Thursday, October 02, 2008

Capitalism in Crisis

The current situation has created an interesting conflict for politicians and others who have strong left/right feelings. When George W. first suggested the bailout, I thought - my goodness, a Republican is nationalising the banks. Then my daughter in law, who is decisively left of centre, said that the banks should be left to sort themselves out. ‘That’s a very ‘free market’ philosophy for a socialist,’ I said to her. Things are very definitely topsy turvy.

As someone else, or many others have already said, it’s quite natural to feel angry with the banks who have behaved totally irresponsibly in lending to people who couldn’t pay for the loans, and then parcelling up their debt and selling it on to other people. But the blame too, can be parcelled up and allocated to many groups of people. In my view, in the UK, the Conservatives would have done the same as Labour. The Conservatives (Tories), like the Republicans, are opposed to too much regulation/interference, as they would have it. Lack of interference of supervision of what the banks were doing is one of the causes of the current problems.

But the Left have also been complicit in creating these problems. The Labour party here did not bring in more regulation - partly, perhaps, because they didn’t want to be seen as the party who discouraged big business and drove it away from London. There’s another reason, and I read somewhere that this applies to Bill Clinton too. That the parties on the left have wanted to encourage people of low incomes to have their own homes - to somehow struggle on to the bottom rung of the housing ladder.

My view is that you don’t do anyone any favours by encouraging them to get into debt. Governments all over the Western world seem to be guilty of this; banks and building societies, likewise. Hence all those envelopes inviting me to get more credit, so that I can take a holiday, buy a yacht or a new car, without having to wait and be patient. I really hope that credit will be tightened up a bit, so that at least people are encouraged to save up and be prepared to wait for some of the things they want, but don’t necessarily need.

In the UK, many mutual building societies demutualised. I was one amongst many others who, without understanding, voted for this, in order to get a slice of shares or cash. I regret that, but I have to accept some responsibility, together with all those other people that voted for a ‘free lunch’. I didn’t realise that losing the mutual status and getting quoted on the Stock Market would cause the new banks to take on unrealistic risk. The clever bods at the top were naively assuming that the value of property would rise and rise and rise, and the 125% of value they were loaning to their customers would become a lower percentage in time. They were wrong. Every bubble bursts eventually. I really hope that these arrogant money makers will not be rewarded to the same extent in future. One always hears the cry - if we didn’t give them their million pound(?) bonuses, they would leave us and go elsewhere. Let’s hope the whole of the Western world reduces its rewards to these people to a more appropriate level.

It is tempting to punish the Governments/Banks and all the money makers by insisting that they should not be bailed out. Let them reap what they have sown. In some ways, this is right. If they are always bailed out, they, in effect, can take on any risk. They have no responsibility. If they are not bailed out, though, either by other banks, or by governments, there will be problems for all. Businesses will not be able to get credit. People will not be able to buy new houses. Large and small companies will collapse. People will be unemployed. People will buy fewer items. Shops will close. It will be a downward spiral that affects most people. Bailing out the banks is probably the least worst option - a necessary evil.

4 comments:

Jan said...

I remember my parents decrying Buy Now Pay Later in the 60's and predicting all this all those yrs ago...
I havent visited for a while but shall be back soon for a longer look..

Jackie Luben said...

Always good to hear from you, Jan. I've been offline, because of computer problems.

Jackie Luben said...

Always good to hear from you, Jan. I've been offline, because of computer problems.

Jackie Luben said...

Always good to hear from you, Jan. I've been offline, because of computer problems.