A Fool and a Knave

I believe we have the Financial Times to thank for the image to my left, forwarded me by a friend earlier today. Of course - as more than one cornered and humiliated weasel of a banker has bleated before a Commons Select Committee of late - no single individual could and should bear the entire blame for the blazing catastrophe we're all currently living through. Sadly, more of us have helped to stoke the fires in our own meagre fashion than we'd like to think - so-called good men doing nothing.
But, to be fair, generally, we had our own jobs and businesses to attend to; and I reckon if we'd had 250-year-old banks to run, then I think most of us would have managed not to run them into ruination, spending and loaning money that wasn't ours, pursuing vainglorious visions of endless growth built on imaginary foundations.
Moreover: the public has need of an embodiment of the third-rate evil besetting us - a pig's head on a stick, to pelt with calumny. And sometimes there is an individual at hand who happens to fit the bill handsomely - a fat pig of really gruesome proportions.
One has to observe that the ostensibly non-porcine qualities for which Fred Goodwin was (briefly) admired, and possibly even liked - coldness, self-assurance, contempt for those beneath him - were on display for all to see in today's letter to Lord Myners (and the blogger Guido Fawkes appears to have a vicarious admiration for selfsame traits.) In the face of such a performance, on some level one has to say 'Bravo.' But I don't think this show is over yet.

Hobbesian War of All Against All, Coming Soon!?

It's been quite the week for the mass forecasting of fighting in the streets among angry peasants with pitchforks. To set the tumbrils rolling, in the first instance will the UK really go bankrupt, asks Camilla Cavendish of the Times? She reprints the charming Jim Rogers’ assertion that sterling is 'finished' and we Brits should all learn Mandarin and head for China, or maybe Singapore, Rogers’ chosen bolthole. She adds pointedly that we can be quite sure Rogers and other outspokenly apocalypic hedge funders are ‘profiting handsomely by shorting sterling.’ ‘But’, she laments, ‘the nervy media gave their words considerable prominence, partly because a British bankruptcy is a ghoulishly fascinating possibility...’
Well, not just 'the nervy media', Ms Cavendish, but you too, it seems. (Perhaps she’d rather be thought of as a ghoul than a nervous wreck.)
Cavendish then expresses concern that ‘a vicious circle has taken hold in which sterling falls in value, amplifying liabilities, and bank share prices fall as liabilities mount.’ Yes, troublesome indeed, so one might want to refrain from abetting the flight out of sterling that Rogers & Co are so keen upon...
What, then, is to be done? ‘Technically’, writes Cavendish, in her view the government ‘has mostly made the right moves on the banks… The only thing that could push Britain into bankruptcy would be a full-scale panic. So it is strange - and exasperating - that the Government keeps inadvertently fanning the flames of panic.’
And how do they do so? ‘First, the bailout announcement was overshadowed by reports of Mr Brown's populist “anger” with the banks. This helped to spook investors into fearing that full-scale nationalisation is on the cards…’
No, no, this is getting us nowhere, surely we’re back to the fault of that nervous media, who have now gone and reported the wrong blasted thing?
Cavenish eventually winds round to blasting ‘Mr Brown's spending spree as Chancellor, and the remarkably lax regulation by the tripartite system he put in place’ and observing that ‘it is surely not long before Gordon Brown (Titanic) Enterprises are bought out by Cameron Inc.’ So we see where she's coming from, but not whether we're supposed to feel better...
Okay then, so ‘the pound is plummeting, the once booming financial services sector has never been weaker and some investors are losing confidence in the UK.’ Ross Walker of the Royal Bank of Scotland warns that ‘The credit boom went a long way to disguising the mediocrity of the UK.’ (One could say it went a fair old way to disguising the mediocrity of the RBS too.) But actively trying to make us feel better, and in the course of the same piece from which I took those two quotes above – a piece entitled ‘New look UK economy to emerge from gloom’ – is the FT’s Economics Editor Chris Giles.
The FT’s experts suggest that some of the elements of that ‘new look’ will be ‘a slimmer financial services industry, lower house prices [and hence consumption], higher borrowing costs, fewer migrants and lower growth rates.’ The ‘big losers’ of the current crisis will be ‘those who bought property at the height of the market or are close to retirement without final salary pensions, the newly unemployed and the very rich, whose incomes tend to be correlated with the stock market.’ So on that basis I would feel not so very terrible, but that I bought in early 2006. But then you gotta go when you gotta go...
Giles has found a particular booster for the piece's general tack in ‘Britain’s chief cheerleader abroad’, Sir Andrew Cahn, chief executive of UK Trade & Investment. ‘The most important benefit [of the sterling slump] is that our exports are more competitive’, says Sir Andrew, ‘and we are continuing to attract inward investment as [UK] assets are cheaper to buy.’
But what are Britain’s major exports? Aren’t we in a real poke here too, because of the sorry state to which Thatcher reduced our manufacturing base? Well, Sir Andrew mentions some ‘unlikely sectors’ to be cheerful about, chiefly security – ‘a growth area.’ He insists that security is ‘not just defence equipment but airport protection systems, protective clothing, and security advice and services at sporting venues…’
Oh Jesus, so much for the good cheer. What we have arrived at, then, the sum of all our hopes, lies in the silver lining to the global jihad...? I need a drink.

Keynes Resurgens!

