Banks: Not As Small As I Claimed

When the Internet works, it really works. Yesterday I posted a graphic apparently showing the lost in value of bank shares, bank by bank. I'd found it on another blog I'd randomly stumbled across, but it seemed to be originally produced by JP Morgan using Bloomberg data.

I wasn't alone in finding it a powerful graphic and another blogger, one that I regularly read, also posted it. But he - or someone he knows called David Kaplan - noticed that the person producing the original graphic had made a mistake, the net effect being to over-emphasis the visual effect of the shrinkage in the value of the bank shares. So here's the corrected version.

Mind you, if JP Morgan can't even properly represent how much they've shrunk by it does sort of give a clue to why they might have shrunk in the first place, don't you think?

Now I'm Really Apprehensive...

...I've just listened to the BBC One O'Clock News on the radio. Robert Peston sounds like he's coming down with some sort of a bug.

& we all know the old economic adage, don't we? "When Robert Peston sneezes, the rest of the world catches a cold."

Two Sociologists Get Me Thinking

Two sociologists have posted economics stuff which has got me thinking this morning.

Firstly, Bud the American points out that, initially at least, FDR's New Deal - and certainly the famous 'First 100 Days' - wasn't what we'd now call Keynesian for the very good reason that, actually, Keynes didn't publish his magisterial General Theory until 1936 and FDR came to power in 1933. Events usually precede their theorisation. I suspect the same thing is going to be true of various kinds of policies and turning points in the current crisis.

Secondly, AVPS bravely takes an initial stab at commenting on the unofficial strike at the Lindsey Oil Refinery. I say 'bravely' because, as the title of his post suggests, this action might clearly be woven into a racist narrative. I see the BNP (and, no, I'm not going to provide a link to their website) are already claiming, "1000 British construction workers demonstrated in support of “British jobs for British workers”. But the very brevity of this statement suggest to me that, thankfully, they do not currently have a base amongst these workers - if they did, they'd be boasting much more actively. AVPS tries, gamely, to see the positive anti-globalisation themes embedded in the strike and remind people of the principled left view on dilution of labour. But I sense his heart is not quite in it as, like everyone else, he can't know how all this is going to turn out.

Nonetheless, the action takes my mind back to a fascinating Red Pepper article from last summer on 'Underdog Politics' across Europe.

"The success of right-wing populism is not only about what its proponents do and what voters think. It is just as much about how other parties, and especially the leftist elite, have created an enormous division between themselves and ordinary people at the bottom of society. The right’s populist success is the other side of the left’s failure, whether they are self-satisfied social democrats occupying privileged positions in the state or ‘post-modern’ socialists entrenched behind trendy theories on globalisation, the ‘networking society’ and individualisation."

Yesterday, the day of the French General Strike, I posted to the effect that I doubted whether the British Labour Movement would demonstrate the same type of resistance to the economic downturn as is apparent in some other European countries. But there will be resistance - and it is that 'underdog' theme which scares me most if it becomes the trope of choice of such resistance.

But perhaps, as Bud reminds us, we'll only be able to truly understand the political and economic effects of this crisis after we have lived through it for some time.

Midday Update: the BNP's site is now carrying a front page article on the strike - and the arrival of a team of their activists....

6pm Update: ah, but now almost all the Left are behind the striking workers, having convinced themselves that the basic motive is not racist. & The TUC have put out a very helpful statement which is relatively strongly worded given that these strikes are, by definition, illegal. I hope they're all proved right. Perhaps I'm being overly-gloomy but I still fear it could take a right-populist turn...

What Next?

This blog has got derailed. I started it as a semi-private means of reflecting on what had happened to the political world - and by implication, to my political beliefs - since I stopped being an activist in 1991. Quite unexpectedly - at least to me - the global economy went belly up two weeks later. The years of the so-called 'Great Moderation' (copyright Ben Bernanke) were suddenly over. Capitalism was in crisis once again and it seemed as if everyone, not just me, had to start thinking through how they thought things should be put right. & what an economy and a society 'put right' might look like. So the blog has had a very heavy economic focus. It may even have flirted with what Flip-Chart calls 'recession porn'.

But the blog is really suppose to be about politics, and specifically the prospects - if any - for some form of re-energised movement which pushes forward equality and community. (Note I've avoided the word 'socialism'). Before the crisis I thought New Labour was all but dead as a viable political tradition, and about to get its electoral come uppance. Despite the rally of popularity occasioned by the Government's unexpected sureness of foot in the early stages, it still might. Martin Jacques points out that it is hard to avoid the conclusion that the man who presided over the amazing growth in neo-liberal finance should shoulder at least some of the blame of the current mess. The opinion polls look bad. & at this late stage attempts to rope the Lib-Dems to the mast of the quite-possibly-sinking New Labour ship look more than a little desperate.

