Wednesday, 8 October 2008

£50 billion should not be given to people who have already proved their incompetence

If it is looked at coolly and rationally the proposal to put £50 billion of taxpayers money into shares in banks, that is almost £1,000 for every man, woman and child in the country, would be judged as economic madness. The financial institutions participating have proved their monumental incompetence - that is why they are collapsing. Having proved their complete incompetence, that is their inability to take the right decisions, the proposal is that... they should therefore be given more money to take decisions about. In this case decisions about our money.
Imagine if someone had ruined a corner shop and then someone made the proposal that you should put your money into it. You would merely laugh and turn down the proposal. Yet this is exactly what is being proposed in this case. It is proposed that £1,000 should be given from every person in the country to people who have proved they cannot handle money properly.
No taxpayers risk should be taken. If private banks can recapitalise themselves with privately raised money fine. If not, the government should stand willing to guarantee deposits, and as with Northern Rock and Bradford and Bingley, it should make clear it will take over the running of banks and ensure lending to viable companies. Shareholders will lose their money and depositors will be proected. The government should not be investing in the capital of private banks and exposing huge quantities of taxpayers money to risk.


Alun Griffiths said...

It is clearly welcome at this time that a new space has been opened up where « socialists » can debate, the reasons for, appropriate short term action, and postulate more long term solutions to the current crisis.

And it is appropriate to use this space to expose the bank bail out plan for the charade it is, not the nationalisation of the personal banking sector under stress, but a financial scam to comfort Shareholders and depositors while the government works out what to do next.

I am however confused about the distinction being made between protecting shareholders and protecting depositors who, after all in the majority, are both private sector actors.

What is private saving by individuals in a market economy but one of the means by which excess wealth can be placed in supposedly safe places while waiting, either to be invested to create greater wealth, or used as current expenditure to smooth over a personal cash flow problem or increase consumption, or bequeathed in life time or on death ?

Private savings could therefore be seen as one of the fruits of wealth inequality. This is where analysis of the housing market and of economic policies can help. David Miles in his excellant Neo-Classical book, « Housing, Financial Markets and the Wider Economy » leads us in the right direction without ever really exploring the issue of the effects of the house price bubble/boom on wealth distribution.

« … Increases in house prices benefit those who trade down, and harm those who aim to trade up. At a point in time the supply of housing is fixed so the extra demand from those trading up must be matched by the extra supply from those trading down, gainers and losers tend to balance out in aggregate. »

In other words house price increases just redistribute wealth, from the poorer to the richer. And of course it is not just about trading up or trading down, distribution also takes place in the same direction through other actions. It also tends to pass from tenants to landlords, from lower house price areas to higher house price areas etc etc.

In Britain the inequality of wealth is twice the inequality of income. (It begs the question why so much attention is placed on the latter rather than the former.) Given the policies in place it is not surprising that the Gini Wealth coefficient has been rising steadily since 1992 and indeed accelerating since New Labour came to power. Between 1992 and 2000 the percentage of wealth held by the richest one per cent increased from 18 to 22 percent. Just imagine, in non current inflationary times what the absolute value of that transfer could amount to and what a marvellous advertisement for the « caring » effects of the third way.

I could go into a lot more detail, for example explaining how the Right to Buy, whose procedes amounted to more than all the other privatisations put together, was a system whereby public housing equity was given to certain individuals only for it to leak out as private wealth later. It thus provides a further catalyst for this wealth inequality machine, as former tenants sold up without penalty, bequeathed, or released equity, probably to try and help their families achieve a deposit to take part in the game.

So what are the real arguments to guarantee deposits. Probably more political than coherant socialist economics. It would be a brave politician in the current conditions who would stand up and argue that depositors should be treated just the same as shareholders, but then some are both. But the it would also be a brave politician who stood up and explained very calmly and collectedly to the poorer sectors (and this could mean up to 60 – 70% ) of the population that they have been duped. House price increases haven’t made them richer, the opposite. They have become relatively poorer.

Michael Edwards said...

Alun Griffiths dead is right in this but

(i) Ken has a nerve in criticising these financial people after licking their boots so thoroughly these last 8 years.

(ii) I just wrote to the evening standard about this. They may or may not publish, but it is at

Alun Griffiths said...

I'm not too happy about alun grffiths being dead

Ken livingstone was operating under conditions of conrtradiction in London

I would love to read his honest account of all that , but i guess i never will because he is a politician after all

The question is, as ever,

what do to,


Where to intervene?

and how?

Ivan etc

could we change the name to the Socialist Political Economic Bulletin? (unless you think M Meacher is a pure economist?

I for one would be much happier with that, even more so with the Socialist Philosophical Bulletin

but there we go....