Friday, 3 October 2008

J'accuse

The financial crisis is so big there’s plenty of blame to share around. My new financial guru Sarah Palin identified 'predator lenders' last night, and I can’t see a reason why she aint right doggone it. There are however, some many others to blame, and so little understanding. It worries me, how these two facts might meet.

Also yesterday, sprawled on my sofa watching Question Time, listening to the worried wealthy in the audience wonder where their money should be deposited. In Ireland maybe? Well, don’t ask me, my money’s currently with an Icelandic bank, and if I lose that then I’m going knocking on Martin Lewis’s door, and then that of the government, looking to dish out some blame of my own.

For what it’s worth, here are my views on the UK government’s position regarding savers: I think the government – as ever – has a very clear position but is failing to clearly tell the story, which in the present climate is probably a bigger mistake than having a bad policy (cf TARP). Reading between the lines, the government seems to be saying it will not let any saver lose money but it will not put that guarantee on its balance sheet. It’s like PFI all over again.

So, back to blame. All those people on Question Time were asking reasonable questions, but incredibly ignorant ones. Supposedly well informed folk are making the most basic of errors. As I put it elsewhere, many people are still at the ‘information discovery’ phase of this crisis. The ‘informed conclusion’ moment appears a long way off, given the weakness of some of the commentary I’ve read.

An example from Question Time. A woman asked whether the bailouts from govenments to the banks might encourage further risky behaviour. A reasonable question you might think, but this could have been easily batted away by the point that six significant-sized banks have gone bust this week alone which will mean management of these banks will go, shareholders have lost millions, if not billions, and thousands of jobs will be lost. Hardly the types of events likely to encourage further risk taking! One of the panellists made half a stab at making this point, but not half way near enough to present to the public the reality of what is happening in this country's financial sector at present.

I fear we are close to a situation where homeowners are told their massively over-priced houses are losing a little bit of their worth because of evil spiv bankers. Despite the fact that it was the action of these evil spiv bankers that brought about the massive increase in house prices.


This isn’t snobbery but an accusation. I think there is a real problem about information. Journalists are not good at informing, and readers are not good at learning. Most of the time this isn’t a big problem, but it does almost inevitably lead to booms and busts, panics and mistakes.

If you don’t believe me, and think that people really are interested in finance, then try introducing yourself to people at a party as a banker or a financial journalist. You get the same reaction every time: a blank look and a rapid change of subject. Admittedly, this has changed in the last couple of weeks, but only because people have belatedly realised something might be happening.

In my optimistic moments, I think one positive thing to come out of this crisis is that people will finally realise that finance is important, and pay much greater attention to the subject. We will learn that there is such a thing as good debt and bad debt, and that an appropriately regulated finance industry is a necessary part of economic development.

However, in less optimistic moments, I wonder how smooth the transition from here to there will be, and whether we will get there at all. Populism may prove to be an overwhelming temptation for weakened leaders, in the face of economic downturn and a population with little financial education. Where will this take us? My fear is a rerun of the 1930s, with a financial form of mercantilism leading to greater and greater international stresses. For lots of reasons this cannot be allowed. So the need to inform, to educate and to debate, calmly and openly, has never been greater.

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