Wednesday, 19 November 2008

Banking on trouble...

. I am, rather shockingly, finding myself inclining to support a controversial leadership position once again. Don't worry; I'm sure it won't last. Nick Clegg's proposals that the government should lend directly to companies either directly or through the Post Office is a good one. The reason this will prove controversial is because as we have seen there are some sections of the Lib Dem blogsphere at least which are hostile to anything that even looks like direct intervention in the economy by the state; let alone something that obviously is a direct government intervention in the market.

Let's have a look at the debate on Liberal Democrat Voice. Clegg's Ardent Admirer says;

"I wouldn’t have a problem capitalising a kind of federation of credit unions accessed via the post office to provide small loans for the poor and/or micro credit for community enterprise.

But there we have clear market failure as that ector is dominated by loan sharks or not at all.It would also be effectively mutually owned rather than state owned if set up properly.

But a government bank to make different lending decisions because we don’t like the ones the free market is making?

What next? A government supermarket because some people can’t shop at Ocado any more and have had to down grade to Sainsbury’s."

False premise. Clegg is proposing this action not because he doesn't 'like' the decisions being made but more because there are pretty much no decisions (in favour) being made. In other words, the pendulum has swung to far the other way from the 'credit-free-for-all' to 'no-credit-for-anybody' side of the equation. So, this is a corrective measure to balance things out not a return to the "credit boom and excessive lending were a part of the cause of this problem" that Tinter talks about. Clegg and Cable are right to criticise the government for a lack of return on the bail-out investment and it's right that they propose something is done; what I note from the debate thus for that nobody has been able to put forward any of the supposed 101 solutions that exist as an alternative.

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