The New Labour deep complicity in the reckless lending, pillaging and fraud that accompanied the collapse of the country's financial system (and interconnected financial systems outside the United Kingdom as well) is known. What was less clear was the determination with which this form of redistribution was persisted in even after Northern Rock had led the inevitable collapse.
Months after the north-east's flagship Labour front organisation had to be held together publicly with tax payers' cash and guarantees, liar loans of 125% were being handed out to clients, and Third Sector 'foundations' and 'charities' dependent on the Northern Rock redistributive structure guaranteed their continued support. Other financial institutions that had not failed so spectacularly as to provoke retail bank runs pressed on handing out the proceeds of the looting of savings and pensions and, eventually, the sovereign wealth of the state itself, perpetrated by the New Labour regime.
As James K. Galbraith explains of the crisis more generally, in his interview published in Der Spiegel:
'There was clearly a systemic failure. But that does not mean there was no criminal energy around. The language one uses to describe these things is very important. I tend to stay away from neutral terms like "systemic failure" or "bubble," because these terms imply the innocence of the people involved -- and I can't see that.
The reality of the financial crisis is that it was caused by a culture of complicity. That makes it so difficult for people to come to grips with it, especially for people who were involved, who were denying it themselves and who were partially aware of the extent of the damage. Probably many of them thought they would get away with it and now they realize that they have created an enormous slump.'
The culture and language of complicity may mask but does not alter the ideological and tactically driven policy choices of New Labour and its post-democratic Project. Certainly there was private profiteering and institution pillaging, once financial regulation had been lifted, once 'light touch' had been instigated and relentlessly pursued by the Brown-led Treasury. More importantly,the enabling of an unprecedented transfer of credit and financial resources to those excluded by the market as without the resources to meet undertakings and obligations, was ideologically satisfying and technically justifiable by the economic growth that rising consumption and 'inclusion' would generate.
Now they are lying their hind legs off pretending the universal collapse they have generated is reversible with just a bit of tinkering, a touch more global deficit financing and an underlying moral righteousness that turns the stomach. If they can just make us stand still while they loot us, ensure there is nowhere to get ourselves and our wealth away from their jurisdiction, and do it on a global scale, it would work. And it would be fair. We all want a fairer world don't we? Don't we?
Or would we prefer to be consulted in an election now so that we can choose among the ways to sort this out.
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2 comments:
A great post putting into words thoughts which I'm unable to express.
If a train driver like me could see this complicity ...
I see an awful lot of linkage.
It's not just me, E-K, (Akerlof is a Nobel laureate for economics, not sure that Romer is as well. Perhaps the suggestion from Tedeschi that Brown be nominated for a Nobel prize is tongue in cheek - for putting into practice a theoretical economic analysis and destroying a country's economy just like the theory said it would.)
Though the extension of the arguments from this paper to the view that New Labour had a policy to go for bust and loot the state is Angels.
Looting: The Economic Underworld of Bankruptcy for Profit
George A. Akerlof
University of California, Berkeley; National Bureau of Economic Research (NBER)
Paul M. Romer
Stanford Graduate School of Business; National Bureau of Economic Research (NBER)
April 1994
NBER Working Paper No. R1869
Abstract:
During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust.
In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds.
Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
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