Friday, 20 February 2009

Well said ...

Brian Monteith, in a well-crafted article for The Scotsman, hands out some pearls of wisdom on the economic crisis and the folly of the proposed solutions, describing politicians as trying to hose us down with kindness, but unintentionally drowning us:

"The most inappropriate people to be bankers are practising politicians, for they are in the market for votes – not the market for nurturing money. If money were water, bankers would ration it through careful control of its supply, using its price to ration it to customers.

Politicians just get the hosepipe out and try to soak as many people as possible, preferably in front of the cameras whilst uttering meaningless words like stability, long-term, boom and bust (the end of). There are lots of policy wonks with ideas for how politicians can shower us with our own money – geeks bearing gifts that we have paid for!

One American example of how politicians make bad bankers explains how we are all in this mess. Back in the Nineties, during the glorious reign of Bill Clinton, the president exerted a great deal of pressure on the government-subsidised mortgage providers Fannie Mae and Freddie Mac to provide easy loans to people who previously had been considered too high a risk. Clinton was in government and he was there to help. So, in 1999, the threshold was dropped and the sub-prime mortgage market expanded exponentially.

To cope with the greater demand, the US housebuilding industry expanded, borrowing more from the banks to finance the expansion.

Needless to say, people that bankers had previously thought too risky to lend to eventually showed why they had been categorised as sub-prime and started to default on their mortgages.

Foreclosures multiplied, the construction boom collapsed and a lot of "bankers" were left with egg on their faces. They had gone against all their own banking disciplines and the bailout of banks followed – organised by the very politicians who had caused the problem. Once again, they were there to help us."

Mr Monteith has neatly illustrated the deficiencies of President Clinton's 1995 Community Reinvestment Act and its ensuing consequences - political action mimicked across the pond here in the UK too. That's not to put the blame for our current predicament entirely on Old Liberal Bill Clinton - this crisis emerged from several different factors. But, to my mind, those who point at our current economic woes as evidence of the crisis of capitalism and the bankruptcy of free market theory are missing something rather crucial: there hasn't been a free market, and most certainly not in the housing and banking industries, which even before the crisis hit were two of the most heavily-intervened-in sectors of the economy in the US. Fannie Mae and Freddie Mac, for example, were quasi-governmental insitutions , changing mortgage-lending standards for political reasons. I didn't hear any of the blowhard Keynesians now dominating the airwaves telling us that something might be amiss in the economy - no, it was free-market libertarians like US Congressman Ron Paul and economist Peter Schiff who predicted this crisis, years ago.

Mr Monteith ably sums up by saying:

"Winston Churchill once observed that "for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle". I believe the same goes for borrowing. You cannot solve a debt-fuelled crisis by borrowing more – but that's what Obama and Brown are trying to do.

Nor can we take solace from Alex Salmond – his solution is to drown us with kindness too. His hose is undoubtedly smaller than Gordon's – but size doesn't matter – and we shall be drowning in Alex Salmond's kindness.

The politicians should be turning their hoses off, letting the addicts dry out and lessening our burden so we can lift ourselves, and each other, up from this recession – from outside that bucket."

He's right, and thus it's doubly depressing that all our mainstream politicians, from First Minister Alex Salmond up to Prime Minister Brown all the way up to President Obama are proposing nothing but more and more expensive and inventive ways to make a bad situation worse than it already is.

1 comment:

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