On the recent BBC documentary ‘Secret Life of the Treasury, Alastair Darling spoke convincingly about the realisation that the “cash machines would run out by lunchtime”, and how necessary decisive action was to bail out RBS.
The bailout was justified, using a strange mixture of ‘Keynesian‘ and ‘free market‘ rhetoric; it was a means by which the government would stimulate demand in the economy by underpinning the banks, which would redistribute that money round the economy – supporting enterprise by lending to businesses, which in turn would stimulate demand for services etc. The banks would be governed by a ‘fiduciary duty’ to protect the interests of the taxpayers, as its biggest shareholder. Preventing their failure, as the mechanism which moves money round the economy, prevented ours.
The notion was that the banks’ security would bring us out of the mess, just as their mistakes are what took us into it; that we must not, under any circumstances, undermine the free market principles that keep them ‘competitive’. In the meantime, we better roll back that public sector for a while.
While we are waiting for banks to honor their part of the bargain, we used temporary liquidity measures, froze VAT, printed our own money, and kept interest rates artificially low. We do not appear to have been worried about the inflationary risks of any of these measures, even though that again will be borne by the taxpayer, and the temporary period was supposed to end with increased demand, triggered by the bank bail out, was it not?
There has been a distinct lack of analysis by either government or opposition, of which RBS actions caused this; how RBS hid the situation they were in so effectively that their failure could bring the country to its knees within hours. Nor were there questions over what they are doing with this money.
The cost of this scheme has ballooned from £50 billion in 2008, to £1 trillion this month, with little comment. This is while debates about who can protect local Sure Start centre best rage furiously – and while debates about protecting other public services don’t rage at all.
When we debate obscene bank bonuses we don’t seem perturbed by the fact that we have so little power, that we can’t even force the banks hand over such a piddling issue. It is just accepted that this is the way it is.
The assumption that banks were best mechanism to stimulate demand, and send a trillion pounds moving round the economy is rarely questioned. Suggestions that there would have been a more cost-effective way to cushion the British people from the effects of the recession, and to stimulate sustainable growth – which may have allowed the free market principles which banks thrive in to come to fruition – are dismissed as naïve.
I have seen no appetite for analysis of how our market became so distorted in the first place. Neither party’s agendas of increasing competitiveness through deregulation, have been subject to question. A merger between HBOS and Lloyds TSB was feted as part of the solution – without any consideration of why in a real ‘free market’ a monopoly is supposed to be an anomaly.
If you are not going to let the market adjust naturally, and are going to prop it up using twice your annual expenditure, surely reform must be part of the condition of that support? You would at least let that support be informed by analysis of what needs to be fixed, to make sure that they don’t use public money as carelessly as they used their shareholders, wouldn’t you? Yet banking reform has, on the whole, been cosmetic. Opposition proposals are as toothless.
We are still measuring recovery in terms of stockmarket gains and improvements in mergers and acquisitions markets, even though these ‘gains’ are often at taxpayers‘ expense. The economic policy of our main opposition is underpinned by a belief that if we protect interests of ‘wealthmakers’ – their recovery, is our recovery.
If a public sector policy had provided so little value for money, I am fairly sure that people from all sides of the spectrum would be demanding answers. Yet electioneering is dominated by questions about female voters. There is little evidence that either party have noticed that the most expensive part of our economic recovery strategy has yielded no results – or that they want to rectify that.