So what comes next? Comrade Mason points out that, seen against a European canvass, everyone is facing a pretty bloody time: 'Iceland' may come to Eastern Europe in the form of total financial implosions, pulling down Austrian and Italian banks; France is ....well, doing that traditional French thing of mass protest today; and the Eurozone itself is coming under pressure as increasingly divergent national interest rates are applied. But there are, as yet, no mass protests against the recession here in the UK. Despite many radical hopes I have a hunch there won't be - or at least not in anything like the French form. Our Labour Movement has been well and truly castrated for over a generation now. I just can't see how it might rise to the challenge of prodding this administration into even the semblance of radicalism.

So although the political situation is very febrile and changeable, I am increasingly of the view the Tories will come back to power. & they will blame New Labour for 'wreckless spending' in order to impose 'fiscal discipline'. It is at that moment that the real political battles will begin in Britain: after the election.

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Banks: the Scale of the Problem

Sorry for posting a graphic you'll have to click on to blow up. The blue circles are the market valuations of the banks as of Q2 2007 - and the green circles (yes, there are some - you'll have to look closer) are the market valuations 8 days ago on January 20th.

I've taken the graphic from Free Market Fairy Tales.

Addendum: I've just read today's contribution from Peston,who is predictably in Davos:

"As I write, the chief executives of many of the world's big banks are meeting in top-secret, private session - to discuss what to say in their also top-secret meeting with finance ministers on Saturday morning. Here's the scoop on what the bankers will say: "Help!!!!!" (roughly translated as "only the further generosity of taxpayers can prevent us falling over as a consequence of the big losses we're incurring on our imprudent lending"

Blairite Modernisation at 8.10am

Amidst the normal chaos of a family breakfast I half caught a Today programme item on adult illiteracy this morning. The relevant Minster, John Denham, praised the existing programmes, claiming that they were recognised as world leading - despite criticism by a Commons Committee. The other interviewee was Phil Beadle, one-time ‘Teacher of the Year’.

Now Denham is, in my view at least, very much the principled face of New Labour: I don’t agree with him about much but I do recognise his integrity. He knew how to deal with Humphreys – he gave competent, political answers. Beadle – who I also respect as a communicator – didn’t. He gave professional answers: he stressed that the existing programmes weren’t targeting the right people, that the current definitions of illiteracy were bizarre, that the easier cases were being targeted and that the wrong methods – e.g. something other than phonics – were being used. Humphreys simply didn’t understand the detail and, for once, seemed genuinely bemused.

It set me thinking, once again, about the target driven culture of public services. People game play when faced with targets. Things which feel like basic management information for those at the top of the tree can seem like byzantine and pointless form filling for those actually doing the work – and form-filling which actually prevents them from telling people higher up what’s really going on.

I don’t believe this is unique to public or not-for-profit services. But I do think that the culture is more pernicious in public service as it seems much more plausible that a profit driven enterprise might well have relatively simple aims – boosting revenues, financial returns and share values, for example – whereby top management can accurately measure local performance on the basis of a limited number of indicators. Public service is inherently different: what counts as success - or failure – is more complex to define, and may change over time due to political perceptions of the current balance of problems. So either targets grow like topsy so there become simply too many of them – or they just measure the wrong things. Both routinely happen in my experience.

Never mind all this ideological stuff about 'provider capture'. Any well run enterprise wants to be captured by its staff, because it wants the staff to feel it owns the work that they do. & that means facilitating a dialogue between the top of any organisation and the people who work for it - and the people who consume its services - over what they're trying to do in the first place.

Memories of the 1970s...

Ah, yes. Stuart Holland. Multi-nationals and their nefarious ways. A left Labour economic programme. A book called Socialist Challenge, which first explained to me the intricacies of internal transfer pricing in large, multi-national firms.

It all seems so old-fashioned amidst the talk of globalised finance in crisis.

Well, it did, till I read this about MicroSoft and Ireland.

Sweden, Norway & Property Rights

Bronte Capital, a big money Aussie fund manager, tells us (here and here) the difference between the Swedish nationalisation of banks and the seemingly equivalent Norwegian experience. There were, it seems, important technical variations relating to how existing stockholders were compensated.

These differences matter to him as he's worried that without 'due process' the potential bank nationalisations around the world might constitute theft. (Heaven forfend!)

