We have had a credit crunch for nearly five years. We have endured scandal after scandal in British banking. We are in a double-dip recession. We are threatened by the calamity of the eurozone. We have rising unemployment, punitive taxes and a crisis of confidence. Our Chancellor of the Exchequer seems to think that the best answer to all this is to attack Ed Balls....In the US, we can see this in Democrats and Republicans focusing on scoring political points.
If there is one thing obvious about the whole history of the credit crunch, it is that almost everyone important got it wrong, in almost every important country in the world.
With a few striking individual exceptions, international institutions, governments, central banks, banks, fund managers, hedge funds, Eurocrats, economists, financial journalists, and, yes, the Conservative and Unionist Party, failed to notice in time what was happening.
The answer to the Queen’s famous question, “Why didn’t anyone see it coming?”, will be found by historians to lie in some fatal combination of groupthink, greed, hubris and the loss of collective memory which afflicted three quarters of the population and 99 per cent of our rulers.Please re-read the highlighted text as it nicely summarizes our current situation where the people who did not see the financial crisis coming and have a vested interest in the policies that made the financial crisis possible are now being asked to developed policies that will fix the situation.
So there is something banana-republic about politicians [not] spend[ing] all [their] waking hours trying to put things right....
We, the British public, have reached a painful moment. We are getting poorer. We feel we cannot trust our banks, and that no policies for economic recovery are making much difference....A motion that would be seconded in a heartbeat in the EU and US.
The mantra of this column since the credit crunch is Everything Is Different Now. It means what it says....
The last time that the Western world faced colossal problems was in the Eighties. Enough time has now elapsed to see that the relevant leaders in that era rose to the challenge. Although they often disagreed, Ronald Reagan, George Bush senior, Margaret Thatcher, Helmut Kohl, François Mitterrand, Mikhail Gorbachev, FW de Klerk and Pope John Paul II all took decisions which helped secure for the next generation a free and prosperous way of life.
That next generation has spent a frighteningly large part of its legacy, literally as well as metaphorically.
And so far, it has not produced a single leader with a bold new analysis of where it went wrong.
The world believed four years ago that Barack Obama had such an analysis, but in fact his economic remedies involve nothing that Keynesians had not thought of half a century ago, and his global message is one of retreat rather than leadership....
But we all sense now, if we didn’t at first, that our leaders at the top of British politics today are, in mind and character, part of the generation that failed rather than prophets of the one that will eventually succeed. They are able, moderate, decent enough, but just politicians.
In good times, this does not matter much. But these are not good times.
Neither Left, Right nor centre has good new ideas; neither international institutions, nor the European Union, nor independent nation states are functioning as they should.Regular readers will recall that your humble blogger was one of the handful of individuals who did see the financial crisis coming. So there is some chance I have an insight into how to fix what is wrong with our economy.
Regular readers are very familiar with my analysis of where it went wrong. Where it went wrong is the global financial regulators allowed the bankers to create tremendous areas of opacity in the financial system. These areas include the banks themselves as well as structured finance securities (think opaque toxic securities).
Regular readers are very familiar with my idea for how to fix what is wrong with our economy: bring transparency back to all of the opaque corners of the financial system.
This includes requiring banks to provide ultra transparency and disclose on an ongoing basis their current asset, liability and off-balance sheet exposure details.
This includes requiring structured finance securities to provide observable event based reporting. All activities, like a payment or default, involving the underlying collateral are reported before the beginning of the next business day.
As I predicted at the start of the financial crisis, until we bring transparency to all the opaque corners of the financial system, we are going to continue to see a decline in the real economy.