Friday, March 12, 2010

Layer 261 . . . Return to Bankers, Reform, Progressive Solutions and Obama's Democrats

There are lots of things to catch up on this week, and three good pieces in the Guardian today.

Simon Jenkins wrote another superb column -

The bankers lied. And Darling, a mere puppet on their string, knows it

Britain has paid a horrific price for allowing the City to dictate credit policy. Yet there is no inquiry, no questioning, only silence

Still no inquiry. Still no answers.

The lack of accountability, the sheer lack of curiosity from the political community, is amazing.

 Advised by bankers, surrounded by bankers, obsessed with bankers, Darling paid.

I would like to know why. Ask those involved and they go wide-eyed and mutter "Armageddon", rather like Tony Blair explaining the Iraq invasion. To these people, not letting banks fail was not an option but a creed. They cannot explain what is "wrong" with taking hold of a reckless bank in trouble, guaranteeing its deposits (and cash machines) and continuing to lend against a Treasury guarantee, while dumping the casino activities into administration. Shareholders lose out, but that's capitalism. Talk of bank doors closing is rubbish.

So why were RBS and Lloyds/HBOS not fully nationalised, rather than given unconditional largesse?

An Economist headline put it pithily: "Banks fine: pity about the customers."

Darling did not even require banks to curb their extraordinary bonuses, even when they consumed a large share of reported losses. The American financier, Warren Buffett, famously protested that banks were "being run for their employees… with lucrative paydays that enriched people who are not particularly intelligent and add little value". Since he claims to own them, Darling might at least explain why he was further enriching them at public expense.

At a time when consumer demand was collapsing, the government found itself unable to respond with more VAT cuts, pensions bonuses, higher social security and more public projects, in other words a classical Keynesian answer to a slump.

That is what Germany and many far eastern countries did, with benefits rises, tax holidays and consumer scrappage schemes. The British government did the opposite.

Why did Darling not let HBOS or Lloyds fail, merely guaranteeing their deposits? Alternatively, why did he not nationalise and split up the ailing banks in October 2008? Again, if they really were too big to fail, as they alleged, why has he not made them emphatically smaller, so when they fail next time they do not drag the economy down with them?

Gillian Tett's book on the psychology of credit greed, Fool's Gold, shows the corrupting effect of unfettered derivatives trading on the whole financial system. Darling has done nothing to mitigate that effect. The world is alive with talk of curbs on bonuses, hedge funds, short trading, proprietary dealing and transaction taxes. There is talk of stress tests, living wills and higher reserve ratios. In almost all these arguments, Labour ministers are on the side of unregulated banking and against further controls. They are the wildest of free-marketeers. Brown and Darling have gone native and become puppets on a banker's string.

Britain has paid, and will go on paying, a horrific price for this government allowing bankers to dictate credit policy after 2008. To avoid ministers suffering the ideological odium of proper nationalisation (as opposing to bailing-out), Britain is being forced to lose jobs, firms, infrastructure, prosperity and the happiness it brings.

Too big to fail has taken a savage toll on the economy. If it was worth it, I would like to see the account. If not, someone should pay. Yet because the policy was backed by all three main parties, there is no questioning, no inquiry. All is silence.

Mehdi Hasan wrote this:

It's defeatist nonsense to talk of a crisis of leftwing thinking

Progressives have been vindicated. The public are far ahead, and to the left, of government on the reforms we need

The left never seems to miss an opportunity to miss an opportunity. Social-democratic political parties across the west are in danger of allowing the financial crisis to "go to waste". Instead of seizing this once-in-a-lifetime chance to promote a radical, progressive and even populist political and economic agenda, much of the left has retreated into a familiar and introspective comfort zone, in which navel-gazing and self-flagellation become substitutes for action.

Eighteen months on, few, if any, of the leading neoliberal ideologues have recanted their belief in the sort of market fundamentalism that unleashed the worst financial crisis in human history.

The irony is that leftist analyses, for example, of the fragility of financial markets and the corrosive effects of inequality, have been vindicated by events. Never before in living memory have such large swathes of public and expert opinion endorsed policies and positions long advanced by the progressive end of the political spectrum. The public is to the left not simply of New Labour, but the political and media classes as a whole.

The reality is that the public are far ahead, and to the left, of the government on financial and economic reform. Polling by YouGov in February, for example, revealed that 76% of those surveyed wanted the government to introduce a law to cap bonus payments; 51% said they backed the so-called Robin Hood tax, or Tobin tax, on financial transactions; and 68% said they supported rules to split retail and investment banking. The latter view is backed by the Trotskyist governor of the Bank of England, Mervyn King, and the former by "Red" Adair Turner of the Financial Services Authority.

Then there is the role of the state. The right could offer no real alternative to the de facto nationalisation of the banks in 2008 – and the late Michael Foot went to his grave having seen a key section of his 1983 "suicide note" manifesto implemented by a (New) Labour government. But the hankering for state ownership of the so-called commanding heights of the economy is not restricted to the financial sector. Polls show voters in favour of the renationalisation of electricity, gas, water, the railways and the telecommunications industry.

In fact, throughout the Thatcher era, more people voted for high-spending, tax-raising parties than voted for Thatcher. Despite three decades of tacking to the right, under Thatcher, Major, Blair and Brown, the public has remained rather collectivist in its attitudes. Happily, recent events have only served to entrench this British mindset – and Labour's belated semi-conversion to a populist, Keynesian social democracy surely explains the narrowing of the Tory lead since the new year.

To talk therefore of a crisis of leftwing thinking is defeatist nonsense. It is the market-worshipping right that should be in crisis. But there is a serious question as to whether, after a decade-long Faustian pact with the City, Labour, as it is currently constituted, is capable of delivering the radical, progressive agenda voters crave.

The left should be much more confident, triumphalist even; for this is a progressive moment.

Michael Tomasky wrote this very depressing piece about the state of the nation in the USA:

A disgrace for the Democrats

Obama's congressmen will sabotage the health bill to keep their seats. It is stomach-churning

The players in this drama are participating in the destruction of their own party. They know this. And they persist.

They live in fear of being tarred by a future Republican opponent of having abetted the march of socialism. So they voted no on the most important piece of social legislation that body has had before it in probably 40 years.

Living in mortal fear that they might lose their seats. But are they thinking about how to fix the bloated mess that is American healthcare, or serve their uninsured and underinsured constituents? Maybe in private, but certainly not in public.

Disgraceful. Virtually all of them have tens of thousands, or sometimes more than 100,000, adult constituents with no private insurance. If they're not in Washington to do something about that, then what are they there to do? Please don't answer that question.

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