Things Were Different When I Were a Lad

Hattip to Blood and Treasure and Virtual Stoa for reminding me that the Left once had a very strong sense of how to avoid the sort of thing we're living through:

"It is essential that industry has the finance it needs to support our plans for increased investment. Our proposals are set out in full in our Conference statement, The Financial Institutions. We will:

• Establish a National Investment Bank to put new resources from private institutions and from the government - including North Sea oil revenues - on a large scale into our industrial priorities. The bank will attract and channel savings, by agreement, in a way that guarantees these savings and improves the quality of investment in the UK.
• Exercise, through the Bank of England, much closer direct control over bank lending. Agreed development plans will be concluded with the banks and other financial institutions.
• Create a public bank operating through post offices, by merging the National Girobank, National Savings Bank and the Paymaster General's Office.
• Set up a Securities Commission to regulate the institutions and markets of the City, including Lloyds, within a clear statutory framework.
• Introduce a new Pension Schemes Act to strengthen members' rights in occupational pension schemes, clarify the role of trustees, and give members a right to equal representation, through their trade unions, on controlling bodies of the schemes.
• Set up a tripartite investment monitoring agency to advise trustees and encourage improvements in investment practices and strategies.

We expect the major clearing banks to co operate with us fully on these reforms, in the national interest. However, should they fail to do so, we shall stand ready to take one or more of them into public ownership. This will not in any way affect the integrity of customers' deposits."

Labour Party Manifesto, 1983 aka 'The Longest Suicide Note in History'

But however suicidal or otherwise it proved at the time it was, of course, the platform on which both Tony Blair and Gordon Brown were first elected to Parliament.

Goodbye Grapes of Wrath, Hullo Weimar Republic?

OK: so the government has part socialised the banks at a cost of £50bn. They've also made £200bn available as short-term loans in an attempt to thaw the frozen interbank lending markets, with yet another £250 bn on offer as guarantees.

In other words I think my family of 4 has just spent c£3300 to acquire a minority stake in some insolvent banks, loaned these same banks a further £13200 or so and suggested that if they pay me some trifling fee I'll insure them for another £16,500 worth of deals. Always glad to do my bit for the nation's economy.

Oh - and there has been a globally co-ordinated interest cut - here, in the States the Eurozone, Canada, Sweden and Switzerland. (Presumably Japanese interest rates are already so low it doesn't matter.Money is now cheaper, worldwide.

The immediate indications are that markets are now rising in response. But will they stay that way? The debt is still there: there is simply more money than underlying assets. A sea of money has come crashing into the market to try to make people forget about it. But will it work?
 

Let's be clear about what 'working' might mean: this is a massively inflationary move. The value of the debt will be diminished by an inflationary growth- as will savings of course. Not to mention wages. So 'working' means the City gets its' money back and we all embark on a re-run of the 1970s. But it might not work- in which case we'll still have the inflation plus a depression. Now that would be nasty.

It's not over yet, I can feel it in my bones. The markets may stall, there may yet be a bank run. There were significant ups and downs during 1929, and we'll see them again. It's still pass the parcel and it's not yet clear who is holding the debt...

Any Bjork in a Storm

"The economy of Iceland is small but well-developed (most developed in the world according to United Nations Human Development Index), with a gross domestic product estimated at US $ 12.172 billion (132nd of 227 countries) in 2005 (and a per capita GDP of $40,277, which is among the world's highest).[1]

In 1990s, Iceland commenced extensive free market reforms and growth has been strong. Iceland has a free market capitalist economy with high levels of free trade. Government consumption is less than in other Nordic countries. Social expenditure is below most of western Europe.

Today, Iceland has some of the world's highest levels of economic freedoms[2] as well as civil freedoms." Wikipedia October 7 2008

Let's all watch for the updates, shall we? So that's what happens to a small country whose economy is totally overtaken by the wizards of high finance. I'm afraid it's back to those cod boats for Magnus Magnussen's folk.

