I don't normally agree with Robert Peston - he looks for the sensational in everything about this crisis. In fact, without it, he would just be the bouncy hack who did the occasional TV spot. Now he's a household name and the guru of the financial collapse, with some even crediting him with the whole misery we are in.
I dare say in Downing Street there are those who are looking to see how they could actually blame it on him - after all they are doing a great job in making us believe that the present set of ministers had absolutely nothing to do with it.
So having heard the fairly obvious news yesterday that unemployment shot past 2m with a very serious burst of new claimants which seemed to surprise everyone but those who had read the papers, we also heard that the country's deficit rose another £8.9bn to £75bn for the year and rather ominously tax revenues collected dropped 10%. These were not unexpected but I suppose we were all praying that somehow all this incredible amount of money that has been pumped into the financial system would have actually started to do something by now.
No, not really. And that doesn't seem to surprise me either.
More News
In between finding out that the mystery illness at the Fat Duck in Bray was in fact the noravirus, which I presume gets its name from having rolled down stockings and a Yorkshire accent when viewed under the microscope, we also heard that the National Audit Office has spotted that Northern Rock was allowed to lend £800m in risky mortgages for a further 6 months AFTER it was taken into ownership by the generous taxpayer. In fact the Rock was still handing out 125% mortgages in early 2008.
At that time, the Government was at the helm, attending to the detail of running a bank. The PM had told us that sub-prime had triggered the Credit Crunch and was nothing to do with us and here was the bank he had rescued handing out mortgages worth 125% of the value of the property in a FALLING house market. Gross incompetence springs to mind as just recently the same lot actually approved bonuses for staff at the Rock just for paying back some of the money it owes us and then allowing it to unilaterally change the terms of the rest of the loan so it can go back and do some more daft lending. So it's our property - which one of you allowed them to continue like that? Go on, own up.
We must be all barking mad.
Banking and The Future
But I digress. My eyes alighted on Peston's latest blog and for once I was intrigued. He harps back to being a junior in the 1980s and watching how Old Fart bankers seemed to lend to Third World Banana Republics and lose the lot, or to fat, oily businessmen like Robert Maxwell who stole it - Polly Peck springs to mind too. They were suckers for men in suits with big talk and very aggressive to plebs in the street like you or I. Peston yearned for flash, confident bankers who would think creatively and modernise banking.
Be careful what you wish for, is the adage, as indeed we got some new bankers alright. The fast-buck merchants came to town and off they went 'collateralised debt obligating' and 'credit default swapping' (CDO and CDS) their way to being extremely rich. And we became far better off because of it. Our personal earnings had gone down but because the trickery and sleight of hand of the new style of banking, more credit was made available to us and, thanks to a generous Central Bank, at cheaper prices than ever before.
And we spent and spent - like there was no tomorrow.
Peston looks at the essays of Sir Jeremy Morse, former head of the now defunct Lloyds Bank which he is credited for saving (how does he feel about its situation now, I wonder?), who says that we have two choices on the road ahead. 1) we rein back banking to something like the 1980s and focus on using deposits rather than wholesale money markets to finance lending and so severely restricting the debt people can have going forward - which would definitely shrink the economy for some years to come - or 2) we reconstruct the banking system largely as before but with the worst excesses removed. He claims this would plunge us back into the 19th century world of harsh troughs and periodic peaks but less inflation for some reason beyond me.
This latter course of action has been the only one considered - there is a massive obsession with politicians to maintain growth as it has been the sure fire vote winner at the last two elections and the only hope in the next. So the current policy is to increase the money supply with Quantitative Easing, and this money will arrive with us in the form of more credit for us to run up more debts.
As our PM constantly reminds us, he wants credit levels to get back to the mid-2007 level and so we fuel our addiction to credit and debt.
The Road To Ruin
Peston's piece is a sharp reminder of where the combined genius of Government and finance are wanting to take us. If debt was a primary cause of the financial mess we are in, the answer to solve the issue is for us have more of the same.
It is logical at one level, i.e. the theory, and downright stupid in terms of common sense - at some point we must reduce our indebtedness, it simply cannot just go on. The timer to the next financial crash seems to have been started and we haven't finished this one yet. Jeremy Morse is right - we will go through cycles of rapid growth and then massive and very hard crashes.
This crash has not been fun - we must be crazy to think this is the way ahead.
If you turn the clock back 12 years when the smiley-faced Tony Blair took over with his jowly, grumpy Chancellor in tow, the graphs looked lovely for a good while. Unemployment went down, we all used our properties to create more money, interest rates fell. Now, 12 years on, unemployment has gone back to the same levels, our houses have lost all the gains we spent, and we are in an economic crisis which we will all pay for in taxes for the next 20 to 30 years. Oh, and several of the banks are largely nationalised.
How the mighty fall.
Brown says that the politics of the Centre Left are the only way forward. That would be the economy with one forward gear and 3 for reverse, I assume? We all had such high hopes for these guys but you only have to look around at the mess the world and our country is in to know they got it horribly wrong and their way forward will only compound the error - massively.
At some point, we are going to have to clear up this mess and pay the true price of the excess of the last 12 years. Just to remind us of those whizz-kid instruments of mass destruction, the CDO stood for an 'obligation' and CDS a 'swap'. These kids struck the bargains - like the rest of us they should have been prepared to honour them.
Why should we pay and let them all rise again? We must be all truly mad.
No comments:
Post a Comment