Hang on to your hats: ideologies are back, and they’re crashing up against one another like not-so-ignorant armies in the night! It’s all the fault of the Global Financial Crisis, of course, and in terms of the chorus of conflicting op-ed commentary perhaps the most interesting development has been a vigorous revisiting of the legacy of Keynes.
When I was a boy Britain was stalked by 'stagflation': 26% inflation, the country near bankrupt, the IMF called in and demanding monetary targets and cuts in public spending. In 1976 Prime Minister Callaghan (how odd that sounds now!) read out Peter Jay's speech to Labour conference declaring that no-one, least of all him, was going to spend their way out of a recession again.
Come 1979 a zealous new Tory government was confirmed in the view that the rate of inflation, not the level of unemployment, was our chief enemy and obstacle to economical wellbeing, to be fought by sado-monetarism. (Actually the monetarist experiment didn’t last long: the Tories were soon in real trouble c. 1981-2, and they would need fortuitous events in the shape of General Galtieri and North Sea Oil coming on-stream to get them out of a hole.)
Anyhow, back to the present: Brown and Darling are going to spend their way out of a recession! The plan is to increase spending on public sector capital projects to compensate for the ‘shrinkage’ in the banking system. Seasoned observers had seized on this Keynesian dimension of Labour intentions well before Alistair Darling pronounced that the resemblance was intentional.
Now Keynes’ biographer Lord Skidelsky weighs mildly into the fray in today’s Times. He does a nice tour of the fragile peace we enjoyed until late 2007, what Mervyn King apparently termed a ‘nice’ environment (strong growth in big economies, downward pressure on prices thanks to globalization), the main item of policy thus being an occasional mild tweak of interest rates. No surprise, then, how long most people agreed that the market should be given its head, its inherently sound judgment respected. But as of September 2008 no-one in the world believes that markets are 'inherently stable.’ Thus Skidelsky's summary of our plight and what he rates the rightness of the British government's response:
‘When panic sets in there is a flight into cash. But while this may be rational for the individual, it is disastrous for the economy. If everyone wants cash, no one will lend. As Keynes tellingly reminded us “there is no such thing as liquidity... for the community as a whole”. And that means that there may be no automatic barrier to the slide into depression, unless a government intervenes to offset extreme reluctance to lend by huge injections of cash into the economy.'
Over at the Spectator, though, Tim Congdon wants us to know 'there is nothing magic about this Keynesian fad.' Congdon, I gather from the FT, is 'an economist and businessman, who served on the UK’s Treasury Panel (the so-called ‘wise men’) between 1992 and 1997.' And he's fuming like David Cameron at yesterday's PMQ: Don’t let this gloomy, chippy, hammer-and-sickle Scot off the ropes where I had him just a few weeks ago!. (Congdon refers to Brown and Darling as "notorious left-wingers" in an earlier life, which is an amusing designation of 'notoriety'.)

Brown’s bank recapitalisation exercise, Congdon argues, “is not intellectually original, it will not be fully implemented in practice and, to the extent that it is implemented, it will be a disaster. Further, no other country is copying Brown’s plan or behaving as vindictively as Britain towards its financial system.” Rather, it is "a policy of economic and financial sado-masochism in one country." (So what's the difference between what we're doing and what the US is doing? "The interest rate charged by the US government will be 5 per cent, much less than the 12 per cent imposed by Mr Brown." Does that sound sadistic to you? Depends on how you feel about banks right now, whether you're a 'wise man', etc etc)
It really irks Congdon that the government pressured the banks into the new money-raising arrangements by the THREAT that otherwise "the Bank of England would stop lending to that bank and so force its nationalisation." This 'THREAT', he believes, will not be forgotten: he sees a time when "internationally mobile parts of British banking will relocate to other jurisdictions and possible foreign entrants into British banking will hesitate to invest here.’

(This is only to speak of another form of THREAT that we have always lived with in my lifetime, i.e. let capital and big wealth creators do exactly as they wish, whatever the situation, or else they will run off and seek their safest bolthole in another far pleasanter country. Thus the thrusting City of London of which Britain is supposed to be so proud.)

It irks Congdon further that the mainstream media and people like you and me don't understand preference capital, and thus he revisits its role in the US after the Great Crash of 29 (if only to affirm its usefulness.) But he also wants us to be aware that what we've got isn't ‘nationalisation’ - so don't celebrate yet, you Lefties!:
"What the Brown plan proposes is that if the banks’ current shareholders do not wish to take up the shares offered in the rights issue, the government will take their place. However, if the banks’ current shareholders do subscribe in full to the rights issue, the government has no equity stake and the banks are not nationalised."

(If our ignorance is so much Congdon's concern he should have a word with his Spectator labelmate Richard Northedge who's fulminating in the very same issue about 'socialism seizing the city', how “suddenly the state has its hands on the economy’s real levers of power.")

When Congdon calms down, he basically says that his dream role for government is that it offer lender-of-last-resort loans and impose nothing on solvent and profitable banks. If he's so vexed then by what just actually happened, he presumably knows better about the fitness of the banks than Mervyn King, who said only this week that they were all looking like dead meat before the bailout. Lenders of last resort? I think everyone agrees the government should have moved quicker on this score. Even so, could they have averted the panic and pain we've all been having? The ever-vigilant enemies of socialism, Keynesianism and every other form of 'ism' other than neoliberalism say 'Yes'. So ideologies are back, comrades, and they're fit and tanned and ready for service...