Wednesday, September 19, 2007

A Darling Revolution
(and the Gedankenexperiment)

Catching Alistair Darling on the morning news, yesterday, was an exercise in soft-soap and snake-oil. It was, indeed, so soothing that it took Malcolm a while to realise that a significant element of the Socialist dream had been achieved.

Early afternoon, Malcolm was engaged in something mind-bogglingly banal (OK: he was browsing the Tory blogspots. Confession over). Then a synapse made contact, and he recalled the days when the Irish Labour Party had a constitution red in tooth and claw. Was it Clause IX which made the British Labour Party's Clause Four look wimpish and mealy-mouthed? In short, he recalled the commitment to nationalise banking and insurance.

And now, under 'New Labour', that has effectively come to pass in Britain!

Let the scarlet banner fly from Islington Town Hall once more! Comrades, the inevitable day of proletarian liberation is coming! Well, not quite yet, perhaps. Even so, what happened yesterday was as surreal (and inevitable) as Ted Heath nationalising Rolls-Royce back in 1971.

As he was working himself out of his morning torpor, that he might pronounce thus to the universe, Malcolm discover that the same thoughts had occurred to Simon Jenkins in the Guardian:
The first thing to remember about the collapse and de facto nationalisation of Northern Rock is that it was essentially about house prices.
Well, yes, that's part, a large part, of the story, but it's not the key plot device. Jenkins comes close to an analysis when he says:
Brown's ... priority was to make house purchase even easier. Ownership "must be open to all those wanting to get on to the housing ladder for the first time". To this casual extravagance he added the meaningless statement that "one of the great causes of our affordable housing for all". The Conservatives and Liberal Democrats agreed with this flight from economic logic. Stamp duty should be reduced, first-time buyers subsidised and "affordability" extended.
Then he gets blinkered by his English Heritage (deputy-chairman's stool-of-office, 1985-90) and Pevsnerist England's 1,0o0 Best Whatever hats:
For half a century home ownership in Britain - termed a "right" by Brown - has been indulged beyond economic reason. It has sucked savings out of the productive sector. It has tied up pension money that should be helping the economy in the stock market. Its tax reliefs have immobilised young people who, in most countries, remain in the more fluid rented sector until later in life. It has led to mass hysteria with every price rise or fall. Housing sees the British, their rulers and their newspapers, at their most innumerate and irrational.
As a result Britons are the most wasteful users of Europe's most precious resource - living space. In Britain 70% of housing is owner occupied, against 40% in Germany and less than half in most comparable countries.
Again, there is more than a grain of truth in that. Malcolm, however, doubts whether Sir Simon and the fragrant Lady Gayle (of whom wikipedia says: 'During her brief Hollywood career, she was typecast as a brunette sexpot'), famed residents of Primrose Hill, confine themselves to a basement rented maisonette. Any more than the privileged lifestyles of bankers will be greatly cribbed, cabined or confined by this Northern Rock thing.

The larger picture is going to be found on the financial pages. Rumblings are already anticipating the earthquake to come. The last few days have shown that the rules and regulations of bank management will have to be reviewed and modernised in the next session of Parliament. And here the Financial Times is (quite literally) on the money:
The extraordinary spectacle of Alistair Darling, the chancellor, resorting to a verbal guarantee of all UK bank deposits, on national TV, shows that the old tools don’t work. The Bank had little power, legal or moral, to corral other lenders into a private sector rescue of Northern Rock...
The chancellor’s blanket guarantee was, therefore, necessary but takes moral hazard to a new level. Two remedies exist. First, a clear mechanism is needed, in the event of a crisis, to ringfence state-guaranteed deposits from the banks that gathered them. The improvised compromise whereby Northern Rock shareholders are beneficiaries of the government’s politically influenced objectives is deeply flawed. Second, if all deposits are state-guaranteed, there must be tighter supervision of banks by the Financial Services Authority, which may have taken its eye off the ball.
The FT starts its article by referring back to the last time we went through this:
According to one account, the UK’s banking crisis of 1973 was largely resolved at a secret, 90-minute meeting at the Bank of England. The City’s gathered great and good agreed to create a “lifeboat” fund, worth the equivalent of a third of the system’s capital, to offer credit to smaller lenders. A discreet statement the next day calmed markets, the Treasury was barely involved and the Bank’s financial commitment was contained.
That was then: this is now. The general public are no longer to be fobbed off by the persiflage of the great and the good on their way to a well-deserved City lunch. This one will have to go to the floor of the Commons, and Chancellor Darling will need a full blueprint of how he intends the new dispensation to work. It makes Malcolm recall John Strachey (What are We to Do?, 1938):
Sir Robert Peel in introducing the Bank Act of 1844 (one of the essential statutes completing the legal framework of British capitalism) to the House of Commons asked the famous question: "What is a pound?" Neither he nor any honourable member was able to provide an answer. ... historically a pound sterling is a pound weight of silver. Peel, no doubt knew this perfectly well. But this piece of historical knowledge did not help him much in his bewilderment over this extraordinary thing, money, which his new Act was (he hoped) to regulate; this thing which was evidently a linch-pin [sic] in the economic life of society; which could dislocate that life catastrophically if it got out of control; this thing which everybody both used and worshipped, but which nobody understood.
So Malcolm hears many ghosts, among them Strachey and Morrison, Bevin and Stafford Cripps whispering from the shadows.

It may not be clean, but there are many ways, even a few socialist ones, to skin fat-cats. Now, Dr Schrödinger (another distinguished resident of Dublin, remember) may be able to help us on this one: if a fat-cat is put into a tight regulatory box, when does the mixed economy stop existing as a mixture of states and become one or the other? Sphere: Related Content

No comments:

Subscribe with Bloglines International Affairs Blogs - BlogCatalog Blog Directory
Add to Technorati Favorites