In one post he says,

"We (people who as a matter of course might provide capital for banks) are living in fear of arbitrary actions by government. Believe me - I buy and sell bank stocks and I live in fear!"

Actually, he's far more intelligent than that somewhat overheated isolated quote might suggest. He's obviously extremely knowledgeable on his chosen subject and he writes clearly enough for non-experts like me to get the gist of the matter. He understand that banks need the guarantee of a State behind them - and that the State may need to nationalise certain banks, sometimes, to ensure the functioning of the system in the long term.

But I point him out because he's raising, from a very different point of view to my own, the key issue. I want banks nationalised because I think that by allowing individuals and financial bodies to exercise - or, as Tom P ceaselessly points out, not exercise, just take rents from - their property rights in such institutions we are all put in systematic danger. "OK", says Bronte Capital in effect," - but not at my expense. & I want first dibs on buying them back when you've fixed the problem. I want my property rights."

Behind all the populist, anti-banker rhetoric - even from Cameron - I suspect it is people who think like Bronte who are advising the UK Treasury. Clever people. Clever banking people.

Long ago in my youth I knew a pithy phrase to describe this sort of thing: class struggle. But, as I've said before, only one side is fighting.

How Bankers Girlfriends Suffer...

From the NY Times, via Naked Capitalism, comes news of the heartbreak that the credit crunch brings in its wake.

“There’s actually the type of person who has a bad day on the trading floor and they want to have sex more,” Ms. Spinner Davis offered as she sipped a vodka gimlet, declining to say how she knew.

Ms. Petrus chimed in.

“If you’re lucky you’ll get that guy,” she said, not revealing whether she considered herself lucky. “Middle-case scenario: It gets relegated to the weekends.

“Worst-case scenario,” she began, and then took another sip of her drink."

No wonder the Lloyds folk still think they deserve a raise....

Is Channel 4 Run by a Marxist?

Well their Chair does say this in the FT today,
"...we must learn something painful and radical – how to live within our means – because the credit just is not there any more. The easy money is all gone, and there will be no more for a long time...... Homeowners should forget about houses going up in value – all that is history. They are places to live in. So cut back on your outgoings. Pay rises are off the agenda. Wholesale pay cuts may yet become common. ..... I fear most citizens’ plans for the future must be put on hold. This is not something happening to other people – we are all in trouble.......Business must adjust to the idea that this stagnation could last for many years. The age of free money from mad lenders is finished. The growth game is over. Whole swathes of industry are on life support. The banks are in desperate straits...... This is not a correction, a brief hiatus until the upward march once more resumes. At some point, the Japanese, Chinese and Saudi buyers of US and European government bonds will see just what miserable value they offer. Then governments may have to stop all the runaway state spending and bail-outs, and even put up interest rates."

As I understand it, insofar as Left Keynesian/Marxist-influenced economists have a distinctive view on the root causes of the current crisis a (much vulgarised) version of their particular narrative might run like this:
1. Around 1970-75 the rate of return on industrial capital began to decline in the USA and across the West - this resulted, first, in a renewed emphasis on cutting back the share of national income that went to wages and salaries (cf here) and, second, the development of a huge and sophisticated system of credit driven finance capital. It is this unprecedented credit system which has created globalisation, not any allegedly 'game changing' technologies such as computers. It allowed big capital to lend money to vast numbers of people whose static or declining real wages would otherwise have prevented them from acquiring assets such as housing.
2. This system also allowed the US in particular to borrow to pay off its debts - and to create new ones. As the dollar functioned as the reserve currency, the new financial architecture effectively obliged central banks of both rich and poor countries to lend to the US – by buying US treasury bills (debt). Britain played an important subordinate role in all this as the City of London functioned as Wall Street's 'off-shore island'.
3. This system created far higher returns for finance capital than investment in productive enterprise - so the rate of new capital formation in such industries continued to decline. Or at least did so in the West: Chinese - and BRIC countries more generally - rates of investment were far, far higher.
4. Given the prosperity of the West has been underpinned by credit the BRIC countries - and other big exporters such as Japan, Germany and the oil states of the Middle East - have effectively been exporting their national surpluses to underpin it. China in particular now holds formal ownership of large swathes of American industry and housing.
5. But this was a bubble - it was structurally doomed to eventually collapse. & it has collapsed. & there is no obvious way back to where we were before....because the West is no longer the sole power in the world.

Compare and contrast these two views, as they used to ask in exams...

