Iâve been consistently asking seven questions of the financial and political communities since the Spring of 2008. They are classic âdumb and dumberâ questions as far as most experts are concerned; but while these people stay long in insults and patronising dismissal, nobody in the field has, as yet, answered any of the questions. I based all seven of them on commercial considerations or financial statistics, and they go like this:
* Why did we save the Northern Rock entity? Thatâs to say, why didnât we rescue the savers, sell the mortgage book for threepence, and then let the PLC plunge down to the seabed destination it so richly deserved?
Iâve been told over and over âit wouldâve started a panicâ. Had there then followed a period of total calm (as opposed to headless hysteria) I could buy into this as a notion; otherwise, it scores zero on my credibility scale. (And yes, I know Brown did it to save two Labour constituencies: but others without that motive also applauded the move. Why?)
* Why did it cost the UK as much as the US to bail out a financial sector reputed to be only 8% of our trading income? The US economy is thirty-nine times bigger than ours.
I have a simple take on this, which is that financials were vastly more of our GDP for most of the years concerned than anyone dared say. But even if we were 40% dependent on the sector, that is still a colossal bailout for one minute island.
* Had the UK banks cut bonuses by 20% after 2000, there would have been enough money to restore all the injured bank balance sheets without a single penny of taxpayersâ money being involved. So how can the bankers possibly have any excuse for bankrupting the Treasury â beyond naked greed and insane trading practices?
âDonât be sillyâ detractors begin, âGuilt or innocence is irrelevant: we simply cannot do without regular credit-flows from banksâ. Oh canât you, paleface? I can. Huge businesses everywhere do. And in the eighteen months prior to Big Bailout, banks were not lending money to business for much of the time: they were lending funny money to each other, and mortgage money to folks up trees in Kentucky.
* In France, not a single bank fell, and no tax Euros were used to save anyone or anything. In France, it is illegal to offer loans to people with large debts and/or a bad credit rating. Why does nobody ever comment on this in the UK?
âBecause itâs irrelevantâ said one analyst to me late last year, âThis isnât France. We had a huge industry to protect. Financially, France is a backward economyâ.
Uh-huh. Please can I be backward, then? And I donât see a protected UK banking sector, I see a shambles. But I donât see problems in Germany either: I see the biggest exporter in the worldâ¦.and no dead banks. (I also hear Germans saying âNo way Joseâ to equally spendthrift Greeks).
* Why didnât governments around the world say to the bankers, âOK, Bank A over there has failed â Banks B, C or D can now pick them up for a song?â
The response I usually get to that one is âDonât be an idiot â none of them had the money to do this.â But this simply isnât true: Santander, Goldman Sachs, and every retail bank in India and China couldâve done it. HSBC couldâve done it. On grocery retail, this is precisely what wouldâve happened. In the end (too late) itâs what did happen in the UKâ¦..but again, with mountains of Treasury cash.
* What purpose has been served by reducing interest rates to 0% – apart from bankrupting anyone dependent on investment income? (And this lot are 23% of the UK population)
This one gets me the sort of looks usually reserved for toddlers innocently waving radioactive isotopes around. How (they are clearly thinking) could anyone suggest anything so mad?
âThat wouldâve made money expensive for industriesâ they say. But industry didn’t have any desire to borrow anyway. âWell consumers wouldnât have kept on buying if we hadnâtâ they continue. But they havenât anyway: the UK savings level is now at a record percentage of income. âWe had to encourage the banks to lendâ they suggest. But banks havenât lent money, because half of them donât have any money left: all the overseas and individual investors have flown in panic.
Much of our personal âdisposable income wealthâ lies among the over-fifties â the people with high dependence on interest-bearing accounts. Taking rate own to nought took all those buyers out of the shops. And if the banks have a big black hole in the balance sheetâ¦..how will they ever repair them lending free money?
âYouâre being simplisticâ I am told at this point, âWe couldnât possibly have left interest rates where they wereâ¦.itâs the one thing everyone agrees onâ. And right there, you have the oldest, most bogus âreasonâ in the world: âEat excrement â ten trillion flies canât be wrongâ.
The question remains unanswered. I still have not a clue why interest rates were dropped: but had we not done it, I do most definitely know that the banks would be attracting depositors and lending to borrowers. I know the Â£ would be much higher. Iâm certain bank balance sheets would be stronger. And I think the retail property sector would be less of a case about to go into the basket.
