Thursday, September 18, 2008

 

Who Will Rebuild the International Economy?

Trying to understand the international economy makes the brain hurt I find. It's a bit odd. for example, that the headquarters of world capitalism should be nationalising major businesses like some demented Marxist state. Also that companies which have been shrieking for decades that government should definitely, not ever interfere or intervene in the markets generally and their enterprises in particular, are now seeking the comfort blanket of..er.. state intervention and support. 'Surely', they are bleating, 'you cannot afford to let us go bust; what about the damage it will do to the nation's economy, let alone our own inflated bank balances?'

And yet these supplications come from the authors of their own threatened demise: banks and mortgage companies whose staff, in pursuit of their huge annual bonuses, lent wildly-125% mortgages often- to thousands of those lacking the means to repay. In a typically thoughtful piece yesterday Simon Jenkins pondered the state of world finance. He points out that after World War II, socialism enthroned intervention in the markets; when that didn't work, the Thatcher-Reagan era did the same thing to not 'bucking the markets' and deregulation. Huge riches thence flowed forth, albeit disproportionately distributed to the already super-rich. He comments:

That era has ended with astonishing abruptness. Governments in Britain and the US have been nationalising and spending public money with a will that would have made Attlee or Roosevelt blush.

Successive aberrations, like Lloyds, Barings, Enron, Northern Rock were spun by financiers to be just that: light-touch regulation was still working more or less, OK? so lay off. The advantage of low inflation was exploited by giveaway interest rates which fuelled a credit boom desperatrwely vulnerable to price rises or collapse of credit. Both of which have now happened. Larry Elliot of The Guardian, has been warning of this outcome for years during Brown's soi disant 'brilliant' Chancellorship. He, at least, is entitled to indulge in a bit of 'I told you soing'.

Jenkins calls for a 'tribunal of enquiry' so that we can be told 'what needs mending, and whom we can take out and shoot'. I doubt whether any such inquiry could attribute blame in such a tangled situation in which everyone to some extent has been complicit. More important is which people should analyse what went wrong-the finance ministers of the G8?- and who should put in place controls-yes, the return of regulation- to the international economy which prevent such dislocations in the future.

PS Anyone seeking a clear map through this confusing jungle are recommended to read the blog of the BBC economic correspondent from Washington here.

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