Pick a vil­lain — you won’t be far wrong

Daily Mail - - sandra Parsons - An­drew Alexan­der www.dai­ly­mail.co.uk/an­drewalexan­der

THINGS looked awk­ward enough when David Cameron moved into No 10. But the sad fact is that in the space of one short month, the in­ter­na­tional out­look has got sig­nif­i­cantly worse, hence his par­tic­u­larly gloomy speech on Mon­day, warn­ing of aus­ter­ity to come.

Doubts about Greece mul­ti­ply. The Span­ish Par­lia­ment could muster only a ma­jor­ity of one to pass the govern­ment’s res­cue pack­age — al most cer­tainly in­ad­e­quate any­way. Doubts hover over the debts of Italy and Por­tu­gal. Banks ev­ery­where who hold these coun­tries’ govern­ment bonds wish they didn’t.

The ac­com­pa­ny­ing feel­ing that the euro is doomed has been ris­ing, al­most by the day. The cur­rency sys­tem is like a line of 16 swim­mers linked to­gether by two, pos­si­bly four, yet to mas­ter the breast­stroke and in dan­ger of drag­ging down the rest.

We may not be in the euro, but we should have no doubts that grow­ing signs of in­sta­bil­ity in that sys­tem have an ef­fect on us.

Sov­er­eign debt may once have been the refuge of in­vestors look­ing for safety. Now, large chunks of it, es­pe­cially in Europe, look more like a gam­ble on the race­course.

The pos­si­bil­ity, per­haps prob­a­bil­ity, that the world faces a dou­bledip de­pres­sion has been on the rise. The need for Bri­tain to re­sume its tra­di­tional role as a safe haven is para­mount.

And, of course, the blame game goes on. Ev­ery­one has their own favourite vil­lain in the drama of the past two years. In our own case, we have the last Labour Govern­ment, whose spend­ing plans are be­ing un­earthed in time-hon­oured fashion.

To be en­tirely fair, the debts are in no small mea­sure due to the cost of res­cu­ing t he banks. Gor­don Brown’s spe­cial re­spons­bil­ity lies in his weird be­lief that these costs need have no im­pact on his own spend­ing plans.

APERNICIOUS myth, which has spread out­side the Left-to-cen­tre­ground politi­cians and com­men­ta­tors, is that the de­pres­sion is down to a rash re­liance upon what is called ‘ the free mar­ket’ or ‘mar­ket forces’ to pro­vide eco­nomic sta­bil­ity and also to con­tain ir­re­spon­si­ble banks.

It is cer­tainly true that stock mar­kets swing from boom to bust (and back again). That is nor­mal. And, again nor­mally, this cre­ates prob­lems which can cause dif­fi­cul­ties but which are nev­er­the­less con­tain­able.

What has turned a prob­lem into a dis­as­ter has been the in­volve­ment of the banks in a cri­sis of sur­vival. There is a great irony in this.

We can trace the ori­gins of the bank­ing cri­sis — which spread from the U.S. across the world — to the de­sire of Amer­i­can politi­cians to reg­u­late lend­ing, mort­gages in par­tic­u­lar, and for po­lit­i­cal mo­tives.

It started dur­ing the dim and dis­tant days of Pres­i­dent Carter, back in the Seven­ties, but was backed by suc­ces­sive ad­min­is­tra­tions of both par­ties, with Pres­i­dent Clin­ton prov­ing the biggest dis­as­ter of all.

Two U.S. govern­ment agen­cies, known col­lo­qui­ally as Fred­die Mac and Fan­nie Mae, used spec­tac­u­lar sums of pub­lic money to keep the mort­gage mar­ket pumped up and to en­cour­age or­di­nary banks to lend to home buy­ers.

The old prac­tice of bankers ‘redlin­ing’ cer­tain ar­eas as dan­ger­ous ter­ri­tory for home loans or other credit was vir­tu­ally for­bid­den. So those with poor credit rat­ings — or none — got their loans.

The banks saw an im­plicit guar­an­tee in the op­er­a­tions of the of­fi­cial agen­cies which bun­dled up banks’ mort­gages and sold them on. And Wall Street deal­ers started huge, world­wide mar­kets, based on buy­ing and sell­ing pack­ages of these mort­gages as in­vest­ments.

WHEN the hous­ing bub­ble burst in the U.S. and mort­gage hold­ers de­faulted in their thou­sands, the dam­age rip­pled through the world, un­leash­ing a ver­i­ta­ble tsunami of toxic debts. De­riv­a­tives dreamed up on Wall Street be­came val­ue­less. Banks stopped lend­ing to each other for fear they would not get their money back.

You may call this what you like — and I have plenty of harsh things to say about banks and bankers — but it was not the con­se­qunces of free mar­kets. If banks had been left to their orginal lend­ing strate­gies, what Washington dis­missed as their eth­nic and sex­u­ally dis­crim­i­na­tory prej­u­dices, the prob­lem would not have arisen.

So now, here’s a thing! We look to politi­cians who caused the prob­lem in the first place, to come up with reg­u­la­tions to safe­guard the sys­tem. It does not make you too con­fi­dent, does it ?

As ever, politi­cians also blame spec­u­la­tors. The Ger­mans have banned a form of ‘short sell­ing’ of govern­ment bonds — a way to in­sure against mar­kets slump­ing — un­der the delu­sion that it will make in­vestors hap­pier to keep lend­ing.

If this is the best that a nor­mally sen­si­ble govern­ment can come up with, just think of what less re­spon­si­ble po­lit­i­cal lead­ers might yet de­vise.

Fi­nance min­is­ters, in­clud­ing our own, be­lieve banks should pay some spe­cial tax or find more cap­i­tal be­fore lend­ing. As a pun­ish­ment, this is fine. How­ever, it hardly sounds like the way to help banks l end more to their tra­di­tional cus­tomers, which ev­ery­one agrees is now ur­gent.

Let us pray that the next month does not come up with more bad news. But don’t bet on it.

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