The financial crisis
Yhis was written on 12/10:
I have had only scant access to the net and the media in general, so I am not as up-to-date as I wish I was. However, the financial crisis has not escaped me, and surprise surprise I have an opinion that I will once again splay before you.
The words "credit crisis" have been floating around for sometime now, but I doubt many of us gathered the impact it would have on our society. I, for one, still don't. I mean I get the basics, and I understand that junior investment bankers are fearing for their jobs. Even the effects on the "real economy" I grasp, but where I flounder is how this wasn't spotted earlier. I mean offering 125% mortgages just to beat the competition seems blatantly nuts!
Regulation has been blamed all over the shop, but let's be honest, which banker would push for regulation restricting profit, and which chancellor apply the brakes to a burgeoning economy?
But anyway. the crisis is here, there is no point in assigning blame, at least not for now. The question is what is the way out? Well in an ideal world I'd suggest we let the banking system collapse, learn to do without interest rates and stocks and rehumanise trade and exchange. But that might be poo-pooed by some so we'll leave that aside until confidence has completely drained from the markets. Some have advised a swift injection of liquidity and others a cautious and measured approach. Admittedly action is needed, but is it not better to let the market correct while "we" plan an appropriate response. Sure more people will lose their jobs, but this is what happens in a recession, which is, I repeat, of "our" creation.
So into the FTSE rode the 500 billion, but how many will return? Especially as I seem to remember the day before the number was only 50 billion. Late the previous night pundits were still mocking the suggestion that banks might be nationalised. Therefore I laughed and then balked at what I thought was the typo in the free London paper on reading the news the following day. How is it that we are having to input even more than the US did into their economy?!
More interestingly, IMO, how come the US congress initially voted down the bailout? Well to my utter disbelief we have the Republicans to thank. Sticking to their principles they agreed that banks that were mismanaged should indeed fail. This Friedmanite "laissez-faire" policy is one that I thought I would never seem enacted in this manner. How unfortunate it was that a few tax-cuts were enough to sway these cynical politicians. One might even imagine that some decided they could benefit from the crisis (even though I am sketchy on this part of history). Strange therefore that adamant free-traders such as the Republicans and the European government should stoop to such a Keynsian (the theoretical arch-rival of Milton Friedman) measure to save the economy. To me and probably to the developing world this screams of hypocrisy!
So being an opponent of unbridled free trade, you might expect me to support the bail-out, however the abuse of tax-payers money should not be condoned. Free trade got us into this mess, free trade can get us out of it, and in the words of Naomi Klein: "Can we at least stop calling it free?". So what about the people who may lose their money if the banks were to collapse? Well my proposition would be to sideline the banks. Individuals that lose their savings could be directly compensated by the government and kept in temporary accounts. I would suggest that as the infrastructure is still there, new banks could be set up relatively quickly, which HAVE NO DEBT! This would not only create a flood of deposits, but also restore confidence rapidly in financial markets. The incentive of huge share price rises would mean that enterprising young capitalists could rocket us out of this crash. Not being an economist I doubt my plan is fool proof, but it seems better than hiking our debt and bailing out wealthy business leaders who are the cause of the problem.
Feel free to rip this to shreds btw.
I have had only scant access to the net and the media in general, so I am not as up-to-date as I wish I was. However, the financial crisis has not escaped me, and surprise surprise I have an opinion that I will once again splay before you.
The words "credit crisis" have been floating around for sometime now, but I doubt many of us gathered the impact it would have on our society. I, for one, still don't. I mean I get the basics, and I understand that junior investment bankers are fearing for their jobs. Even the effects on the "real economy" I grasp, but where I flounder is how this wasn't spotted earlier. I mean offering 125% mortgages just to beat the competition seems blatantly nuts!
Regulation has been blamed all over the shop, but let's be honest, which banker would push for regulation restricting profit, and which chancellor apply the brakes to a burgeoning economy?
But anyway. the crisis is here, there is no point in assigning blame, at least not for now. The question is what is the way out? Well in an ideal world I'd suggest we let the banking system collapse, learn to do without interest rates and stocks and rehumanise trade and exchange. But that might be poo-pooed by some so we'll leave that aside until confidence has completely drained from the markets. Some have advised a swift injection of liquidity and others a cautious and measured approach. Admittedly action is needed, but is it not better to let the market correct while "we" plan an appropriate response. Sure more people will lose their jobs, but this is what happens in a recession, which is, I repeat, of "our" creation.
So into the FTSE rode the 500 billion, but how many will return? Especially as I seem to remember the day before the number was only 50 billion. Late the previous night pundits were still mocking the suggestion that banks might be nationalised. Therefore I laughed and then balked at what I thought was the typo in the free London paper on reading the news the following day. How is it that we are having to input even more than the US did into their economy?!
More interestingly, IMO, how come the US congress initially voted down the bailout? Well to my utter disbelief we have the Republicans to thank. Sticking to their principles they agreed that banks that were mismanaged should indeed fail. This Friedmanite "laissez-faire" policy is one that I thought I would never seem enacted in this manner. How unfortunate it was that a few tax-cuts were enough to sway these cynical politicians. One might even imagine that some decided they could benefit from the crisis (even though I am sketchy on this part of history). Strange therefore that adamant free-traders such as the Republicans and the European government should stoop to such a Keynsian (the theoretical arch-rival of Milton Friedman) measure to save the economy. To me and probably to the developing world this screams of hypocrisy!
So being an opponent of unbridled free trade, you might expect me to support the bail-out, however the abuse of tax-payers money should not be condoned. Free trade got us into this mess, free trade can get us out of it, and in the words of Naomi Klein: "Can we at least stop calling it free?". So what about the people who may lose their money if the banks were to collapse? Well my proposition would be to sideline the banks. Individuals that lose their savings could be directly compensated by the government and kept in temporary accounts. I would suggest that as the infrastructure is still there, new banks could be set up relatively quickly, which HAVE NO DEBT! This would not only create a flood of deposits, but also restore confidence rapidly in financial markets. The incentive of huge share price rises would mean that enterprising young capitalists could rocket us out of this crash. Not being an economist I doubt my plan is fool proof, but it seems better than hiking our debt and bailing out wealthy business leaders who are the cause of the problem.
Feel free to rip this to shreds btw.