24 January 2009

"The banks are fucked, we're fucked, the country's fucked." UK cabinet minister

Labour stakes its reputation on second gamble
Patrick Wintour, political editor
The Guardian, Monday 19 January 2009

As the Treasury last night finalised its second sweeping banking revival package in three months, Downing Street was preparing to go on the offensive, justifying the package not as a bail-out for the banks, but an attempt to protect companies and families trying to secure a mortgage. The £200bn insurance scheme is not for the culpable banks, but for their innocent customers, ministers will say.

The tone towards the banks is becoming more aggressive. Gordon Brown and a phalanx of ministers will say they share the frustration of the public at the irresponsibility of past lending practices, the slowness with which they have revealed their debts and their stubborn refusal in the past few months to release credit.

The tactics, however, betray a nervousness in Labour circles that the public will simply not understand why there is a second tranche of help going to Britain's bankers, who have already received billions of pounds of loans, guarantees and capital. There is also a worry that Brown's inadvertent title as saviour of the world might be slipping.

Opinion polls show government popularity falling in the new year. David Cameron may be internationally isolated in his opposition to a fiscal stimulus, but it does not seem to be hurting him. A YouGov poll in the Sunday Times showed Cameron's Tories rising four points to take a 13-point lead.

Privately, something close to desperation is starting to develop inside government. After watching the slide in bank shares on Friday, one cabinet minister did not altogether joke when he said: "The banks are fucked, we're fucked, the country's fucked."

Speaking at a Fabian Society gathering at the weekend, Lord Mandelson was typically and disarmingly frank. "I'm not going to say to you I think we've now at least reached a set of measures and actions that almost for sure are going to work."

Referring to the banks, he said: "What they've got themselves into is so complex technically, so challenging that nobody responsible would say that this is all that needs to be done in order to put right what has gone wrong. "It's going to take more time, it's going to take more ingenuity."

Despite the polls and the myriad concerns over the banks, many cabinet ministers hope the current crises will ultimately expose the Tories as intellectually bankrupt.

At the Fabian conference, Ed Miliband and James Purnell likened the last six months to the winter of discontent in 1979. An ideological watershed had been reached, they argued.

"I think there is no question that 2008 will be seen as a similar historical moment," said Miliband. "This is a moment of profound crisis for the idea that, in economics, as far as possible we should leave markets to their own devices; the idea that government is the problem not the solution."

Purnell, from a more New Labour position, said: "For the last 30 or so years, politics in Britain has been determined by the image of the winter of discontent. The idea of achieving a fairer society through state action was damaged. I think that unbalanced politics. I don't think we will rebalance to the other side, where markets are entirely dismissed, but I think we can have a more balanced politics as a result."

Douglas Alexander, the international development secretary, added: "I think the real opportunity for the Labour party is to say that we did not just witness the demise of individual institutions, we ultimately witnessed the demise of an ideology that says that the only role for government is always to get out of the way and that the right response to a financial crisis is to nudge, privatise and deregulate."

Yet, on the evidence so far, the public have not yet bought these somewhat abstract notions, and Cameron will not make the mistake of siding with bankers or opposing better regulation.

Last week Cameron met William Buiter, the economist who is a keen advocate of better regulation.

Buiter, according to Cameron, told him "the last time we built up this much debt was when we were fighting ... half of Europe. This time we've done it on our own. It's quite a chilling thought. This is my worry is that it's like the man in the casino has lost it all on red and you know ... what's to stop Gordon putting it all on red all over again?"

Brown, however, will do so today, and who knows if he will win.


1 comment:

Anonymous said...

The markets work fine on their own; it is the constant government interference that has caused this crisis. Cheap credit, TARP, you name it: all government ideas to "regulate". You now see where it gets us. There are hardly markets anymore, only interferences. Now government wants to "do good" by interfering again. Wonder if some one read "Atlas Shrugged" by Ayn Rand.