Jan
22
that special relationship, some Northern Rock and the ‘C’ word
Filed Under Uncategorized, World, current affairs | Leave a Comment
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1In December 2006, Britain finally completed it’s repayment to the US on a debt stretching all the way back to World War 2. This removal of material indebtedness to our uniquely special friend and ally, if only partly symbolic, might hopefully lead to a more general decoupling of some of the political, economic and ideological ties that have bound us in to common, and often highly dubious, cause with the 20th Century’s now undisputed global power. An even more significant development in the re-shaping of that 60 year old “special relationship” between the UK and the US was the sight this week of Gordon Brown’s UK plc roadshow heading East rather than West, as his instinct to avoid the recession in America that some observers insist is inevitable, draws him towards the huge new markets in China and India, and with a smiling Richard Branson on his shoulder to boot.
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1
The oft-quoted metaphor is that when America sneezes the rest of the world catches a cold, but there are real signs that this level of dependency may soon go into decline, triggering an end to the dollar’s hitherto iron grip on the global economy and opening the way for that new world order which so excites the historians and political theorists. For the time being, all eyes are on the banking strategists, those power-brokers able to tweak the numbers and the percentages, to see if their insight and resourcefulness is able to effect a landing for the financial markets which is at a survivable speed.
Of course, the irony at the heart of the current crisis in the US is that the very aspirational ballsiness which made it the most successful economy in history can now be seen at the heart of it’s own undoing. In Britain it is the Northern Rock fiasco which has brought the scale of the wider problem to public attention, but this home loan specialist is but one casualty of an irresponsible upward spiral of unsecured borrowing which has been led from the front by those sub-prime sharks across the Atlantic. And it’s not just blind greed, but the false representations and deceptions, of which the Enron fraud case is probably the highest profile example,which has created this potential “nightmare scenario”.
For those of us who have long found ourselves at political odds with a rampant capitalism powered by a system of thinking so self-regarding that it took the collapse of the soviet union as a signal of it’s own untouchability, the current so-called credit crunch and related hand-wringing, provokes a certain amount of unavoidable smug satisfaction. If the motto could be refined to say “give the bonus-chasing, porsche-toting, ruthlessly risk-addicted, unscrupulously opportunistic money men enough rope, and they’ll hang themselves”, then a growing line is forming at the self-service gallows and all those whose own interests have been gambled or compromised by these people must surely appreciate the prospect of some comeuppance for them.
For anybody with even the most basic understanding of how the financial market operates and in the light of such dizzying levels of loan-driven spending over recent years, the current state of affairs comes as no surprise. The chains of risk, that sequence of institutions and speculators who fund a package of debts at a profit but then re-package it and sell on to an even ballsier institution or speculator, plays out like some inverted form of pass the parcel. In this game, layers go on rather than come off, and the person holding the parcel when the music stops is the loser.
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Whatever the final solution for Northern Rock happens to be, it seems inevitable that some degree of taxpayer subsidisation will be required. It is now the task of governments and the more honey-tongued spokespeople of the high-finance industry to neutralise the accompanying criticism by convincing the public that the banking industry, together with all it’s ranks of wealth creating money grabbers playing their games of financial smoke and mirrors, is core to the prosperity of all of us. The common interest which nowadays links business and politics so strongly represents a combined front of such power that there’s barely a question about whether this can be pulled off. Nevertheless, the screaming hypocrisy at the root of the entire episode should not be allowed to pass without widespread acknowledgement and a pledge to overhaul the way things are done.
Eearlier this week, and Even as Prime Minister Brown was perhaps finishing his peking duck and still haggling with Branson about a fair return on public money, Vince Cable was contributing to a Commons debate on the subject. With characteristic pithiness he pointed out that our current market-based model of wealth creation allows for an iniquitous situation, such as the Northern Rock failure highlights, whereby profit is privatised but liability is nationalised. Our government will happily turn a blind eye to tax avoidance wheezes, and predatory corporate behaviour in order to facilitate the activity of tycoons and private investment companies because, despite their apparent ruthlessness and eye-popping remuneration, we are told, they are necessary drivers of national wealth. They are worth this status primarily because of the extraordinary risks they are prepared to take. However this apparent quid pro quo is now blown clean out of the water. The banking sector chips have turned down but the risk-takers will not be expected to bear the full brunt. If nothing else, the plain facts of a government policy which so brazenly puts the best interests of domiciled taxpayers behind the comfort and convenience of asset-stripping millionaires, should be exposed for what they are.
Even as i write, the radio waves creak with the weight of various industry authorities and commentators pontificating on what, why and how. Financial markets tend to overreact in both directions, they say, and this fall following as it does the latest surfeit of pride need not lead to economic recession, the ‘R’ word. These days ,reference to tipping points is a popular way to understand the nature of the world’s most pressing problems, but the intriguing thing about the economic one is both it’s intangibility and it’s unpredictability. Scientists may argue about the specifics in the global warming debate, but with a physical phenomenon such as this, there is a cause and effect principle that follows a set of absolute, and measurable events, even if we dont yet know them precisely. The fate of stock markets, and from that the general fortunes of an economy, pivot around something altogether more mysterious; human confidence.
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Confidence in the microeconomic world (ie how individuals, households and companies make decisions about the use of their resources) is usually taken to describe our behaviour as consumers. In that respect, and so long as we believe that times are good and so far as the ready availability of cheap money really does make us think that we can have tomorrow’s jam today because there’s heaps of the stuff, then the feelgood bubble of borrow and spend will continue to expand.
Indeed, knowing as they do the central importance of the ‘C’ word in the mix, the overwhelming emphasis from the earnest voices of experts and analysts emanating from my radio is on the positive because it is in the perceptions of the consumer that the battle for capitalism’s spoils is won and lost.
But this time, the dyke-plugging of consumer confidence may need more than some light fingering of interest rates or big picture platitudes from the politico-corporate axis. The mere discovery of quite how precarious the whole financial house of cards is, and the recent media exposure of our formerly homely, trustworthy banks as dodgy salesmen, happy to deceive, obfuscate, penalise or just plain lend their way to profit at our expense, may yet affect confidence badly enough to trigger the tipping point for recession.
Some of us might even secretly welcome such a thing, in the hope that a particularly nasty modern day expression of free market capitalism will be reined in and the paradigm shift in consumer culture which is so essential to a sustainable future, will start to roll out.
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