Opinion: Are we really going to learn anything at all from this mess?

The problems – however astonishing and severe – are symptoms of the financial sector alone.”
Financial Times leader, 28.12.08

At the moment I would hazard a guess that we are about one-fifth of the way through the current crisis of Zeitgeist. I read last week, on one of the more respectable financial websites, that, with so many companies financially weak, 2009 would see ‘a bonanza for mergers and acquisitions’. For the nth time, a member of the Cabinet parroted that “global problems require global solutions”. Two UK banks seemed unwilling to take the hit for £32 billion worth of losses in 2008: Alistair Darling thought they should absorb them from ample existing capitalisation, but the bankers failed to see why they couldn’t have more taxpayers’ money instead.

The day before, I listened to six property experts on BBC Radio 4 debating how to get the housing market moving again by loosening credit. Later on BBC News I heard Gordon Brown reaffirming his desire that nobody should be repossessed as a result of “overstretched” borrowing.

Everything you’ve read in inverted commas so far in this Opinion piece is about as wrong as wrong could be.

Our problems did not emanate from some oddly No-mates organic thing called ‘the financial sector alone’. They came from bankers forcing debt onto people who had in turn decided to suspend disbelief. And they, in turn, are the products of a dumbed-down Western culture fixated by material well-being, targets, the Office, bling and GDP.

But, apart from the more gullible suckers, long before there was any sub-prime debt (surely the euphemism of the Millennium) most articulate western consumers had accepted that dealing with any commercial manufacturing or service-providing concern of any size involves ignoring all the lies, noting the lack of ethics, and being prepared to threaten in order to get even minimal satisfaction or after-sales service.

Enormous global combines without a clear culture have exacerbated the problem by basing their business models solely on production output and the whims of remote shareholders. In that context, ethics are for wimps – and if the only answer to large-scale failure is yet more M&A activity to satiate even greedier shareholders, then I have news for us all: it can only make things worse. The bigger an organisation gets, the more remote the customer becomes.

Global problems most emphatically do not require global solutions: we’ve tried that to the current tune of $8.5 trillion, and it’s made no impact at all. What we need is to question the whole validity of globalism in an environmentally threatened world, and reject the Friedman/Levitt drivel that started all this nonsense in the first place.

We do not need to bail out any more bankers: we need to remain calm and tell the banks ‘no more bailouts until you start lending to sound young businesses’.

We do not need to loosen housing-purchase credit and allow intemperate borrowers off scot-free: we need more people to accept that houses are places to live in, give the more completely infantile borrowers some proper financial advice about cutting costs and making do – and give those who’ve been chasing the ladder for five long years a chance to get on it.

It seems to me the West is like a patient who has suffered a major heart attack, but interpreted it as the green light to eat more fat in order to lubricate that heart. The banking system (barring further meltdown, which I think entirely possible) nevertheless looks set to survive pretty well intact. The word ‘regulation’ is being bandied about, but ideas about how to give it teeth without biting the hand of commerce are absent. Fiscal stimulus is the new black number on the roulette wheel. Careless spending, poor long-term savings ratios and hopelessly scored credit have been shown up – at last – as the road to Hell in a handcart: but all the G20 has to offer is more of the same. The conclusion seems to be that without an eternity of retail therapy, unwise borrowing and blunt-instrument global regulation, all will be lost.

Why?

The worst forecast available for 2009 is that the world economy will grow by 0.4%. How is it that the best commercial and financing model we can come up with goes into catatonic breakdown when global wealth is still moving forward?

The answer is, I think, not too complicated: a whole generation has risen to positions of responsibility without ever questioning the assumption that growth = inevitable = good. They aren’t the first generation to do so, but it would be nice to think they might be the last. Instead of downsizing their expectations, governments are putting out fantasies about short recessions and recoveries beginning in Autumn 2009.

The assumptive, unquestioning nature of commercial management and commentary during this crisis has been profoundly depressing; but the paucity of creativity being applied to the revitalisation of our economic system – and the means of financing it – is terrifying. I have yet to hear a mainstream opinion leader come out and seriously suggest that the model is intrinsically flawed.

Given the evidence to hand, this is astonishing. Major stock markets lost over 45% of their value in 2008 – not because a large asteroid is on collision course with Earth, but because banks will have to dig into their capitalisation, and thus their ability to lend ‘normally’ has been compromised. This in turn means that at most 4% of the world’s population is going to have to accept lower dividends, or perhaps none at all.

As the Americans are wont to say ‘nobody died’. Many people in the Third World will, of course – but this will be a direct result of muddled thinking on the best use of wheat, and it’s consequently rising price. The notion that The End is Nigh because banks have lent carelessly and global growth has slowed down is so daft as to be surreal.

At base level, global Bourse reverses since late 2007 have been based on three things: unreal material aspirations, banker hubris, and the ever-present plutocrat greed that breeds fear. The fear – ‘Oh my God, I’m not going to be obscenely rich after all’ – is scant reason indeed for talk of meltdown. Personally I’d go further and say it borders on criminal: the pauperisation of over half of us as a result of the stupidity of under 7% is already producing a simmering resentment among otherwise law-abiding citizens. Pensioners going without food so reckless borrowers can avoid pain is a reality that will come into sharper focus as 2009 unfolds; we should all be ashamed of it.

