Gordon Brown’s new back-to-the-future idea is to introduce “old fashioned banking” again to the High Street. After all, banks lend out other people’s money, so should be careful where they put it.

He will “ban” 100 percent mortgages, make borrowers save up their deposits, and force them to meet “old fashioned” bank managers, who will get to know them like GPs did in the days of Doctor Finlay’s Casebook. Ahh, the past is so reassuring, isn’t it?

But Chancellors of the Exchequer also spend and allocate other people’s money. Shouldn’t they be tightening up their rules of tax and spend in the vast public sector? And shouldn’t State benefits be handed out sparingly to those who truly need them? Isn’t it also imperative that no-one should be given a public job unless they are urgently needed on the front line and well qualified for the task?

Brown didn’t begin to address that problem. Bankers will be sent for re-education by Captain Mainwaring characters, but the good old “public realm” will just carry on as before, squandering other people’s money.

Isn’t this just another sneaky way of blaming the banks rather than himself?

Labour MP, Chris Mullin, in a new book* writes: “The trail leads back to Gordon — but if it all goes wrong he’ll be nowhere to be seen.”

* A View From The Foothills

Do you ever have “There is a God!” moments? I had one last week.

I was walking down a narrow pavement alongside a completely empty road, when the tinkling of a bicycle bell assailed my ears from behind. One of those aggressive two-wheel types was attempting to force me to stand aside on a pedestrian walkway.

I won’t go into how irritating these people are, fury is not a pleasant subject to write about. However, whatever allows these oiks to ride along pavements should be repealed by the next Conservative Government.

Naturally, I ignored him — it’s always a he. He rang the bell again. I sauntered on. Again he tried, before snorting and turning onto the road. As he passed he gave me a backward glance of total exasperation.

My returned stare must have unsettled him. He wobbled, desperately corrected his trajectory, hit the curb, and fell off.

I walked past with a beatific smile of satisfaction.

There is a God!

Like everyone else I’ve been trying to make sense of the causes of this world depression. I’ve pieced together bits that have appeared here over the past few months in the hope they make a coherent and plausible case for what went wrong.

In the beginning
1. In 1977, President Carter pushed through an Act forcing banks to give mortgages to sub-prime borrowers.
2. In 1999, President Clinton signed off the repeal of the Glass-Steagall Act, which separated commercial banks from investment banking.
3. Clinton also encouraged the securitization of morgage debts into Collateralized Debt Obligations by Bears Stearns. Astonishingly, they were given Triple A investment status by the involvement of government-backed Freddie Mac. Thus, potentially toxic assets were bundled up and sold off to the world’s banking system.

Note: these are both Presidents of the left.

Reinforcing causes
Fed Chairman, Alan Greenspan kept interest rates too low for too long because he believed “downturns will happen and can be cleaned up afterwards”. Meanwhile, just enjoy the white-knuckle ride.

In the benign conditions created by Greenspan and his student Gordon “No more boom and bust” Brown, high leverage (debt) was seen as a one-way bet for financiers and private-equity outfits, some of dubious provenance.

A system of shadow banking was set up outside the regulatory framework which passed debt around between different institutions, hedge funds and capital markets, creating more money than the original debt. The normal effect of a burgeoning money supply is inflation, which eventually squeezes out any asset bubbles that form along the way.

However China simultaneously introduced a massive deflationary element into the mix. Trillions of dollars of very cheap goods poured out of the country to soak up the growing money mountains of the developed world.

The deflationary effect masked the inflation embedded in the Western economic boom, allowing it to last much longer than normal and storing up more problems as time passed.

On the ground, it seemed as if the good times would go on forever. A classic psychological contagion set in among politicians, financial markets and the ordinary public. No-one could lose was the signal, everyone was a winner, even the poorest with no income, no job and no assets.

The Endgame
When sub-prime borrowers in America started defaulting on their loans, as they were bound to at some point, bankers found it impossible to trace the indebtedness through the system because of the sliced and diced nature of the securities that now concealed them.

These assets were effectively worthless as they could not be valued. The whole planet was suddenly stripped of value. There were no hooks left to store capital and savings, except gold and flighty commodity markets. Meltdown time had arrived.

The growing realization that banks all over the world held these poisonous assets, effectively closed down the inter-bank lending markets. Banks no longer trusted any other not to fail and default on their loans. The Credit Crunch was born.

The rule of Up-To-A-Pointism suggests: “If something works, it only works up to a point. Thereafter it yields diminishing returns, followed by negative consequences. Government intervention is like that, as are free markets. Both have a limited bandwidth within which they operate well.”

Let us hope that the new financial system that emerges takes note of this simple rule.

Prediction
The world will now skate helter-skelter in the opposite direction. The pendulum of opinion will overshoot the mark and overregulate financial markets, thus breaching the Up-To-A-Pointism rule.

Something akin to a 1970s situation will be created as legislators try to close off all exits. The result will be a stifling, sealed commercial environment with few incentives for innovation and hard work.

It will take another “liberalization” package of measures a few decades down the line to set off another period of prosperity, leading to another bust.

Plus ca change …

I’ve just watched the seventh of eight episodes of Channel 4′s patchy series, Christianity. It was presented by Professor Colin Blakemore of Oxford University, a colleague of Richard Dawkins — author of The God Delusion — and a fellow believer in the new religion of Scientism.

So far, only three of the programmes have stood out: Howard Jacobson’s, Michael Portillo’s, and Rageh Omaar’s thoughtfully fair view of the relationship between the West’s religion and Islam.

As an Idealist in philosophical terms, I’ve not got a lot in common with Blakemore’s viewpoint, however, he put his case engagingly and intelligently.

One highlight for me was the comparison of a cathedral with the Large Hadron Collider at CERN on the Swiss/French border. This chilling aggregation of metal, electric wiring and brutalist architecture seemed straight out of the Nazi manual of “How To Subdue Human Values By Gigantism and Intimidation”.

Next up: Cherie Blair. What are we to make of that?

Quote of the Week

This is rather a good description of New Labour philosophy:

“The idiot who praises, with enthusiastic tone,
All centuries but this, and every country but his own.
W. S. Gilbert, The Mikado

John Evans

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