"..doing live electrical work while wearing a blindfold and standing in a pool of water"

I've decided I don't go to Crooked Timber often enough. Here's John Quiggan explaining why a 'Swedish nationalisation' - i.e. a short-term one - wouldn't be enough:

"What’s needed in the present case is not only to fix the problems of individual banks, problems on a much bigger scale than have been seen before ... but to reconstruct a failed global financial system. It’s kind of like rewiring an electrical system in near-meltdown, while keeping the power on (this is possible, but tricky and dangerous). The job is likely to be much slower than the [Swedish bank rescues], and the institutions that emerge from it will be very different from those that went in.

....Financial restructuring is going to be a huge challenge, involving both a radical redesign of national regulations and the construction of an almost completely new global financial architecture. To attempt this task while leaving the banks under the control of discredited managers nominally responsible to shareholders whose equity has, in the absence of massive transfers from taxpayers, been wiped out by bad debts, seems like doing live electrical work while wearing a blindfold and standing in a pool of water."

Which is an argument that doesn't depend on the seriousness of the current crisis per se, so much as on the need to reshape the world so it never happens again.

Not-Reykjavik: Nice Cathedral, Unfortunate Twin Town

I've been chuntering on about Iceland on this blog since early October, when I quoted from the then current Wikipedia article on the Icelandic economy. The same article, you perhaps won't be surprised to hear, has been subject to some revision and now ends with the words, " The IMF predicts the GDP of Iceland will contract by 10% for year 2009". Looking at the 'discussion page' - the bit where the people who lovingly update Wiki argue out their differences - I am struck by this plaintive note:

"Merger of Nordic Tiger

I propose that Nordic Tiger be merged to this article. There's not much need for a separate article on a short-lived nickname. Fg2 (talk) 07:21, 11 October 2008 (UTC)

But I tend to agree only so much can be generalised from the experience of such a small nation - talk of a possible Reykjavik on Thames is undoubtedly over-blown. Iceland, we are reminded on all sides, is only the size of Coventry in population terms.

So I now plan to keep an eye on reports of the effects of the credit crunch on Coventry, a city I lived in thirty years ago. As of today, Wiki tells me,

"Coventry's main industries include: cars, electronic equipment, machine tools, agricultural machinery, man-made fibres, aerospace components and telecommunications equipment. In recent years, the city has moved away from manufacturing industries towards business services, finance, research, design and development, creative industries as well as logistics and leisure."

According to the local paper all is quiet - the Coventry Evening Telgraph - admittedly, never exactly a keen barometer of political or economic change - seems to be leading on stories around a arsonist who set fire to himself, a hike in the cost of meals on wheels and "hearing-impaired patients in Coventry and Warwickshire wasted £75,000 of hospital cash by not turning up for appointments last year." Yup, it's that gripping.

But Wiki also reminds me the town is twinned with Volgograd. But it wasn't always called that of course, it used to have another, more famous name

Let's hope Coventry isn't facing a new economic Stalingrad.

P.S. AVPS carries a report saying the Icelandic Green Left Party stands at 32.6% in the polls, a staggering jump in popularity. He'll no doubt recall that he has a comrade in Coventry famous for almost sharing an office with Tony Blair. But I'm not betting on Mr.Nellist jumping quite so far in the popularity stakes.

The Relentlessly Innovative Spirit of Free Enterprise (pt 452):Malia & Sasha Dolls

Michelle is not happy. Or so says a Chicago website. & I don't blame her at all. This is invasive, crass exploitation.

I found this at Rachel's, a blog by an American Sociologist who seems to have just had a couple of mixed race* kids herself. & as she gently points out - the dolls don't really look all that black, do they?

(*Or what we in the UK would call mixed race kids - forgive me if the American terminology would be different).

Credit Crunch Effects: First Government Falls

Iceland. Who'll be next?

Maybe Not Broke, But Still Broken

Despite the hints of Mr.Cameron Britain's not going broke it seems. Or at least not unless everyone else does, according to the much quoted and seemingly sensible Flip-Chart Fairy Tales. So that's alright then.

Except, of course, it isn't alright. Countries don't actually go broke in the same way as companies. They don't get put into receivership and then get closed down/broken up/sold off to the highest bidder. Even if the IMF suits did arrive to take over the direction of the Treasury their first thought wouldn't be "...let's see if we can interest the Germans in annexing Middlesbrough 'cos they've got a chemical industry as well" or " ..hmm, there's no alternative but to simply close down Rotherham because no one in their right mind would want them as a colony..." or " ..I think we should turn down this proposed management buy-out from Guildford because they're not offering enough money - we'd get a better price flogging the town to the Saudis..."

