It’s fascinating how the gathering slump has changed topics of general conversation. Nowadays you can catch shoppers in supermarkets discussing the price of Hungarian credit default swaps over the celeriac counter.

Each generation has its version of the Schleswig-Holstein question. Ours is probably the state of the Baltic Dry Index.

As the Iraq war did more to disseminate geographical knowledge of the Middle East than the entire schools system, we are all passable economists these days.

So, since amateur Keynesians are everywhere stalking the land, let’s consider who is really to blame for the problems we all now face.

After much digging around, we can report that, contrary to many attempts to blame investment bankers, as well as retail banks and their customers for the financial fiasco, real seed culpability lies with politicians of the left interfering in the workings of what are sometimes laughingly called “free markets”.

Here’s the timeline:

1977. President Carter passed the Community Reinvestment Act which forces commercial banks and other financial institutions to supply sub-prime mortgages for social housing to low-income borrowers.

1997. With President Clinton in office, Wikipedia reports: “In October 1997, First Union Capital Markets and Bear Stearns launched the first publicly available securitisation of Community Reinvestment Act loans, issuing $384.6 million of such securities. The securities were guaranteed by Freddie Mac and had an imputed AAA rating.” Collateralized Debt Obligations (CDOs) and their near kin were born, with U.S. government approval.

Note that in 1997, Gordon Brown and Tony Blair were coming into power in Britain with a policy of free financial markets and a light-touch regime for regulating the City of London. Can such atrocious bad timing possibly be an accident?

For ten years as Chancellor of the Exchequer, Gordon Brown turned his back on the growing madness in the mulched-up derivatives markets, which he clearly did not understand.

When President George W. Bush arrived a few years later, he was almost immediately swamped by the terrorist crisis of 9/11 that dominated the whole of his Presidency and comprehensively wiped out his authority during his first term.

So the financial crash in August 2007 that has turned a drab cyclical downturn into an event of historic proportions, was started by the liberal interventionism of two Democratic Presidents. The implied government guarantee provided by Freddie Mac (now insolvent) also allowed the securitization of toxic debt and sent an arrow through the heart of financial stability around the world.

Both Presidents and Freddie Mac clearly had the best of intentions, but history tells us that when governments skew the marketplace, the worst is more likely to happen than not.

Let’s hope the lessons are learned or we’ll all end up eating celeriacs for supper.

John Evans