of printing money and borrowing to excess by governments bites.
I lived in Germany for many years. It does provide an interesting comparison, but has too many differences with our economy to be applicable as a model. After a few generations of sound money, they are now conditioned to save, as savings grow in line with asset inflation. It has worked there. It has led to a strong currency. The value of the Deutschmark tripled against the pound between 1973 and 1993. The reasons were simple. Low inflation currencies of well managed economies are strong.
What can we learn? It is entirely utopian, but we need to free economics from politics. That is impossible. What we can do, though, is to recognise that we have other values which need protection. Individual freedom remains paramount and cannot exist in a controlled economy. If we value it, we need to strengthen a free economy.
Above all, we need to direct politicians, most of whom are economically illiterate, to take a longer view. There is no question (even they know this) that things are good when the economy is strong. After all, there is then money to pay for things we want such as those public services and amenities. However, we need to learn that many of those public expenditures are luxuries, not rights.
Ultimately, it is investment that keeps the world going. We have to find the ways to encourage and reward it.
Practically very difficult but we could start by motivating politicians to get the economics right. They should only get pay rises on a formula, rolling over three years say, which reflects the fruits of sound economic direction. The formula can be simple, rewarding growth and budget balance, while punishing inflation.
The credit crunch would have happened any way. It was as much a failing of private debt creation secured on inflating assets, encouraged by government short-sightedness and ego as any single mechanism of stupid bankers.
Solve it with freedom, not centralism.
Yes.I was trying to get to the source of the crisis one evening and came across a speech by Tony Benn called “The Issue is Thatcher”.It was a eureka moment.Remember how everyone used to say in The 70′s that Benn was mad but now I think he was perhaps the greatest PM that never was.The link is as follows:
http://www.youtube.com/watch?v=ETqOvBKnKdk
Perhaps it just co-incides with the period when I started voting, but it does seem to me that the cultural attitudes that set us on this slippery slope to economic collapse and depression started in 1979, with Maggie and Ronnie.
Shame that Labour missed the great opportunity a few years earlier with “In place of Strife”…
It certainly would have been interesting to see Wedgie-Benn (as he was known at the time) as P.M., but we’ll never know. By scrapping the nuclear deterrent, for example, the cold-war might have run a different course…
Having to work until we’re 70 shows that the Labour Governments strategy of accumulating massive debt isn’t right.
Labour are playing “Torch and Burn” with the economy, knowing that they won’t get the flak for the tough decisions that have to be made to put the UK back on the rails after the election. It’s a disgraceful way of running the country.
David Cameron was right to call for an immediate General Election, but what he should really do is force a vote of no confidence and pray that there are some decent Labour MP’s who will vote against the current leadership in the hope of being seen to be “good eggs in a rotten basket” and hanging on to their seats…
I want this comment to be taken seriously. Corrupt Politicians, rich corporate fat-cats, corrupt greedy individuals and all associated with greed, lies, spin, statistics fiddling, news distortion and law bending, in the UK, should be seen as far worse than Terrorists and, they should be forceably brought to justice and stripped of all their hidden assets.
The scale of ruin to peoples lives in the UK and, elsewhere, beggars belief. From lies about Weapons Of Mass Destruction (WMD) in Iraq, Banking sector fat-cats payouts, Politicians ‘expenses’ manipulation, unemployment, Recession, G20 domination via Police State tactics, UK imprisoning more people than any other European country, to corporate domination of resources, land, property, etc. by the rich. The UK is a beacon of hell to the world and, reminds why the West isn’t the Best and, that Capitalism is the slow road to Hell.
Faisal:
There are many questions of the big credit crunch need to be answer…I am hopeful that there will be some answers to them.