& what now for Britain, as the august Royal Bank of Scotland loses 35+% of its' value in a morning? That's almost as bad as the Darien scheme.

So is it time for a 'structural adjustment', as the view from Oxford's dreaming spires would suggest? Fine - that chimes with much Left-Liberal thinking about the disproportionate influence of the City on our economy. But a structural adjustment to what, precisely? The metal bashing jobs have gone to Asia and aren't coming back..

From A Spectator Sport to Mass Participation

So far the financial crisis has been a spectator sport for most of us - a bit like watching a report of an earthquake on the other side of the world. The commentators routinely refer to a difference between the financial markets and 'the real economy', and at least some of them are very careful not to assume the current meltdown will necessarily feed through into any similarly sized effects on jobs, wages, company insolvencies and inflation.

Phooey say I. Either the money markets are simply and solely an obscene casino for creating money and making the rest of the world pay the Masters of the Universe for their kindness in doing so, or they do, in reality, supply not just investment money but also, crucially, cash flow to the 'real economy. If that dries up the 'real economy' starts to grind to a halt.There's a time delay, sure - but it can't be long in coming along now.

The traditional way of dealing with this is Keynesian reflation and I am attracted to the proposals set out in the Green New Deal as a possible contribution to any solution. But there is a definite limit to how far an economy like Britain's- the most indebted of all the major Western economies - can sustain this on a scale need to counteract the effects of our 'world class' (sic) financial services industry going down the pan. So let me make three small suggestions for helping to balance those government books:

* Cancel Trident
* Cancel the ID card scheme
* Bring the troops home from Iraq and Afghanistan

Every little helps....

Britain it seems to me is in the most desperately difficult situation it has faced since 1940. We're way, way out on a limb in our role as a kind of giant 'offshore' casino for the world's hot money. That money will flee as soon as it can and won't come back without massive reassurances - reassurances which can only come, in the short term, from moves against social spending and the restoration of the obscene differentials in income once provided by our casino economy.

Money, Money, Money - It's A Rich Man's World

Is it really going to happen? Are Brown and Darling really going to part socialise the City? If so, this is the economic equivalent of 1940, real 'backs to the wall' stuff.

Because, unlike Sweden, I really don't see how they'll ever get their money back...or at least not any time soon. In effect they're paying a huge premium to allow the City of London to continue as one of the major financial centres of the world. No, on second thoughts - it's not a premium, it's a flutter which might not work.

& it's not their money - it's ours. So we're betting the farm on keeping the system going. Even if this works it is going to be absolutely dreadful for ordinary people as the cuts and redundancies kick in. if it doesn't work, however, that's Britain with the living standard of, say, Spain or even Greece....

For the first time in my lifetime I really think the conditions are right for the emergence of a mass anti-capitalist party. But I fear any new mass party is more likely to be brown than red.And we're reminded by Counterpunch that options like this are always considered in such times.

BBC Reports Coming Epochal Shift

Blimey. Comrade Mason is now saying this is not just a 'Minsky Moment' (a predictable fuck up in the global financial markets brought about by the inherent logic of financial capital) but that the British state is seriously considering adopting Minsky's Left Keynesian policy response to such problems. What is that response?

"As socialisation of the towering heights is fully compatible with a large, growing and prosperous private sector, this high-consumption synthesis might well be conducive to greater freedom for entrepreneurial daring than is our present structure". (Minsky, HP John Maynard Keynes, New York 2008, p164-5)

Mason is saying, I think, not merely that a Swedish solution is on the cards - but the socialisation of the banks won't automatically be temporary. A new style capitalism with the financial sector owned (or persuasively regulated) by the State.

Meanwhile, the German government has guaranteed all private bank accounts as their major mortgage leader goes belly up, and the Brits are under pressure to follow suit.

Mandelson Back in Cabinet

Our political Titan of a Prime Minster has made a bold gesture of party unity that will reassure the nation that his revitalised 'team of all the talents' can lead us through the coming economic storms.