Peter Mandelson, whose reappointment to the Cabinet has left me feverishly indifferent, is fretting over the sanctity of the free market -the fairytale in which he is really too old now to believe.
Today’s Times reports Mandelson’s warning that the EU ‘could be hit by a surge of “economic nationalism” after European governments enacted a series of unilateral moves to shore up their financial systems at the expense of other member states.’ The examples he has in mind are the decisions by the Irish and Greek Governments to guarantee bank deposits, which have, in the case of Ireland at least, predictably meant an outflow of money from the UK to these ‘safer’ banks, thereby hurting UK banks. Opines Mandelson:
“The danger in this crisis is it may spark a new wave of economic nationalism, with each country looking for a ‘get-out-of-jail free’ card. People have to realise that selective or national approaches could lead markets to look to parts of the financial system in a distorted way.”
Well, yes, these governmental moves do distort the market because they make the banking environment more attractive in one country over an another. Financial services are a market now -they were made that way by the neo-liberal economics of which Mandelson is a champion. Banks are there to make money, which is why there were so 'innovative' during the 90s and why they are paying the price (or rather asking the rest of us to pay the price) today. That’s pretty straightforward. What’s less straightforward is why Mandelson is complaining about this but was so enthusiastic when various governments, particularly in the Far East, made their business environment so comfortable -by deregulating employment protection, slashing environmental standards and reducing or even eliminating corporate taxation – that domestic business outsourced work abroad and closed factories at home. That is also government intervention designed to make one market far more attractive to business than others. Foreign economic nationalism that causes domestic jobs to haemorrhage is apparently fair play but similar nationalism that bleeds domestic banks is caddish and unmarketly.
It’s another demonstration of the selective application of free market principles: intervention and subsidy to protect jobs -actual human beings- is wrong, yet intervention (say, $700bn) to protected capital is an economic necessity. Taxpayers cannot be asked to support each other by bailing out a manufacturing concern and protecting jobs; that is unacceptable, economically illiterate and, frankly, Socialist. But the taxpayer can be asked to spend billions buying worthless assets in order to rescue the super rich, the super greedy and, let’s remember, the really quite stupid.
Mandelson is apparently back in the Cabinet because there is a crisis and, in a crisis, one needs one’s best people. Naturally, that’s the global economic crisis and not the Labour’s Screwed At The Next Election Crisis. No, he is an excellent Minister and has an unparalleled understanding of international finance -something that his invocation of what is only superficially a double standard demonstrates quite clearly.
Today’s Times reports Mandelson’s warning that the EU ‘could be hit by a surge of “economic nationalism” after European governments enacted a series of unilateral moves to shore up their financial systems at the expense of other member states.’ The examples he has in mind are the decisions by the Irish and Greek Governments to guarantee bank deposits, which have, in the case of Ireland at least, predictably meant an outflow of money from the UK to these ‘safer’ banks, thereby hurting UK banks. Opines Mandelson:
“The danger in this crisis is it may spark a new wave of economic nationalism, with each country looking for a ‘get-out-of-jail free’ card. People have to realise that selective or national approaches could lead markets to look to parts of the financial system in a distorted way.”
Well, yes, these governmental moves do distort the market because they make the banking environment more attractive in one country over an another. Financial services are a market now -they were made that way by the neo-liberal economics of which Mandelson is a champion. Banks are there to make money, which is why there were so 'innovative' during the 90s and why they are paying the price (or rather asking the rest of us to pay the price) today. That’s pretty straightforward. What’s less straightforward is why Mandelson is complaining about this but was so enthusiastic when various governments, particularly in the Far East, made their business environment so comfortable -by deregulating employment protection, slashing environmental standards and reducing or even eliminating corporate taxation – that domestic business outsourced work abroad and closed factories at home. That is also government intervention designed to make one market far more attractive to business than others. Foreign economic nationalism that causes domestic jobs to haemorrhage is apparently fair play but similar nationalism that bleeds domestic banks is caddish and unmarketly.