It’s cold out there, and the capitalist coronary victim is revealed to be without clothes. So far, none of the major UK political parties has come out overtly to suggest he should abdicate in favour of a more enlightened and free-thinking prince. In the US, Obama is already showing signs that – albeit cautiously – he doesn’t accept the old rules.

The analysis of Nick Clegg’s first year has, by and large, pinpointed his solid if unspectacular progress in at least taking a step outside the cosy Westminster Establishment. His early promise to deal with any coalition partner prepared to democratise the electoral system showed admirable clarity. Sadly, hardly anyone noticed.

As the peripheral minority candidate, the Lib Dem leader has the least to lose from a single-minded gamble. In truth, it’s not that big a throw of the dice: with RBS and other UK banks already admitting to further big write-offs, British companies queueing up to go into administration, senior Treasury officials talking in private about currency collapse, the IMF offering only dire predictions for our outlook, and Russia about to infect the EU with its own uniquely awful problems, by the late summer of this year a large proportion of the electorate will be ready to accept the necessity for a ‘new model’ capitalism.

Clegg’s natural partner in this endeavour would of course be Vince Cable; more than any other MP, he has thought and predicted the unthinkable early. Just as Obama represented genuine change in the States, the Liberal Democrats could take on the mantle of commitment to constitutional, economic and fiscal change – a change designed to shift the balance back towards the small, the weak, and those whose spirit offers a future in which responsible business replaces rip-off, and honest, vibrant corporate cultures replace the tired and vapid mantra of the globalists.

* John Ward is the owner and editor of www.notbornyesterday.org, a satire and advice site dedicated to promoting new ideas, better ethics and true reform of our constitution, economic model, and community policy objectives.

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10 Comments

  • David Allen 4th Jan '09 - 6:38pm

    OK John, but, how exactly would your “new model” capitalism work?

    I would love to soak the greedy super-rich bankers and financial manipulators by heavily taking those excessive bonuses – But, if “old model” capitalism goes belly-up, a lot of ordinary people will suffer.

    Read Peston on the BBC website, and he will tell you that as things stand, it would be irresponsible for the banks to lend more, because they would not have sufficient security for their funds. They would only be putting themselves at risk of going bust. It would be wrong for them to do that, just because some politician tries to bully them into doing so.

    Peston also says that globalisation is rapidly giving way to a form of national protectionism, with governments restricting credit outside their own boundaries. Will it be a good thing if that eventually means we can’t buy food, oil, etc from abroad?

    Let’s not forget, we are the champion spongers of the Western world, here in the UK. We don’t manufacture, we just spend spend spend on Chinese toys and German white goods. We live by tourism, arms sales and high finance, and deplore that as we Lib Dems might, we are going to be in a mess if those earnings dry up.

    This party has to learn to live in the real world – not the idealised world we would have liked it to be.

  • That being said there’s a difference between just accepting the hubris and trying to change it. All John in a sense is doing is all anyone can do in describing what’s going on and the causes.

    Until we do that there’s no solution – and we are the only mainstream party that actually tries to stand things on their head and tackle the hubris to create change. We embody the main thinkers of this society that actually challenge the status quo so John is right to write his piece.

    As for what we all can do – well, I’m eschewing the big stores and simply buying local by taking my custom to local independents – on banking I’m afraid a trick has been pulled on Brown by the banks – now there is no real incentive to either save nor support mutuality – they’ve created a system by which as far as banks are concerned `they’re all the same`.

    I think the reason Brown did nothing is much more simple than just some electoral calculation (that was just short-term serendipity at the time for Brown/Blair). He didn’t do anything because like a lot of people he BELIEVED in that system and didn’t have the nous to question it!

  • “The international institutions failed. So said the man who had chaired the reform committee of the IMF for many years. The bubble economy in America was the culprit. So said the man who recommended an honorary knighthood for Alan Greenspan, the father of that bubble. It was down to the reckless gambling of the bankers. So said the man who indulged a lightly regulated City for a decade.”

    That man was Gordon Brown (thanks to Andrew Rawnsley).

    The global problems would be massively helped by just one small, localised solution – get rid of Brown.

  • “They came from bankers forcing debt onto people”

    There will be a very small proportion of loans – if any – where the banker genuinely forced people to take out a loan they couldn’t afford.

    I’m not saying the banks aren’t complicit in creating their own problems but there is a point at which people have to be responsible for their own borrowing actions.

  • David Allen 5th Jan '09 - 12:54am

    Oranjepan: Spot on, up until your final sentence. With all his many faults, what Gordon did with the bank bailout is quite simply, what was necessary. (The VAT cut was almost certainly an error, but it isn’t so important.)

    Keeping our basic financial system from collapse is vital. Replacing Brown won’t change that, or change what is needed.

  • David,
    you’re underestimating the capacity for people to make mistakes.

    The bank bailout may or may not be necessary, just as it may or may not be desirable, but how can you have trust in the intentions of a person who has set out and created the problems he is faced with?

    If you trust his intentions how can you think his judgement is to be trusted?

    And if you are saying that he isn’t to blame then he is impotent and is already half-way out of the door.

    Brown is in the position of ultimate responsibility and should be held accountable.

  • …though with Labour’s record on solid accounting practice…

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