Friday, 10 October 2008

Two articles....

. Two articles caught my eye in the Financial Times. To me they show much the terms of debate have shifted over the last few weeks.

Paul De Grauwe calls for the temporary taking of the banks into 'full state control'. He points to lack of confidence and 'coordination' which has brought us to the brink of a 'depression'. As far as he sees it there is 'only one solution';

"The governments of the big countries (US, UK, the eurozone, possibly Japan) must take over their banking systems (or at least the significant banks). Governments are the only institutions that can solve the co-ordination failure at the heart of the liquidity crisis. They can do this because once the banks are in the hands of the state, they can be ordered to trust each other and to lend to each other."

Already, he says, the recapitalisation schemes have failed. In fact, they have made us a hostage to future crises because;

"The liquidity crisis is pulling down asset prices in an indiscriminate way, thereby transforming the liquidity crisis into solvency problems of individual banks. The governments, then, are forced to step in and to recapitalise the bank only to find out later that when the liquidity crisis strikes again, the capital has evaporated."

Meanwhile, Samuel Brittan laments the passing of J. M. Keynes. He calls for more spending in terms that we recognise as something similar to Nick Clegg's line;

"The Bank’s internationally co-ordinated half a percentage point bank rate cut needs to be the first of many – and these must come quickly. It will probably need to be supplemented by a fiscal stimulus. Most of the academic objections to this would be overcome by a temporary indirect tax cut which the UK chancellor of the exchequer can announce any time under “regulator” powers."

Desperate times call for desperate measures....whatever you think of the crisis and what it says about capitalism as a whole it is clear that those who think there is no role for the state in the market have already lost the debate.

1 comment:

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