It’s another demonstration of the selective application of free market principles: intervention and subsidy to protect jobs -actual human beings- is wrong, yet intervention (say, $700bn) to protected capital is an economic necessity. Taxpayers cannot be asked to support each other by bailing out a manufacturing concern and protecting jobs; that is unacceptable, economically illiterate and, frankly, Socialist. But the taxpayer can be asked to spend billions buying worthless assets in order to rescue the super rich, the super greedy and, let’s remember, the really quite stupid.
Mandelson is apparently back in the Cabinet because there is a crisis and, in a crisis, one needs one’s best people. Naturally, that’s the global economic crisis and not the Labour’s Screwed At The Next Election Crisis. No, he is an excellent Minister and has an unparalleled understanding of international finance -something that his invocation of what is only superficially a double standard demonstrates quite clearly.
Update 19.50:
Saw this down-to-earth comment Posted by: richard0a37, London in the SundayHerald article http://www.sundayherald.com/news/heraldnews/display.var.2457240.0.smoke_mirrors_and_how_a_handful_of_missed_mortgage_payments_started_the_global_financial_crisis.php
In 1970, I bought my first house, a reasonably nice little 2 bedroom house in Berkshire for £4,950. I was earning just under £2,000 a year.
In 1978, I had occasion to visit Rochester, New York state on business where I was working with a young 25 years old software engineer who was earning $25,000 a year. In that neck of the woods, you could buy a really nice 3 bedroomed ranched styled house for $36,500.
In 1996, a really nice 1 bed apartment with cathedral styled ceiling in Berkshire cost just under £50,000. In 2005, that same apartment would have cost about £130,000.
In 2005, a nice little 2 bed house in Berkshire was selling for about £150,000 and the typical salary of an employee of the Rural Payment Agency would be approximately £16,000 per year.
I know of many people in their mid 20s who still have to live with their parents, because there is no way they can afford to buy a house.
The financial system has been around for yonks, but each of us only lives through our 20s once, and this is the decade when each of us needs to attain independence and live in our own pad. If we are not able to do this because our income compared to the price of a dwelling is incompatible with paying off the loan in 25 years, you create a dire set of circumstances.
As far as I can ascertain, the $500 trillion value of derivatives is based on one simple premise - how clever are you at guessing if the value of a commodity will rise or fall within a certain time frame? Since you don't want to be stuck with actually owning the commodity, you place your bet so that you sell at the high price, but buy at the low, and then you settle up at the end of the day or whenever.
Better still, if you guess wrong, you can hedge the bet by purchasing an option which you can convert to the future if it pays off. Otherwise, you just lose on the cost of the insurance you took out.
This is something that one man can do, but in reality requires a whole industry to derive the whole benefit.
The futures and options (derivatives) produces nothing and exploits in totality the labour of the rest of us.
I may be wrong, but I believe this is how it works.
In other words, it is the most obscene and immoral way of earning a living, and should be outlawed globally.
All these derivatives markets (and their offshoots) should be terminated immediately.
Fractional reserve banking needs to be liquidated, and governments rather than private individuals must assume ownership and responsibility of issuing the money supply.
The fact that governments borrow off private institutions otherwise known as the Bank of England, the Federal Reserve and all the others is an obscene and criminally negligent action on the part of the Ruling Classes.
It does appear that the salaries that people earn just isn't sufficient to enable them to live a reasonably good life, since the amount of money people borrow via their credit cards is also obscene when seen in the cold light of day.
The world's finances is run on a spiralling cycle of never ending credit.
But then, if you're in your mid 20s, and you can get yourself a place to live, or better still you own your own home and don't have a mortgage, then who gives a ****?
Posted by: Ekk | Sunday, 05 October 2008 at 14:42
More to the point, when I was at university in the 1960s, you could only take X amount out of the country. (I seem to remember UKP70, but the inflation has been so rampant, I really only remember it as quite a small amount).
That was Labour party policy.
New Labour is the same as Thatcherism: we know because New Labour got elected on a promise of not changing the economic picture for three years, in other words most of the next Parliament.
Mandelson, Blair and others, including inside trackers at the BBC, were hand-picked by the CIA to succeed Thatcher/Major, attending brainwashing sessions in the U.S.A. during their formative years.
Posted by: eelpie | Thursday, 09 October 2008 at 21:23