Bank bad public good?

Risk transfer, and they did not ask us

It's a bargain!It's a bargain!
'Too big to fail', was a popular way for banks to portray themselves, until that is, the public had to bail them out following the financial crisis. Several years on and the Royal Bank of Scotland, now in better health due to all that public money, is running an advert related to George Osborne's 'help to buy' scheme. This is so funny.

First a ridiculous style of management took RBS, and other lenders, to the brink and did so in an era of property price expansion that was encouraged by government. Then, when it had gone wrong, and without any consultation the public were signed up to a rescue plan and so 'bought' RBS. Now some years later and again without consultation the public are helping again.

This time it will be different, so they say! House prices are too high in relation to typical incomes, especially so in the London and South East of the UK. Furthermore, it has been impossible to see any government policy since the downturn began that would alter this. It would be more honest for the present government to admit this rather than tinker with the problem.

Buying anything comes with a risk, there's no reason why property should be different. It's the duty of the purchaser to evaluate the risk and traditionally it was this caution that helped to stabilise the market. And in extreme cases act to lower prices.

An important speech?

Back to the 1920s?

An important speech? An important speech?
Mervyn King, the Governor of the Bank of England, has made a speech, stating that living standards will fall at an alarming rate. He has mentioned the 1920s, suggesting a return to the great recession. Can this be so and what can the average person do about it? Prior to the great property price collapse that led to the financial troubles that are still with us, the general rule seemed to be 'spend, spend, spend'. It was if the very health of the nation, your relatives and friends depended upon prolonged and focused consumerism; is this still true? But then this avoids another question, was it the right policy in the first place? Before the property bubble burst a former Deputy Governor of the bank of England, Sir John Gieve, had said that personal debt was far too high. It would be remarkable if this situation has changed.

For many people not only is immediate personal debt a problem but they are concerned about their younger relatives' chances of paying off the National Debt. The Private Finance Initiative (PFI) scheme is a typical disaster here, yet almost as soon as it was begun the drawbacks were clear. Unemployment is rising and people are fearful of the future so attitudes will change, they will scale back their plans.

Going green, going wrong

Post-neoclassical endogenous growth theory, or so they say (see Footnote)

Things can only get better? Things can only get better?
There is a great deal, as one might expect, to read about Baroness Vadera (see right) and her stupid "green shoots" remark, well here is a little more. Vadera is a close confidante of Gordon Brown, indeed he selected her to be an adviser to him on account of her vast intellect. And perhaps that is where it goes wrong. If we go back a long way when Peter Mandelson was working with Gordon Brown to create what we now call Nulabour, the arrival of Tony Blair was secondary. The decision of Mandelson to drop Brown and become a disciple of Blair came after Mandelson's 'conversion', after he saw the light and realised that Blair was the better all round general purpose Messiah, and so more likely to get the Nulabour project off the ground. But originally it was Brown who picked Mandelson. Gaffe-prone Mandelson eventually goes to the EU and, while he is away, Brown selects Vadera, two duds in a row you say. Well indeed, but look who did the picking.

Rebuilding our economy

But what type of economy do we want?

Sign of the times-again Sign of the times-again
And following on from the title and sub-title of this post, do the voters and taxpayers of the UK get a choice here? For at the moment it looks as if the great and the good, or if you prefer our politicians, are to form a world coalition with scant reference to their electorates to lead us out of a mess which just happened to start on their watch but for which, mysteriously, they are not responsible. Needless to say Gordon Brown is very keen on this.

In 1996 during a tour of America I saw numerous bumper stickers saying: "It's the economy, stupid". This was a key phrase from Bill Clinton's 1992 US presidential campaign that has stayed with us and not just stuck on the back of a pick-up truck. But then, from the dawn of democracy the health of the economy and so the 'feel good factor' has been vital to get the voters on side.

Now it's 2008 and voters in the UK are worried and the economy, if it too had feelings, would have turned from feeling good to feeling bloated with the effects of all that debt. As the current economic downturn is not the first to hit the UK, I'm suggesting that everyone over 30 years old normally resident in the UK knows what to expect next. But just in case anyone needs reminding, then the fear of unemployment heads up the list, as from this catastrophe the loss of the family home and even divorce may follow.

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