The second part of John Griffin’s look at the financial crisis
Back in August, Mervyn King, Governor of the Bank of England, urged that Quantative Easing be increased to £200 billion (See Freedom, 12th September 2009). The financial columnists wondered what-does-he-know-that-we-don’t? Well, now we all know!
On 2nd September, the Bank of England revealed that bank lending to non-financial companies actually fell in July by £8.4 billion, or 1.7%, and the three months annualised rate fell by 7.8%. Despite all that Quantative Easing dosh that King has handed over, it seems the banks are still squeezing business and are unmoved by the prospects of further closures and unemployment, preferring to use Quantative Easing to increase their cash reserves (liquidity). King expects the banks to increase liquidity and lend more, hence his anguished call for yet more Quantative Easing.
So much for retail banking. Things are very different when it comes to speculative investment banking: profits are sharply up, and consequently so too are bonuses, prompting a predictable outcry. One wonders whether the money the banks are using to buy into oil or whatever is Quantative Easing which might have been used to help UK industry.
Labour’s failure
Then, on the next day, 3rd September, Alastair Darling urged the Europeans to stump up another £75 billions to the International Monetary Fund for further Euro-easing, promising to increase the UK’s current £15 billion commitment by a further £11 billion. Clearly echoing King’s fears, Darling also warned of the UK slipping further into recession. I suspect that this request is likely to fall on deaf ears, since the Europeans are now talking about how they can disengage themselves from economic stimuli. European economics are recovering more easily, because they are less dependent upon the financial sector, where our crisis is rooted.
In contrast, UK industry has been neglected and in decline for many years – Blair, and now Brown, seem to equate making things with Old Labour and the Unions. The Banks and other City investors found earlier pickings elsewhere, until they over-reached themselves and came close to wrecking the whole economy.
Brown and Darling are cornered. The usual way to stimulate the economy is to make it cheaper to borrow money by reducing interest rates. But the latter have already been slashed to an all-time low of only 0.5%, which is why they are resorting to Quantative Easing. If Quantative Easing doesn’t work, it seems to me that their only way out. is to leave the mess to the Tories after the election next year.
When the banks were on their knees last year, with their share prices at rock bottom, and more failures imminent, Labour could have forced their break-up by Act of Parliament into much smaller, more competitive businesses. Instead, the mixture of nationalisation, bail-outs and mergers has made a bad situation worse. Now that the remaining banks are even bigger, their chances of being allowed to fail by Government are even less – market disciplines are reduced, whilst blackmailing potential is enhanced.
As I see it
We anarchists can all agree that the financial crisis has been brought about by the failure of a very small number of people with access to vast amounts of money: a spectacular failure of hierachies, driven by a culture of power-seeking and greed, to deliver stability and order.
As a mutualist, I want to make the additional point that the market did not fail, it merely reflected the actions of those in a position to influence it. Left to the market alone, more banks would have collapsed, instead, the state bailed them out, and then added to the mess with Quantative Easing. Markets, like all forms of human interaction, can be unpredictable; they may react slowly, rapidly, or not at all, their action may be on the grand scale or piecemeal. I believe that the operation of markets would be more effective and equitable if brought under popular control through the use of co-operatives.
Sources
Financial Times and Guardian
Further reading
Fantasy Island (Constable, 2007, £7.99) and The Gods that Failed (Vintage, 2009, £7.99), both by Larry Elliott and Dom Atkinson (Larry Elliott has been economics editor of the Guardian since 1994)
A Structured Anarchism by John Griffin (Freedom Press, 1991, £2 post free)
