Rumours about the likelihood of a financial crisis are swirling and it is difficult to ascertain exactly what is going on. Especially since now is precisely the time when we are least likely to be told the truth. Our job is to act as ignorant punters and keep playing the game: shut up and believe what we are told by our superiors.
The key objective of spokespeople from the financial casinos is to reassure us. If we really thought about how unstable our financial system is, we would instantly take fright and the system would fail. This is why we have Angela Knight, Chief Exec. of the British banking industry, explaining in calm and measured tones on the Today programme that we have nothing to fear.
Ms. Knight, former Tory politician and Economic Secretary to the Treasury in the last years of the previous Tory administration, exemplifies the way politicians and bankers collude to back up a financial system that enshrines inequity and instability. For more on her activities check out this profile by the Independent: http://news.independent.co.uk/business/analysis_and_features/article2300459.ece
Nowhere are the metaphors of economics as myth and catechism so beloved of green critics more apt than in the arena of finance and banking. While we might imagine that the cited value of banks and building societies relates in some way to their holdings of property or real assets, in fact the only support they have is our faith. Without confidence, investors will recall their money and the financial institution will be unable to pay. Risky lending may have enabled the banks to create cash and boost their profits, but if debtors begin to default the gap between the banks' assets and their ethereal value will become clear and bank failures will occur.
The problem for Northern Rock is that those with more inside knowledge than we are privy to, in this case other banks, are refusing to lend it money to conduct its business. Presumably they feel that the building society's recent huge expansion of mortgage lending has not been prudent. If too much of its asset base is made up of grossly over-valued houses, a small fall in the housing market could lead to insolvency. The intervention by the Bank of England as 'lender of last resort' to plug this liquidity gap has not happened since the oil price shocks of the early 1970s.
So we should listen carefully and watch the manoeuvrings of the high priests as they intone their incantations and weave the myth of security and stability, a myth encapsulated in the name of the very institituion that is wavering: the Northern Rock. What we have seen this morning is the government and the banking industry working together to convince us of the solidity of the system. The black knight and the Scottish darling clinging together as they glimpse the potential disaster of the whole financial system, and then the whole unstable economy they believe in, hitting the rocks.