What we're really talking about is the degree to which the current financial and economic crisis will impact on the county's political and financial autonomy and on the living standards of our people. Whether or not the IMF will arrive - as in Iceland - is a matter that those of us who know the depth of our own economic ignorance are best advised to leave to the experts. (You know, those people who did so well in warning us all this was coming over the horizon...).

But one thing seems clear to me: the 'national business model' is broken. That is to say our heavy dependence on the financial sector is unlikely to be restored to its previous degree of viability. We - and the States - simply haven't saved or invested enough compared to the emerging economies, and particularly China, as John Ross relentlessly points out. So we're going to get poorer and have less national political autonomy. This is the big point. We've got to find a different balance of things to do as a nation - and probably pay ourselves less for doing it. (Well, I say 'ourselves', but I really mean pay the boss class less ......)

The question of how much poorer and how much less political autonomy is wrapped up in the technical language of economists that so few of us really grasp. Is it to be a crisis of 'early nineties' scale? Or are we talking of something akin to the the post 1976 crisis that led to - and was made worse by - Mrs.Thatcher? Or even the Big One - a Depression, 1930s style ? I don't know and, to be frank, I don't really believe anyone else does either.

Frozen Orange Blowback ?

No, not that kind of Orange......

The Icelandic Weather Report carries a really helpful eye witness account of events in Iceland over the last week. In summary: mass popular protest has caused a deeply unpopular government to concede fresh elections in the aftermath of economic Armageddon.

This turmoil - and similar events elsewhere on Europe's periphery - has begun to worry the continent's political and financial elite. (Via the leftist sage of Suffolk).

But what caught my eye in the latest Weather Report was her reference to a degree of popular revulsion at rioting as a tactic - and an explicit iconographic reference to events in the Ukraine.

"Hundreds of Icelanders join the “orange movement” to show they support peaceful protests and reject violence. Protests continue outside the parliament buildings despite cold temps and gale-force winds. People bring roses and tulips to give to the police; someone brings hot chocolate and distributes equally to protesters and police officers..."

How amusing if the turbo-driven world of globalised finance capital were to be challenged in the ideological clothes of a movement which presented itself as sweeping away the corrupt and undemocratic remains of the old Soviet era. Especially since 'even the dogs in the street' (as a real god-fearing Ulster Orange man might say) know that Ukraine's original Orange Revolution was part funded and organised by a range of Western government and non-government agencies including George Soros' Open Society Institute. & who personifies globalised finance better that Soros, the 'man who broke the Bank of England' back in 1992?

Blowback time?

Are We Of One Accord?

I've always felt a bit ambivalent about militant atheists like Dawkins and Hitchens. Basically I agree with them but they seem to be fighting an American fight against creationism which barely exists in this country, not concentrating on the tough issues that have to be faced to properly secularise Britain.

This, on the other hand, is something I wholeheartedly support - a campaign for equality and human rights and against the special exemptions enjoyed by religious schools. A campaign which focuses on fair admissions and fair employment practices. &, best of all, a campaign supported by religious people as well as non-believers. (There is no necessary conflict between belief and wanting to live in a secular society.)

Ashok Kumar MP has tabled an Early Day motion supporting the Accord Coalition. It reads:

"EDM 530: Accord Coalition

That this House supports Accord, the national coalition that unites religious and non-religious individuals and organisations campaigning for inclusive schools; believes that all state schools should be open to children and teachers of all backgrounds and beliefs; is concerned that current legislation permits schools with a religious character to discriminate against staff and students on the basis of their religion or belief and to teach a partial religious education curriculum; calls for religious education to be objective, balanced and fair; welcomes the positive approach taken by Accord and the breadth of its membership; and urges the Government to remove exemptions from equalities legislation for state-funded religious schools."

They need as many people as possible to contact their MPs asking them to sign the motion. This is a very effective way of letting your MP know how you feel about the way faith schools operate.

Ownership & Power

The alleged strength of the web is that it allows different pieces of information to be put together quickly, and in radically different ways. So let me attempt a small 'mash-up'.

1. Tom says ownership is nominal in the stock markets - and it shouldn't be. Owners should care about what they own, not just treat ownership rights as just another mechanism for extracting rent. Indeed, classical socialism - of either Marxist or social democratic hue - was based on the default assumption that they did care. ( That last bit is me, not Tom).

