It's Finished

[kingzog]

http://www.lrb.co.uk/v31/n10/lanc01_.html

Brilliant essay by John Lanchester

'There is, however, a deeper embarrassment, one which verges on a form of psychological or ideological crisis. To nationalise major financial institutions would mean that the Anglo-Saxon model of capitalism had failed. The level of state intervention in the US and UK at this moment is comparable to that of wartime. We have in effect had to declare war to get us out of the hole created by our economic system. There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism . . . there is no such model. It just isn’t supposed to work like this, and there is no road-map for what’s happened.'

[Master Shake]

Re: It's Finished

http://www.lrb.co.uk/v31/n10/lanc01_.html

Brilliant essay by John Lanchester

'There is, however, a deeper embarrassment, one which verges on a form of psychological or ideological crisis. To nationalise major financial institutions would mean that the Anglo-Saxon model of capitalism had failed. The level of state intervention in the US and UK at this moment is comparable to that of wartime. We have in effect had to declare war to get us out of the hole created by our economic system. There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism . . . there is no such model. It just isn’t supposed to work like this, and there is no road-map for what’s happened.'

Thanks for posting; excellent read.

[Slimprofits]

Re: It's Finished

This is a great article and here is but one excerpt, a fine piece of writing:

RBS, I repeat, had no involvement in SIVs or off balance sheet investments. Its accounts are models of clarity and translucency compared with some of its competitors. And yet you still can’t tell from them what the hell was going on. A big part of the assets listed on their balance sheet turned out not to be worth anything. We have to conclude from this that with the banks in their current condition, it isn’t possible to tell from their public accounts what the real condition of their business is. Call that problem one. There is another problem, however, and it is this which compounds the difficulty with banking accounts and makes it a critical one for the British economy. That problem is the sheer size of the big banks. They are, by near universal consent, too big to fail. The one time a big bank has been allowed to go under – Lehman’s, in September last year – it almost destroyed the global banking system, with consequences that are still being felt, and will continue to be felt for a long time. Without confident lending from banks to banks and from banks to businesses and individuals – without the proper functioning of the credit system – the global economy comes to an abrupt screeching halt. When a bank goes under, it destroys that confidence. So a big bank can’t be allowed to go under. Call that problem two. Put problem one and problem two together, and we have the current situation, in which the big banks are completely untransparent but also too big to fail. That is a catastrophic formula. We (the taxpaying we) have no choice but to keep them in business, and yet no real idea what’s going on inside them.

[Jay]

Re: It's Finished

I third the sentiment. Excellent. Thanks for the link.

[rjwjr]

Re: It's Finished

Thanks for sharing. What a terrific combination of delivering horrifying news in a straightforward explanation mixed with a dash of humor. It's kind of like having your favorite comedian be the one to tell you that you only have 6 months to live. This was one of my favorites...

"The plan embodies a desperate yearning for this to be a crisis of liquidity rather than one of solvency, and hopes that by acting on that belief, it will make it come true."

That statement seems to sum-up much of politics, not solely our politicians' respons to this banking criss.

[oddlots]

Re: It's Finished

What a great find. His four reasons why the reluctance to nationalise / resolve banks are very insightful:

"There are four reasons for the reluctance to take over the banks, of which the first isn’t a real reason but a piece of political bullshit.

1. Because the government would be bad at it. This is the only reason governments are willing to give in public, and it fails the most elementary test of all: only a professional politician can say it with a straight face. Bad at running the banks, compared to the bankers who broke capitalism? Please. But this is the closest they can get to admitting the first real reason, which is:

2. Because if the banks were taken over, then every decision they take would come at a potential political cost to the government. Your state-owned mortgage lender is threatening to repossess your house, after you fell behind on the payments? Blame the government. Your firm is laying off half its workforce because the bank won’t roll over its loan? Blame the government. This, of course, is in addition to all the other economic things for which people are already blaming the government. People are grumbling now, but to nothing like the extent they would if the banks were directly owned by the state. Politicians simply aren’t willing to take on the responsibility for the banks’ actions.

3. They also don’t want to admit the extent to which we are all now liable for the losses made by the banks. Guess what, though: it’s too late. The 30 per cent collapse in the value of sterling over the last months is something which is only just beginning to be noticed by the public at large; but it is unlikely to go away as quickly as it arrived. The reason sterling has crashed is simple: the markets are pricing in the fact that we the taxpayer are on the hook for the losses made by our banks. The markets assume that we can’t or won’t default on our government debts – that would mean we simply can’t afford to pay back the amount we’re currently borrowing. They’re probably right about that. But Alistair Darling’s desperately grim Budget made it clear just how deep in the mire we are. As for how bad it is, and how quickly it’s gone bad, well: in March last year, at the time of the Budget, the projected deficit for 2009-10 was £38 billion. By 24 November, the projected deficit was £118 billion. In the Budget on 22 April, Darling admitted that the real figure is going to be £175 billion. The total projected borrowing for the next four years is £606 billion. National debt will hit 79 per cent of GDP – the highest peacetime figure ever. The economy is going to have its worst year since 1945. The debt is going to cost in the range of £35 to £47 billion a year to service. That’s just the debt alone; we’re going to be spending more on debt than we are on the entire transport budget. Perhaps New Labour might consider changing its motto from ‘Education, education, education’ to ‘Debt, debt, debt’.

..... All of this leads us to the fourth and deepest reason why the government won’t nationalise the banks. The deepest reason is:

4. Because it would be so embarrassing. Some of the embarrassment is superficial: on the not-remembering-somebody’s-name-at-a-social-occasion level. The Anglo-Saxon economies have had decades of boom mixed with what now seem, in retrospect, smallish periods of downturn. During that they/we have shamelessly lectured the rest of the world on how they should be running their economies. We’ve gloated at the French fear of debt, laughed at the Germans’ 19th-century emphasis on manufacturing, told the Japanese that they can’t expect to get over their ‘lost decade’ until they kill their zombie banks, and so on. It’s embarrassing to be in a worse condition than all of them."

As to tone, it's a bit like Nick Hornby taking on banking and economics as opposed to football or pop music. I especially like the phrase "exquisitely boring" to describe the difference between preferred and common shares. Can't wait for his book on the crisis "Whoops." (It even sounds like a Hornby title.)