7 October 2008

Credit crunch for breakfast?

This is obviously a cereal that will run and run. Robert Peston reports that he expected the banks to be too proud to ask for government money. I’m rather bemused about how he might have formed this opinion given their recent behaviour. Fawning over the hand that feeds has been more the style amongst financiers of late. Darling is quite rightly resisting giving any more public money than is absolutely necessary, hence his piecemeal rather than global rescue strategy. The pundits who are calling for total guarantees and US-style largesse should be reminded that it will be their grandchildren who will be paying off these debts, just as we, the grandchildren of the 1930s, only finished repaying the wartime debts to the USA last year. I wonder if there is a connection there?

The real policy question is why any Chancellor should shovel money into the gaping maw of the banks where it will serve no purpose but paying off their debts. They have provided an effective distraction by arguing that without their finance the real economy would seize up. But our primary attention should be focused on that economy, the one where people actually make stuff and do useful things. There is no reason to use the banks as middlemen.

The banks’ lack of concern for the real economy is shown in their profiteering from the difference between the bank rate and the rates of interest they charge to businesses. This is now the only way banks still have to leverage money out of the economy and their use of it will rapidly increase the number of businesses going bankrupt. They are using the same tactics on mortgage-payers, which will cause an increase in foreclosures and damage the housing market yet again. Far from being the saviours, the banks are shown again to be the destroyers of the economy.

Darling’s plan should focus on the small businesses that provide 99% of the employment in this country. He should establish an ‘Economy Saving Bank’ (literally!) and use taxpayers money through that route to be channelled into business lending. Does this begin to seem like political management of the economy? Might I be the first to mention that unspoken phrase ‘credit controls’? If money is in short supply it seems only sensible to ration it. Those who need to borrow can justify their right to the shrinking pot on the basis of their usefulness to society. My guess would be that in any democratic system the banks would come rather low on this list at present.

Thanks to the Green Bean Counter for the joke and to Lew Rockwell for the cartoon.

1 comment:

  1. Dozing in a hotel bedroom in Mexico two weeks ago I heard Dubya announce that 'people have to realise that markets don't work' followed by a senator declaring 'this is financial socialism and it is un-American'. Right on all counts. So, as an alternative to Molly's suggestion, how about nationalising all banks, imposing democratic regulation and, to stop the current rot, suspending all stock market activity for two weeks to let things calm down?