âThe Tories wouldâve done nothingâ says Gordon Brown. Well as usual, heâs wrong: the Tories wouldâve done just what he did â whatever they were told to do. But in truth, a Government saying âyouâve made this mess â now you sort it outâ would be infinitely more popular than his tribe is todayâ¦.or Cameronâs.
* How could anyone in his right mind believe that stocks and shares can forever rise on poor levels of economic activity, and currencies remain buoyant based on an overborrowed, overregulated and overmanned sovereign economy?
I apologise if that sounds too technical, but donât be fooled: itâs simple common sense. Iâm asking how the FTSE and Dow can be soaring ahead with industry on its knees; and how the Euro can be sky-high based on an EU heading for disaster in (perm any three from five) the UK, Spain, Greece, Hungary and Latvia?
In a sane world (and before 1985, by and large money was a more sane world) stocks do well when companies do well, and currencies do well when countries do well. Anything else is anomaly, pure and simple.
âOh for heavenâs sakeâ comes the whiz-kidâs response, âYouâre way out of date. We can do trades at the rate of a million a second. We have dark liquidity pools. We have hedge funds. Wake up â times have changedâ.
And my retort to this nonsense is, why do we need any of that unholy triumvirate â apart from to make more money for guys who arenât contributing anything?
Anyway, there they are: the Super Seven. Often posed, but never answered. So hereâs my view for what itâs worth.
I think the questions have no satisfactory answer because there isnât one. The questions are rhetorical, and I should know because I framed them.
I think these seven are just the first of a hundred one could ask of the free-market, financially globalised form of capitalism. The reality is, itâs a lousy system. It must be – for two central reasons: first, it constantly has to be rationalised: itâs impossible to understand on any simple, logical basis. And second, it works for a tiny elite, and nobody else.
I think this elite is largely under forty-five, and more greedily dumb than a grizzly bear.
I think all these seven madnesses were committed with the sole aim of putting off pain for that elite â and allowing the system to ignore its obvious need for radical reform.
I think the system collapsed because around 90,000 âprofessionalsâ around the World â when the going got tough â proved there is no honour among thieves. They welched on debts, distrusted each other, deliberately withheld liquidity to shaft rivalsâ¦.and then went to government and said âHelp us, or elseâ.
These same MoUâs who had been declaring âAnd the Devil take the hindmostâ for nearly fifteen years.
If you think this simplistic, then let me tell you: I know someone who was in the room when Freddie Goodwin pitched up at Downing Street with his mates in late 2007. Freddie wasnât cap-in-hand, because Goodwin isnât a cap-in-hand sort of bloke. Heâs more of a gun-in-hand kind of guy. He told Brown, âGive us the moneyÂ fatso, or itâs curtains for all of usâ.
Even as the corpses of Northern Rock and Lehman came out into the streets, the winners took off the rings, and extracted the gold teeth â and then said âOK, you can have them back nowâ.
Governments collude in this sort of global confidence trick because they donât want their electors to be in painâ¦.and thus looking for revenge. This is not a Pilgerised conspiracy theory: itâs a factual and accurate account of what happened. Itâs a description of how airhead economics and banking works. Without it, governments are nothing, because they too overspend. So they will do anything to keep it afloat; and tell any lie to explain why We Had No Alternative.
Finally, I think that if central banks everywhere had slammed the brakes on in 2004, almost none of this wouldâve happened. Iâm allowed to say that too, because I was one of the first to write about the overheating property market, and Lehmanâs loopy business model, at the time. But Greenspan is a Republican, and he wasnât having any of that off-message crap getting an airing. While Blair (fixated on his historic third term) allowed his seemingly clever Chancellor to carry on boasting of new paradigms without busts.
2010 has now hit the streets stumbling on snow: weather thatâs costing the UK Â£7.3 billion in lost output every day it continues. It faces a world to which it has little to offer: it doesnât manufacture, it doesnât grow stuff, and it botched the marketing of financial products disgracefully. In this world, power (and gold) are shifting inexorably to the East. With or without a credit meltdown, this wouldâve happened. But an economic approach in the West based on (to paraphrase Bentham) the greatest hubris of the smallest number has made the adjustment to relative poverty infinitely more dramatic. This may even yet dislodge democracy in Japan. And if we do not make the System more inclusive, it will do so in Britain too.
But hey â I retain my open mind. If anyone can set me straight on the Super Seven, I will listen and consider.