2. But Snowflake tell me something I didn't know: in America, home ownership rights - which, as here, are mainly mortgaged - can work differently. People can walk away from negative equity with far fewer c0consequences than in Britain if they have a 'non-recourse mortgage', leaving the loss with the bank or mortgage company. So defaults obviously happen more often. New, lesser, forms of property right appear to have been specifically invented to allow the great financial institutions to become better at extracting rent. It's just gone horribly wrong for them - but less wrong, in America, for those in negative equity than here. So untrammeled personal ownership can have its downsides for most of us.Perhaps we don't alway want to own things?

3. I can finally see, therefore, 14 years after its abolition, that the following formulation doesn't quite do it:
""To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service."( My emphasis).

It's about control, not ownership. Which is a more Weberian discourse than a (classical) Marxist* one. But it is non- classical Marxism in the form of the great British Marxist historians who have best traced the development of power relations.

(* & ,yeah, I know Sidney Webb - author of Clause 4 - wasn't a Marxist. But Clause 4 is the authentic expression of domestic British socialism, and was produced under the pressure of events in the East.)

The relative autonomy of the state?

Thirty years ago I wrote my undergraduate thesis on 'Marxist Theories of the State', of which there seemed to be an inordinate amount in the late 1970s. At certain academic institutions whole flocks of such theories could be dimly glimpsed poking about in their natural habitat of the thick undergrowth of wordy incomprehensibility.

As you might imagine, I'm rarely asked to recap on my wide reading on this subject at dinner parties. Which is perhaps just as well, as I don't think any of the great, grey radical tomes I waded through ever quite envisaged a situation where a Labour government was determined not to nationalise the banks whilst the Financial Times and quite a lot of bankers want them too.

Worth a Thousand Words...

I've been blathering on for weeks about the fact Britain has - or perhaps had - a grotesquely over-sized financial sector compared to the rest of the economy. But Bubbly Alice cuts straight to the point and provides the killer graphic.

Oh - and Lenin directs us to this website, which has some quite well shot videos of the riot and occupation at the Icelandic parliament.

Obama v Blair

I defy you to find a Brit who didn't automatically superimpose memories of 1997 on the events in Washington yesterday. The superficial parallels are so obvious: a widely despised and unpopular government comes to an end, a clutch of new and apparently untainted faces come to the fore promising the end to ideologically driven policy and to focus on 'what works'. What's perhaps surprising, given these echoes, is that so few British commentators have succumbed to the temptation to cap the analogy with the obvious after-story of our massive national disillusionment with Blair...

It's true that Obama seems a more substantial individual than Blair - he appears to be an orator, not a sound-bite merchant with a gift for PR. But this alone can't explain why such an obvious analogy hasn't been pursued to its logical end.

I think that there is a political difference in their situations. New Labour's support in 1997 was very broad indeed - but it wasn't very deep at all. It had determinedly turned its face away from its core sociological constituencies and had attracted the voting preference - but not necessarily the ideological commitment - of Middle England. (I've blogged about this here). When Blair frittered away that wide support in vicious wars and technocratic 'reform' he had nothing to fall back on. New Labour seemed doomed before the economic meltdown, and may yet be so despite its best efforts at presenting 'hang onto nurse for fear of something worse' as a strategy to the electorate.

But Obama doesn't just represent new, fresh non-ideological policies to the American people the way Blair did here in 1997: the hundreds of thousands who packed Washington yesterday came to see the fulfilment of a long, long struggle for civil rights and racial emancipation. His support is deep as well as wide because it has historic and sociological roots.

Which, with all due respect to my Compass friends, is why New Labour hopes of hitching a ride on the Obama band wagon are going to be sadly misplaced. & also why I find myself in unexpected agreement with the sensible wing of the Socialist Party on how the left should relate to the new American administration.

From the Periphery to the Centre?

Keep an eye on Iceland. Things seem to be, erm, hotting up.

"The number of protesters in front of the parliament buildings has grown steadily this evening and there are now between 2,000 and 3,000 people there. Windows have been broken in the building and paint has been thrown. A bonfire is burning in front of the building and people have fetched things to add to it from nearby building sites." 10 pm, Jan 20th

First Day at the New Office

Well, not exactly"you have nothing to fear but fear itself" then, nor even "ask not what your country can do for you, ask what you can do for your country...". He sounded like an orator trying, just a little too hard, to sound focused to me.

But, hey - here's the thing: he's not George Sodding Bush so he's automatically the Greatest American President of the 21st Century. Good luck to him. He's gonna need it.

Especially since wiki has helpfully offered up his signature to the entire world. On top of every other challenge he faces, the poor bloke can never write a personal cheque again. & interesting questions may arise for future historians when they come to examine international treaties allegedly entered into by the States under his Presidency....

Advanced Capitalism, Backwards Socialism (Round 2) ?

