Wednesday, 8 April 2009

"Who's this 'we', Paleface...."

"I used to believe this state capture [by the finance sector] took the form of cognitive capture, rather than financial capture. I still believe this to be the case for many, perhaps even most of the policy makers and officials involved, but it is becoming increasingly hard to deny the possibility that the extraordinary reluctance of our governments to force the unsecured creditors (and any remaining non-government shareholders) of the zombie banks to absorb the losses made by these banks, may be due to rather more primal forms of state capture."

Willem Buiter - Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions - enters the 'relative autonomy' of the state debate. It's contracting, according to him it seems.

We're still playing pass the parcel with the unimaginable levels of debt, and the governments of the world are primed to pass them onto - well, not to those who created them, but the rest of us:

"For political expediency reasons, cuts in public spending are likely to fall first on maintenance, public sector capital formation and other forms of productive public expenditure, including spending on education, health and research. Welfare spending in cash or in kind is likely to be the last to be cut"

You don't have to expert in socialist theories of the state to understand this point. Try this analogy: every time a economist on TV uses the word 'us' or 'we' remember the old Lone Ranger joke.

He and his faithful Native American companion Tonto find themselves surround by a Sioux war band, and the masked man asks, "What are we going to do now Tonto?""Who's this 'we', Paleface...." comes the response.

So it is with the banking bailouts.


  1. That's a good quote, thanks for that, Charlie.
    It's devastating in its sweep.

    Is a guy like Buiter prepared to go the extra yard and say exactly the same thing in layman's terms - the government has been bought (?)

  2. I wonder if it is worth reflecting on the absolute centrality of the Royal Bank of Scotland and the Bank of Scotland to the financial & social wellbeing of the Scottish (East Coast) establishment?

    If Brown and Darling made RBS & HBOS shareholders take the bath they "deserve", then they would literally be wiping out their entire local social network of friends & relatives, one year away from their impending loss of job.

    A over-charitable explanation perhaps.

  3. I don't think it's personal Strategist. It's more that it is impossible to imagine an alternative - by which I mean New Labour is constitutionally incapable of thinking beyond the essentially Thatcherite strategy of running the country as a off-shore financial centre for Wall St.

    I don't think Buiter is a marxist, just a morally commited theorist of finance capital. He believes in the system, and wants it to work according to it's own self proclaimed logic. He is against 'moral hazard'- their term for the decoupling of risk and reward. He is far from alone in this on the Right - many Austrian influenced economists ( which I don't think Buiter is) want the banks to fail rather than be bailed out. But this would casuse unimaginable misery. So I personally want the govt to properly take control of them and start directing the economy

  4. Charlie, is the banks to fail what Buiter is advocating? Surely he just wants the shareholders to be wiped out as part of the process of the bail-out, rather than living on to whinge another day?

    I know little about Buiter (except that he comes across typically Dutch on the telly). But his statement that the government has been "captured" has more power coming from an insider than from a Marxist who would believe that anyway. I was just wondering whether he was the kind of guy who would be prepared to make the same comments in a more accessible language - say, in an interview with the BBC's Paul Mason.

    I would hope so - with his "favoured wacky foreigner" status within the British establishment, I fondly imagine he might get more licence from the BBC etc to sock it to us.

  5. Buiter wants the pension funds and other shareholders of financial stock to fail - at least where they have made toxic investments. I wrote about this back in February - see

    If Mason could get him to repeat his views on camera it would be great - but expressing such opinions on a FT blog is haadly private anyway.