Right. That’s that done, then. Now what?
Events of the past week have brought home the reason why Henry Paulson’s $700
billion bailout, or whatever meaningless figure you wish to conjure, is
essential, if perhaps not enough. Step back seven days, and the argument was
that public money was being pledged to banks to bail out bankers whose
excesses had made that pledge necessary.
What is apparent now is the extent that the seizing up of the world financial
system is the problem of us all, and not just a few overpaid Wall Street
plutocrats. That European Schadenfreude that saw it all as the fault
of the turbo-charged Anglo-Saxon financial system has taken a battering
after the bailouts of Fortis and Dexia of Belgium, Hypo Real Estate of
Germany and Iceland’s Glitnir, the near-collapse of Italy’s Unicredit, and
the government support packages for Irish and Greek banks.
Part of the problem, politically and philosophically, of putting together the
Paulson package has been the impossibility of decoupling the interests of
the bankers and the banks. It is unfeasible to declare Year Zero and ensure
that the banks survive but their overpaid executives go to the killing
fields. Bonuses, once paid, cannot legally be clawed back, however pleasing
might be the prospect of financiers joining the rest of us in the queues for
the soup kitchens.
Someone has to run the institutions after the rescue. Note the re-emergence of
John Thain, the former head of Merrill Lynch and the New York Stock
Exchange, as putative chief executive of Bank of America, one of the
institutions most likely to survive unscathed.
The next question is, will it be enough? Frankly, the odds are not good. There
are plenty of signs that the credit crunch has spread out of finance into
the real economy. Another 159,000 off US non-farm payrolls in September is
just one. If corporations, encouraged to take on too much debt in good times
by those same banks, now find their access to credit limited, they will seek
to reduce borrowings, delay investment and lay off workers. Those workers,
and everyone else worried about their jobs and houses, will stop spending.
Those corporations see falling sales, whether of consumer goods or of their
components – note the abrupt fall-off in demand reported this week by
Wolfson, which makes chips for iPhones, for example – and lay off more
workers. Meanwhile, more entrepreneurial smaller firms, which have
traditionally provided much of the impetus for economic growth, are even
more constrained by their bankers. This is how it goes, down and down in an
endless spiral.
At the end of that spiral there are two futures. One is Götterdämmerung, a
financial catastrophe that does indeed bear comparison with the aftermath of
1929 – and please, disregard anyone who claims we are there, or anywhere
near there, yet.
The other is a sadder, shabbier world perhaps more comparable to Britain in
the 1950s, where luxuries were just that, mostly inaccessible, a step up the
housing ladder meant years of penury ahead and credit was almost unheard of.
Worry if you work in finance, estate agency, retail or other vulnerable
areas, or if you are unable to trade out of your debts on your existing
salary.
Among the survivors, of course, like cockroaches in a nuclear winter, will be
many of Gordon Brown’s 600,000 or more workers taken on to the public
payroll over the past decade, along with their copper-bottomed pensions. A
world inherited by diversity inspectors and wheelie bin snoops. Dear God.
Have a nice weekend.