I've grumbled on this blog that the Left blogosphere - with a (very) few honourable exceptions - hasn't really got the measure of this economic crisis.

But, oh my, Angry Alice has:

"Today was an historic moment. The RBS and its barely comprehensible loss signaled the end of an era. The days when finance was the engine of the UK economy are definitively over. The UK banking sector has become the 21st century equivalent of coal mining; over-staffed, over-paid, and profoundly unproductive.

When the RBS announced that loss, it shot a fatal arrow straight into the heart of the UK banking sector. This loss is equivalent to 2 percent of GDP..... This is a bloated and obese behemoth....What is true of the RBS is also true of all UK banks. They are too big; they employ too many people and their funding model is unsustainable. .... we as a nation simply don't have enough money to cover up the losses of our banks."

I don't know anything of Alice's general world view, except to say that her links seems financially related, and those who comment on her blog appear, to me at least, to have a libertarian/right wing tone. But I don't think it's too wild a step into the unknown to hazard a guess she's not a socialist of any stripe.

But she's got an inkling of the immensity of what's happening. Just as the Right did in the late seventies and early eighties - and just as (most of) the Left didn't then.And don't seem to have now. It was precisely that dichotomy which drove the young Charlie into arms of the 'yummies' (Young Upwardly Mobile Marxists, copyright New York Times). How else to remain true to the basic values of my personal history and yet recognise the reality of change?

& now we have bank nationalisation discussed as a technical necessity in the op-ed columns of the Financial Times. One of their people even says, "Shoot the bankers, nationalise the banks".

& where are the Left? What is our strategy for this new world opening up before us ? A strange and confusing world where the other side seem to want to adopt many of our - previously considered outlandish - policy prescriptions? They will "steal our clothes and run away", as Disraeli did to the Whigs 150 years ago, as Thatcher did with her rhetoric of freedom, unless we can grapple with this new modernity as well.

Come back Martin Jacques, all is forgiven.

The Formal Keynesian Position: The Swedish Solution Explained

Say what you like about Krugman, he sure can explain to us non-Masters-of-the-Universe the technical options.
"...let me describe the position of a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.....Gotham is a zombie bank: it’s still operating, but the reality is that it has already gone bust. Its stock isn’t totally worthless...but that value is entirely based on the hope that shareholders will be rescued by a government bailout.

Why would the government bail Gotham out? Because it plays a central role in the financial system. When Lehman was allowed to fail, financial markets froze, and for a few weeks the world economy teetered on the edge of collapse. Since we don’t want a repeat performance, Gotham has to be kept functioning. But how can that be done?

Well, the government could simply give Gotham a couple of hundred billion dollars, enough to make it solvent again. But this would, of course, be a huge gift to Gotham’s current shareholders — and it would also encourage excessive risk-taking in the future. Still, the possibility of such a gift is what’s now supporting Gotham’s stock price.

A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders."

Mind you, matey over here says Krugman doesn't understand the maths. (Which is a pretty big thing to say of a nobel laureate).

Sailing Slowly to Sweden via Brussels?

Ken's utterly unambiguous: the new bail out won't work and it's time to go for full bank nationalisation. Well, we'll see if he's right on the first point - it really is only susceptible to an empirical answer as I don't really think we've been this way before in global economic terms. (Just because, as an old Leftie, I want it to be true that things short of full nationalisation won't work doesn't mean that it is so.)

Looking back at my previous posts (e.g.) I see I rather airily dismissed the ideological problems in getting mainstream politicians to go fully Swedish - that is to say, to temporarily nationalise the banks in order to fatten them up and then, eventually, sell them back to the private sector. There is clearly resistance to this idea in its full blown form and almost everything else is being tried first. Part of the problem - and this at least I do think I got right - is that the banks themselves are hugely opposed to any such move. Partly also it is that it may well be that Brown and Darling agree that it is hard to see how any such move can possibly be temporary - something Mason first alerted me to back at the beginning of October. But ideology also plays its part, and I can see, at a human level, how difficult it might be for New Labour to abandon it's basic economic world view.

There is one other factor that is beginning to interest me politically. The point of nationalisation is to put the guarantee of the nation behind any enterprise. But London's banks aren't 'nation-sized' : they're a continental sized off shoot of Wall Street, the key component of it's 'shadow banking system'. So even nationalisation may not be enough of a guarantee.

That, it seems to me, is the implication of much of the weekend's chatter about the difference ('6 months plus membership of the Euro') between the Icelandic and Irish situations - Ireland has the authority of the ECB, a continental sized guarantee, behind it. Iceland doesn't. So will Britain be driven into the Euro?

