Tuesday, October 14, 2008

We are the Masters Now

Okay, slight exaggeration. Neither did Gordon Brown “Save the World”, but now that the dust is settling on yesterday’s part Nationalisation of the Banks – the “commanding heights of the economy” (or Reverse Clause 4 Moment as Tom P puts it so aptly) we can see that there has been a massive failure of capitalism.

Don’t get out the barricades yet comrades, as I am certain that the economy will recover – it always does. Spectacular collapses in markets is after all the nature of the beast. Whether it’s Tulips, South Sea shares or toxic sub-prime mortgages, its meat and drink to capitalism. Of course who knows in Politics, maybe something else is happening, I doubt it, but this is one of the reasons why it can be exhilarating at times.

But I think that the pendulum has shifted. The relatively unfettered and deregulated “anything goes” free market capitalism has had its day! What we need to do is examine what went wrong, why it went wrong and would needs to be put in place to try and stop it happening again. In the long run this is probably a worthy aspiration rather than an achievable goal. But the scale of the current disaster was not inevitable.

My thoughts for what it’s worth are that we’re all at fault. To a lesser or much greater degree. Small savers in this country via their pensions and insurance policies own a majority of shares in this country. However, despite being owners we allowed incompetent executives to be appointed to run our major financial institutions into the ground. Huge bonuses were paid in return for short term gain regardless of long term sustainability. Hugely complex financial products which practically no-one understood were developed and bought by managers on our behalf without any awareness of the risk. This is what happens when our fund managers act as traders not investors.

Regulators allowed credit agencies to give companies AAA scores even though they were being paid by those companies to do so. Government’s of all political persuasions allowed a flawed economic and regulatory framework.

Now the ideological model has crashed we can pull away from Reaganomics and Thatcher's "big bang" to re-establish meaningful checks and balances. Let the pendulum swing back. Workers capital can play its role. We must change the governance arrangements of the companies that we own to make sure that the interests of its real owners is pursued. No longer should our capital be used as vehicles for speculators to risk our money to make them massive bonuses.

Gordon may have not saved the world, but well done. I think that the way the government has decisively responded may well help save its bacon at the next election. Cameron and his team have appeared to have no substance to them and their deregulatory free market credibility is in pieces.


Robert said...

We will see, disabled or sick people moved from IB to JSA will have two years to find work before their mortgage interest payments are stopped under new Rules for Labour, sick and the disabled will then be evicted through non repayments, when asked an MP stated you cannot expect the tax payer to pay, funny old world how we can pay tax payers money to people who have earned billions if not millions but god forgive if your sick or disabled. But as we all know we have lots of frauds in the sick the BBC has said so.

John Gray said...

Hi Robert
Sorry, you are wrong to suggest that disabled people who cannot work will have mortgage relief stopped after 2 years. JSA should only apply to those who are fit to work.