Economics: October 2008 Archives

Compulsory reading.

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There are people who don't like Simon Jenkins, but I am not one of them. Even where I disagree with him, I always love his writing. 

Today's Guardian features a classic Jenkins rant about the miscellaneous silver linings to the financial crisis. Here are a couple of clips to seal the deal.

"Carbon-crazy plans for totemic City skyscrapers modelled on cheese-graters, testicles and mobile phones are being torn up."

"While it may be too early for a bull market in gaiety, we can surely start investing in sanity and pragmatism."

Now go read it, please.

Not quite.

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Thumbnail image for helicopter-line.jpgOn Tuesday I went in Robin's place to a lunch organised by the Chamber of Commerce, addressed by Hector Sant of the Financial Services Authority. Oddly, given the interest you might have expected from the political parties, or even the Scottish Government, there was no-one else there from politics.

Mr Sant was an interesting speaker, although constrained as a regulator and unable to give very frank answers to many of the questions. In the case of a question about the need for HBOS to merge with Lloyds, the Scotsman reports him saying that: was obvious the authority was "content with the capital being raised by HBOS".

Yes, he did say that, but then he went on to explain the circumstances under which that assessment had been made, i.e. on the assumption that the proposed merger would go ahead. 

I'm not taking a view on the merits of the tie-up, but the fact is there'll be annoyance at the FSA at how he's been misrepresented. Peter Jones has it more accurately in the Times - see the second last paragraph - but that made for a far less newsworthy story.

It's not my usual crowd, bankers. Outside Prestonfield there was an ostentatious helicopter on the lawn (not Hector's, but we couldn't find out whose), and inside a man remarked to me how he felt left behind at a recent Bentley owners' club bash for not himself having a helicopter. I did feel very sorry to hear that someone might have to cope with such an extraordinary level of poverty.

Pleasingly, I also found myself sat next to a resident of Forth Ward, and gave her what I think was a well-received pitch for a vote for Kate Joester (informed by Kate's passionate address to the local party a couple of weeks ago).
The Prime Minister and the Chancellor announced their bailout before the markets opened on Wednesday, and if equity prices are any guide, the results so far are not looking promising (and yes, I also hate graphs like this where the x axis isn't zero).
What I'm now worried about is that the influential City people will say to Gordon "Oh, see your bailout, it wasn't enough: can we have some more money, please? If not, it'll be everyone's pension funds that suffer", as per the classic Bird and Fortune sketch

Any further reach into taxpayers' pockets won't be any more successful at stabilising the markets, and will just leave the Government with more debts to service while tax receipts drop. Also, as many have noted, the Daily Mash is spot on with this: "The government is to invest £500bn of your money in British banks so they can lend it back to you with interest."

Surely the response should instead be driven by the actual public good? Policymakers should be looking first to protect the people with mortgages they can't pay, the councils who put it all on black in Iceland, the small businesses who can't borrow to tide themselves over, and the others who are suffering outside the Square Mile.

If that requires market intervention (which would look very different to the existing plans), so be it. Perhaps HMG should start taking equity shares in property in exchange for state-backed mortgage guarantees. Perhaps they should be using the already-nationalised banks to lend to good businesses directly, not the seized-up banks. One of the few things Vince Cable's got right about all this is when he compared lending to banks with pushing on a piece of string. 

Some of the mortgage-holders (and all of the councils) have simply done the wrong thing and taken too much risk. The next step should be to ensure that these same mistakes can't be made again: no more taking our Council Tax and stashing it with the buccaneer capitalists ever again.

However, I worry that Labour will simply be terrified of the City's threats, and that they'll go ahead and shovel more money into the fire. I do hope I'm wrong.

Bugs in the system.

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The millennium bug never materialised, nor did the gigaburger bug, both of which were based on limited numberspaces running out.

The US debt clock has had a real problem of this sort, though. As the BBC report it, the board was put up in 1989 to highlight the federal government's debt reaching a then-shocking $2.7 trillion.

They're upgrading the clock now the total is over $10 trillion, but are thinking ahead and adding two more zeros in case they ever find themselves a quadrillion dollars in the hole. It's a pretty prudent course of action. After all, McCain might still win. 

(image from the often-wonderful Pundit Kitchen)

A position of utter ignorance.

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markets.pngThe cliches and metaphors burgeon around us as the markets collapse, and hacks breathlessly trade roller-coasters for dominoes, or offer injections in the heart of the whirlwind. 

Much of this verbiage is produced because no-one really knows what is going to happen, but they certainly know it's dramatic.

For example, the Newsnight panel last night was 100% journalists and politicians, all without the faintest idea of what the bailout might deliver, let alone where the markets might take us next. Newsnight Scotland went one better, relying on vox pops before running a journalist-only panel (including Douglas Fraser's new incarnation as Economic Disaster Correspondent for the BBC). They didn't know how it would turn out either, it turns out.

No offence to either panel, but the producers might have been better off pulling in some serious economists, historians, and even economic historians. The comparisons might have been more rigorous, and the options set out more clearly. 

Economists are famous for their widely diverging opinions: this would be an asset. It would have been more enlightening to have had debate with a Friedmanite, a Keynesian, a Marxist, a Green, plus someone from the soggy New Labour/New Conservative managerial centre. Constructive disagreement would be better, given the gravity of the situation, than the usual synchronised hand-wringing. 

In these circumstances, with fear and uncertainty dominant, George Osborne has done the tactically correct thing - supporting the package in principle, but with some caveats. He has no idea whether it'll work, but opposing it now would expose him on the upside if the £500bn bailout does deliver for the markets and for Labour. If it doesn't work the Tories benefit anyway, politically, and the caveats will cover him. Nick Clegg did much the same, although he chose to support the proposals while comparing Brown to the captain of the Titanic.

Here's a counter-prediction. It won't work. None of the strands of the Brown/Darling bailout affect the core problems - those worthless debts and opaque derivatives, the housing bubbles here and abroad, and the wider systemic failures of regulation and oversight. Sure, they can cut interest rates and try to reflate the bubble, but wouldn't it be better to rebuild our economy on a somewhat more substantial basis, one that could be literally sustainable?

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About this Archive

This page is a archive of entries in the Economics category from October 2008.

Economics: September 2008 is the previous archive.

Economics: November 2008 is the next archive.