Apologists for Free Market Economy- Should we Listen to Them?

'On balance I think it would be a good idea, you know, if we did not repeat the Great Depression all over again. What's more most people agree with me,' said Roger Bootle, Managing Director of Capital Economics and an economic adviser to Deloitte in yesterday's Comment in the Telegraph Business Section.

While Mr. Bootle's sentiment is exactly right and his eloquent comments do consider that the real economy is about engineering and social organisation while finance is just applied mathematics and human nature, he takes the tack that most economists and banking people are taking - that we have found out the limits of the system but the system is good, so we should bail it out as the alternative is not every nice. As history shows.

As History Shows

The very fact that such an article mentions the Great Depression as a good excuse to stump of $700bn in the US to attempt to rescue the banking system is perverse. Is it just me but The Great Depression was something we all should have learnt from, just as we all refer to The South Sea Bubble, another great scam about debt?

Mr. Bootle and even that poor chap, Andy Hornby who has just lost his job at HBOS and has to make do with his £2m shares and bonuses, refer to the root cause as the 'febrile' housing market (yes that's the one, Andy. You know the one that you had 20% of the mortgage market in).

You see, why is that the ordinary man in the street or propping up the bar in the pub could actually see the over-heating in the housing market was going to blow up our faces and the collective genius of the world banking system and jokers like Roger Bootle could not? It does not take a genius to work out what the consequences would be but we sure knew it would mean lots of zeros in the sums. I mean, when banks start doling our ever inventive ways to buy houses so that low earning first time buyers can get 125% mortgages on multiples of 3-5 of their earnings, you knew this had to end in tears.

The history of the greedy road to fast millions and billions was there for everyone to see. In The South Sea Bubble episode, mere footmen and servants became richer than their patrons overnight. Today, average earning people have second properties on foreign shores, great holidays, fast cars and houses bristling with all the latest electronic wizardry. As the property market recedes like the tide going out, how exposed will those people be? How exposed, as a result, will our pensions be?

Bail Out without Controls

As the bail out begins, the real problem for everyone is that the UK cannot survive as a dominant economy without a thriving financial centre. London is the largest financial market outside of New York and today its own economy props up the UK as we have no real manufacturing base and base commodities to export such as coal and steel, just a few years left in our oil and gas reserves. The reality is, if we stifle the City, Britain will lose its special status and there is a massive risk that Frankfurt or somewhere else could take our status. There is a reason beyond getting Non-Executive roles in the future that Gordon Brown and Tony Blair gave special tax havens to Private Equity and Hedge Fund Executives - you know the ones who have been making the billions in the last few years - and that's because our markets could not function without them.

So if we put tons of regulations and controls down in the New Banking Era, then Britain stands to lose out.

And Your Point Is?

Such an argument may well be true and a real threat but in reality Britain has become way to reliant on financial markets and the City to be a healthy economy. Balance of Payments, Budget Deficit, our currency, the Service Industry, Employment have all become dependent on the City's performance and there is no underpinning economy which supports the UK. Lose the City and Britain is lost.

Well perhaps it is time we understood that the Golden Goose cannot last forever. It is right to regulate and control the finance markets. People are gambling with our money and the country's wealth and when they get it spectacularly wrong they carry on as if nothing has happened and wait for the Treasury to bail them out while earning fabulous wealth on the way. It's a no-lose poker game.

Roger Bootle's closing comments are symptomatic of the world of finance. He believes if we shore up the financial system from within then the outside will not get effected too much - in fact he does not see any signs that outside the financial world there are any effects to be seen. So why is it that home builders are going to the wall, that the number of bricks made in the UK this year dropped to below 1945 levels, that unemployment rose to the highest level in 11 years to 1.75m and that inflation rose to 4.7%, again the highest in at least 10 years? The economy is in slowdown, a brink of recession and generally economic conditions are the worst for 60 years according to Alistair Darling while no less a sage than Alan Greenspan calls what we are observing as a once in a 50 or 100 year event?

The fact is that the world of finance makes all other things possible. Lack of credit will meltdown the housing market and in turn curtail rampant consumer credit which has fuelled a materialistic boom across all levels of society that has been unprecedented in world history. What is happening in the world of finance will have a profound effect on our savings for retirement and or prospects for jobs.

The reality is that people like Roger Bootle are part of the problem yet they will be the ones fixing it. So you can bet your fake £1 coin that it will be fixed so that the same can happen again and again. And while the 'Big Boys' play with the system and get rich, it is we the tax payer, pensioner and investor who gets walloped every time.