The Guardian today runs an interesting fable in G2: The gods of greed, by the paper’s economic editor Larry Elliott and his former colleague, Dan Atkinson, now at the Mail on Sunday. Like all legends, it’s heavy on the moral narrative, short on the fact.
If you can get hold of the print edition do – replete with illustrations, it’s a Dantesque vision of huddled proles worked dry by the morbidly obese pin-striped brace-wearing slave-drivers of Canary Wharf.
For what it’s worth, the article weaves together all the popular myths of the current financial crisis into a pacy yarn. Individual errors of fact aside (French bank BNP, unlike Bear and Rock, is doing just fine, merci bien) there are nonetheless a couple of larger tears in the fabric.
Firstly – on the bailing out of banks. Messrs Elliott and Atkinson draw a stark comparison: how is it the UK government will so readily bailout the banking sector when it is at the same time, so viciously against “bailing out”, for want of a better phrase, the poor. Sic. welfare is the scourge of modern British politics, so why isn’t the BoE’s SLS?
Elliott & Atkinson don’t seem to have considered, however, what might happen if the banks weren’t “bailed out” (never mind, for now, subtleties such as the fact that the SLS is a loan facility, whereas a welfare cheque isn’t). A banking collapse would plunge a lot more ordinary folk into penury. And even if there weren’t any more collapses, without the SLS, banks would in the best scenario, be even less willing to lend. The economy would stagnate, the collapse would be worse: far more “ordinary” businesses would bust. The “bailout” is not for the banks, and the BoE only stepped in when it became clear that the real economy would suffer hugely if nothing else was done.
Similarly, the authors criticise the Fed’s bailout of Bear Stearns:
Over the weekend of March 15 and 16, America’s central bank, the Federal Reserve Board, launched a rescue for Bear Stearns, the country’s fifth-largest investment bank. To smooth a takeover by JP Morgan Chase, the Fed assumed up to $30bn (£15bn) of Bear’s more doubtful assets. Were this act of corporate welfare not sufficient, the Fed also announced that it was to provide emergency liquidity to the market. For good measure, it cut interest rates.
The act was, of course, unprecedented. The Fed has let plenty of institutions fail in the past. There’s little probing, though, from Elliott and Atkinson about why Bear wasn’t similarly left to fail. Never mind then the fact that a Bear failure could – not to put to fine a point on things – have brought down Wall Street and with it, almost certainly precipitated a general financial collapse. Was the Fed, then, “bailing out” Bear? No, $2 a share can hardly be called so. And even $10 a share meant Bear’s fat cats lost a fortune.
The second broad sweep of the narrative deals with the “New Olympians”. This is a more persistent myth, and more difficult to pin down. It’s the argument that the entire current financial crisis is the fault of greedy, careless, tax-exempt fat-cats. No doubt that’s true in part. But forget-not also what underlies the whole crisis: mortgage debt. Cheap mortgage debt. Debt which “ordinary” people have had a ball on, for the past five – if not ten – years. Let’s not excuse ourselves so easily from this bubble and its pricking. That debt – notwithstanding tales of hapless pensioners and subprime single parents – wasn’t forced on us.
And that really, is the whole problem with whinging about capitalism. For all the complaints about bankers bleeding us dry – smoking cigars while we work the treadmill – we still hungrily consume the fruits of the system. Not just cheap mortgages, but consumer products of every hue. All this talk of “mountaintop” meetings and private jets is utter fantasy: “The fault, dear Brutus, is not in our stars, but in ourselves.”
Related links
The gods that failed – book blog
Gods of Greed- audiobook edition