baldysblog.co.uk

Although it is not extraordinary in human terms, to me the least attractive part of the current Global Financial Crisis is the blame game which started with “Greedy Bankers and their Bonuses”. We now have a flurry of hectic activity in both the USA, Britain, Europe and Japan that is designed or, is it just hoped, will cool the markets down.

I must be honest and state upfront that I have no great faith in any of the “bail out” solutions being proffered because I suspect that they have been cobbled together too hastily. It is a fact in life generally that you cannot have a “solution” until you have first defined the “problem” that you are trying to solve and I’m not sure that this has been or even can be done yet.

Where We Are Now

There will be a tendency to want to pass all sorts of Draconian rules and Laws to prevent this happening again, I do hope that is resisted at least until there has been a forensic examination of the events leading up to this. Normally as in the case of the Iraq War, it is very difficult to get any cool and unbiased assessment of the steps that led to whatever “Event” we are talking about because the “main players” are still around to defend their corner and cast confusion over any enquiries.

However and happily, today whether talking about the Iraq War or the economic management of the US or UK, we are in a fortunate position of approaching a ‘changing of the guard’ as it were, George Bush will be gone in just over 3 months, Brown in 18 and Blair has already gone. This is not a matter of ‘party politics’, this is the moment when truth can be faced and real lessons learned before we move on.

What Happened ?

There are only three main elements in this “Mix”, The Government and its Regulators, The Financial Services Industry and the Consumer. But even having stated that, there are clearly a lot of key sub plots in the story  that also became both ‘drivers and contributors’ to the situation such as the rise of China, India and a massive expansion of world trade which led to vast sums of money sloshing around the financial system looking for safe investment homes.

However and for the moment, I am not so interested in these factors, important as they are in the overall narrative because these are not the things that broke the bank as it were.

The Consumer

What possesses people to take on debts that they know they cannot service ? I have seen people writing in to ‘comment boards’ complaining bitterly about lending institutions virtually ‘forcing loans upon them’ and it is obvious bollocks. You don’t have to sign the credit agreement and take the money, you don’t have to over extend yourself by ‘bending’ your credit cards out of shape.

Now clearly, not every or most consumers went out on a “spending spree” but those who did, really did. However a lot more people did get involved in speculating on their property in terms of taking equity out of their ever inflating existing property to ‘invest’ in a second home here or abroad or a “buy to let” scheme and so on.

From the perspective of both the consumer and the whole global crisis, it is all tied up in domestic property and the fact that it became massively overheated.

The Financial Services – The Market

Faced with an ocean of funds to invest and too few genuine investment opportunities, we ended up with dodgy “financial instruments” built around the mortgage market. However even here, there was a limit to market growth which lead to expanding it via “sub-prime” loans in the US and their equivalent in the UK, “Buy to Let” and “Self Certification” on income.

There are two key issues here, the forced growth of the domestic mortgage market using short term capital lent at very low rates and the Commercial Financial Markets getting involved in domestic lending which was totally outside of their “business model”. I will address this in more detail in a subsequent blog.

The Government and the Regulators

In this country, hand in glove with these events which built up to a crescendo in the past few years, we have had a Government that has been fast asleep and not kept its eye on the ball. No true, the Labour Government in the UK was not the only one, right across the Western World other Governments of other countries have been as bad. But that said, no other country has gone out on a spending spree of such gigantic and wasteful proportions over 11 years as has ours so that today they have no room for manoeuvre and a mountain of public debt .

Was this lack of attention, this total blindness to the consequences of their actions wholly or partly due to the long running feud between Brown and Blair ? If so, we really do need to know.

Whilst the current opinion polls show a lead for Brown and Darling in handling the current crisis over Cameron and Osborne that is merely “Cling to nurse for fear of something worse…” and will pass because Brown is shown as probably the most incompetent Chancellor and Prime Minister of all time and I don’t think that he will ever be forgiven by the electorate as things worsen over the next 6 months and start to impact peoples’ lives directly. For the moment we need to concentrate on dealing with the current situation and the “blame” can wait but if Brown was a man of honour, once past the first stage, he should resign.