Sunday, August 31, 2008

Darling's New Deal

Help me on this, I am no expert. Isn't 'in sixty years' the most significant phrase in Alistair Darling's interview? Here is my theory. All the exotic financial instruments that flowered in the markets in recent decades were off-balance sheet ways of circumventing the capital adequacy requirements imposed on banks in an attempt to prevent another Wall Street Crash. Whatever the claimed benefits of these instruments, the financial system was in breach of the spirit of the law. The banks cheated and failed to be the one thing they sell themselves as being - prudent. That system has now collapsed. By 'sixty years' Darling means Britain's financial difficulties after the war, but he is also indicating that the massive breach in the post-Crash banking provisions requires a new wave of regulation and control of the markets - not necessarily more but different. If things are as bad as Darling says and unemployment rises significantly, then this new wave - New Deal? - will be more radical than we can yet imagine.


  1. spoken like a true financial analyst: i.e., i don't understand a word of what you just said.

  2. I'm with you on this, Susan. Do you think Bryan is sexist?

    (i.e., can there be a single language for both sexes as long as men are men?)


  3. I suspect the secret here is sheep. With his hair and pronounced eyebrows, Alistair Darling can look somewhat like a startled sheep. The last man who did what Darling is hinting at here - dropping the big one on Dear Leader - was likened to a dead sheep. And the interview was given from Lewis, where sheep are still a staple industry. If you want to know about high finance, first learn how to baa.

  4. Let's hope that the New Wave/New Deal is better than FDR's New Deal...

  5. Just because a few (quite a few) bankers failed to understand risk and thought they could cover for taking increased risk (as the politicos wanted them too) through securitisation does not change the fundamentals.

    All that is needed is the banks to get back to sustained profitability as quickly as possible, the real issue for our long term economic well being is energy not bankers bonus payments.

    10 years of cheap commodities, cheap credit and unlimited cheap labour through our wacky immigration policies, even my cat could get economic growth and look like a great chancellor with that recipe,

  6. Spot on, Anonymous.
    And I fancy what Darling was really saying was 'I'm as mad as hell and I'm not going to take it any more'.

  7. The Greenspan put has now been followed by the Appleyard punt.

  8. @anonymous

    "Just because a few (quite a few) bankers failed to understand risk and thought they could cover for taking increased risk (as the politicos wanted them too) through securitisation does not change the fundamentals."

    Are you sure that nothing fundamental has changed? Haven't you noticed that the last 10 years has seen the rise of 'globalisation' and millions of new workers in China, India etc.? Our manufacturing has been 'outsourced'. Ultimately, this is where the flood of credit, along with the appearance of low inflation, has come from. We are now in debt to emerging economies that have the economic clout to claim all the commodities in the future.

    I'm no expert, but I'm sure that the standard economic statistics (GDP, inflation etc.) don't adequately represent these ideas, and simple rules-based approaches to running the economy e.g. the BoE's inflation target and the so-called 'Golden Rule' are laughably simplistic. As we have seen, the basic statistics can appear to show a vibrant healthy economy when it is nothing of the sort.

    Another point is that people trust their own experience and natural 'timescales' to make their judgements. It seems clear to me that factors influencing a large economy take many decades to develop, but most people work on shorter timescales. Almost universally, Gordon Brown was declared to be the greatest chancellor ever after about 8 years in the job, for giving us a record breaking period of GDP growth, low inflation and stability. Even now, I think most people believe that our current difficulties are a brand new episode, completely detached from the last 10 years, and that if we hadn't had all that growth, we would be in a far worse position to "ride out the storm" than we are now. Which, of course, is wrong.

    Does Darling's 60 years reference have anything to do with George Soros's 60-year "superbubble" idea?

  9. I am definitely not an expert but... the way inflation is worked out makes no sense at all. Its completely bogus and real inflation is much higher. Also do you think the taxpayer will bail me out if I go flat broke because of my finacial miscalculations?

  10. Only laxer regulation can save us from this and anyone who disagrees is a communist.

  11. This quite a debate given the abundance of non-experts. Where are the experts? Can they stand up? Do even the experts know what they are talking about?

    I am certainly no expert, either. Though I painfully try to pierce the veil and demystify the labyrinth to myself, economics has always struck me as fundamentally abstract: riddled with all kinds of metaphysical assumptions, mediated by a systematic epistemology that wants to force reality into its categories, not see its categories reflect what is the case. The very prevalence of a hieratic, exclusive jargon, that only an insider can resonate to, should itself make one suspicious, in my view. Exactly with how much ease can you explain economics to a five year old? Or, put differently, with how much ease can you talk about economics in a different, livelier idiom? Bodies of knowledge that can not be transferred to different forms of expression leave me cold, alas.

    So Selena and Susan B, I'm with you. And I say that as a man.

  12. Jonathan, economics is very very simple, accountants, bankers, lawyers, academics dress it up with a new form of language in order to justify their fees.

    the three simple rules of economics are 1, supply 2, demand and the missing one 3, TRUST.

    in some cases you are the supplier, in some cases the buyer, but what brings these two forces together is Trust in the system, this is why inflation is very important, as as money is devalued so trust evaporates and makes trade more difficult. But even more important than this is the the rule of law. Because we are a democracy and base our law on popular will through the freedom to replace our government, the contract which the law supports is enhanced (as opposed to Russia for example which is at the whim of a corrupt politicos, as too China)

    This is the reason the West is richer than the east, we believe in freedom, and democracy is the thing that makes up rich, no matter how much oil or gas you have its the goods and services that that energy produces that have real value and wealth.

    There is an old saying, if trade does not cross the boarder than tanks will, the more we get the china's and the Russians to trade with us the more defendant on us they will be, if we managed to come up with cheap and plentiful energy ( as my original post ) then the more like us they will have to be.

    Credit systems, bonds are all well and good, but the credit crunch will not change the world, if there is trust in the system then the credit taps will be turned on again and just as fast as before.