Tony Hart R.I.P

Given I use Morph as my image it seems the least I should do.

From here, via John B

Gloomy Sunday Thoughts

Ho Hum. I was rather hoping that this widely unread blog was merely the eccentric musings of a economic ignoramus with the political antennae of the average lamppost. My obsessions might not coincide with anyone else's. But, hey, less than great minds seemingly think alike:

1. Will Hutton says Britain is potentially Iceland writ large.
2. William Keegan starts using the word Depression in a "well, actually, this really is a possibility" kind of way.
3. Tom P quotes Mandelson - always a good guide to the zeitgeist - as saying Britain needs to move away from an over-dependence on financial services and find new 'competitive advantages in Europe'. ( Lord Voldemort remains intensely relaxed about high salaries for 'high performance' of course: he's just woken up to the fact few of us think bankers deserve them....)
4. Ken draws attention to the Sunday Times bigging up Chinese political control of their banks and the ease with which they can therefore insist on counter-cyclical lending to industry to minimise the recession. (Not that the Sunday Times approves of this, you understand, but still...)

What is really striking to me at least, is how difficult it is to find informed discussion of all this in Leftie blogs with large audiences*. The blogs that I know about which fall into this category remain, with a few honourable exceptions ( hullo John Ross), fixated on foreign policy issues. Or at least the British ones do - it is American networks of Leftie blogs (e.g.) who seem better connected to the economic crisis.

Or perhaps I've just not found the Brit equivalents.

*Well, except for the ever insightful S&M of course - but half the time even he's busy using economic type logic to disprove political points, not attempting direct macro analysis of the political economy.
Addendum: and how could I forget Tom P, who once described himself as a 'weedy social democrat', but has heroically plugged away at the detail and now seems to realise that this is one of those moments of likely historic change.....

Thunderclap Newman Plays Reykjavík?

The Weather Report says there is revolution in the air. But what kind of revolution, I wonder?

Her next but one post is a long interview with Thorvaldur Gylfason, an Icelandic economist who once worked for the IMF and advocates joining the EU. He seems the very model of a non-corrupt & competent technocrat - and apparently he is the popular favourite to become either Minister of Finance or Head of the Central Bank. And he appears to be advocating, or at least positively entertaining, a non parliamentary government - that is a temporary government of non elected experts and trusted public figures.

What this sound like to me is not some popular revulsion at capitalism, nor even at financial capitalism per se. What it sounds like is the beginning of the Italian Mani pulite (clean hands) campaign and the so-called 'fall of the First Republic'. That was supposed to make Italy a 'normal' country.

But what the Italians got was Berlusconi and his party: "Forza Italia, the first party in the world to be mounted as if it were a company.." as Perry Anderson put it in an article which concludes,

"Contemporary efforts to normalise Italy have sought to reshape the country either in the image of the United States, or of the Europe now moving towards it. The pressures behind this process are incomparably greater. But its results may not be quite what its proponents had in mind. For rather than lagging, could not Italy be leading the march towards a common future? After all, in the world of Enron and Elf, Mandelson and Strauss-Kahn, Hinduja and Gates, what could finally be more logical than Berlusconi? Perhaps, like others before them, the travellers to normality have arrived at the terminus without noticing it."

Financial Regime Change: the Dominos Keep Falling

Comrade Mason’s back blogging I see, and back on crackin’ form. He’s pushing the line that the crisis is now unfolding to the point where banks which were supposedly a (private) part of the ‘solution’ last autumn are now manifestly part of the problem. Just go look at Barclays. So, says Comrade Paul, there are four alternative potential solutions :

“a) In short order, a credit guarantee scheme for businesses to allow them to roll over their loans

b) A taxpayer funded cap on bank losses, so the banks can draw a line under the old crisis and start meeting the new (hopefully not with new excuses about why they cannot afford to lend)

c) If they can get away with it, and if the banks will stomach it, a TARP-style fund to buy up bad debts and put them into a "toxic" bank, owned by you and me.

d) And if this doesn't work, nationalisation. I mean real nationalisation.”

Peston focuses on government plans for plan b – he calls it ‘the mother-of-all bank insurance schemes’ - but Mason gives the impression of not thinking it will work. Peston is very sniffy about the prospects of a 'bad bank' being set up, but Mason takes the longer - and possibly the cooler-headed - view.

The old system of Anglo-American finance is dying and yet no-one seems to have a clear view of what to replace it with. The crisis is not over - the fat lady hasn't even got into the car to drive to the opera house let alone come on stage and began to sing....