Interesting
short piece by Paul Krugman about the falling fortunes (political and personal) of the ruling party in the UK. It's worth a read, but to recap briefly, a banking crisis of almost the same type that's destroyed the US economy has wrecked the economy in the UK as well. (And most of the rest of the world.)
The difference, for the purpose of his article, is that while the Right was in power in the US and UK in the 1980s, and the left in the 1990s, the Left (Labor) retained power in the UK throughout the 2000s. Tony Blair was not exactly a liberal, and the US is so skewed to the Right that Obama would be economically well to the right in most of the Western World, but Blair was from the Labor party. In the US, of course, the Right took back power on the presidential level in very close and legally contested elections in 2000 and 2004, and for most of the decade the Right had a majority in congress as well.
Surprisingly, unrestrained free market ideologues ran rampant in both parties/countries, which is why the UK (and most of Europe and the rest of the world) followed America's lead in deregulating their financial industries. Which allowed banks to diversify into derivatives, leveraging pyramid schemes, loaning to anyone with a pulse since house prices only went up, etc. Actions that led to the current global recession and formerly unthinkable levels of bank losses and corporate bankruptcies. Etc.
The interesting part is that since the Left remained in power in the UK through the 2000s, they're getting blamed for the recession and are woefully unpopular in the polls, despite the fact that the Tory opposition has just as much nothing to offer in their economic fixes as utterly discredited Republicans have been offering in the US. In the US, Bush was hugely unpopular long before the recession set in last year, and Republicans got murdered in the 2006 congressional elections, so the odds were that a Democrat was going to win the presidency in 2008 anyway. But the beginning of the recession certainly focused public attention on the economy, and the fact that McCain had no strategy to offer beyond the usual Republican "tax cuts for the rich" certainly didn't help his electoral efforts.
So, as Krugman says, while Labor deserves some blame for the state of the UK economy, why do the Tories deserve credit? They'd have done the exact same thing, or created an even bigger mess with their pro-business policies, had they been in power for the last 6 or 8 years. On the other hand, what if Gore had won in 2000, or Kerry in 2004? They'd likely have done much the same as Bush, at least in terms of domestic economic policy, and would have gotten the blame for the current state of the economy.
The key to the whole article is... Canada. I'll
quote Krugman on that:
There's no question that this zeal for deregulation set Britain up for a fall. Consider the counterexample of Canada -- a mostly English-speaking country, every bit as much in the American cultural orbit as Britain, but one where Reagan/Thatcher-type financial deregulation never took hold. Sure enough, Canadian banks have been a pillar of stability in the crisis.
Sadly, Canada doesn't have a left/right political break down to continue this theme. There are more than two viable parties in Canada, and in many ways their right wingers are more liberal than Democrats or Labor in the US and UK. As evidenced by their refusing to sip of the deregulation Kool Aid that created the bubbles that so recently and disastrously popped in the US and UK.
Ironically, I bet the Canadian politicians who were in power during the 90s and 00s aren't doing any better now than their US and UK counterparts. Canada's banks aren't all failing, but they're in a recession too, since their main trading partners are hurting.
If there's a moral here, it's unclear. Following conventional wisdom, even "expert" opinion, does nothing to guarantee prosperity. Not on a personal or national level. Political fortunes have as much or more to do with circumstance and chronological chance than the results of the positions you take and the laws you pass. The just are often punished, and the guilty rewarded, and just vs. guilty is largely a matter of opinion.
My recommendation: don't use this one as a good night story for your kids.
Elsewhere,
Matt Taibbi writes a similar post, but it's far juicier and more interestingly-antagonistic. A quote:
Your hero Paulson met with Donaldson and got the rules changed so that Goldman and four other banks no longer had to abide by the old restrictions that forced banks to actually have a dollar or two on hand for every ten or so they lent out. After that, it was party time! Bear Stearns in just a few years had a debt-to-equity ration of 33-1! Lehman’s went to 32-1. By an amazing coincidence, both of these companies exploded just a few years after that meeting, and all of the rest of us, Evan, ended up footing the bill, thanks to a state-sponsored rescue of Bear and a much larger massive bailout of Wall Street in general, necessitated in large part by the damage caused by the chaos surrounding Lehman's collapse.
Meanwhile your own Goldman, Sachs ended up with a 22:1 debt-to-equity ratio a few years following that meeting, a number that would have been much higher if one didn't count the hedges Goldman bought through a company called AIG. Thanks in large part to Paulson's leadership in his last years as head of Goldman, the company was so massively over-leveraged that it would have gone under if AIG -- which owed Goldman billions when it went into its death spiral last September -- had been allowed to collapse. But thanks to Hank Paulson, who heroically stepped in and gave AIG $80 billion the same weekend he allowed one of Goldman's last key competitors, Lehman, to collapse, Goldman didn't have to go without that money; $13 billion of the AIG bailout went straight to Goldman. So I guess we have Paulson to thank for the fact that he used about $13 billion of our taxpayer money to essentially bail out his own fuckups.
Labels: economics, politics
