Saturday, 22 November 2008

Doing nothing is not an option

. Blogging will be a little light this weekend; I am visiting my partner and her family. Let's be quite clear nobody is proposing printing barrow-loads full of money to solve the economic problems. The crux of the problems vis a vie lending is the fact that interest cutting by the Bank of England is not being matched by the banks; that they are gobbling-up the rate cut. Also, as has been previously reported on this blog they are continuing with absurd bonus practices which have no place in this fiscal climate.

It's worth pointing out that money still ends up being spent by the state regardless of if it is on bailing-out or at the support end; when large companies and banks go under and people are made unemployed on benefits, etc. James Schneider makes good points about how large-scale employers in society have power due to their employment; governments will prefer keeping companies alive to the social dislocation and damage done by widespread unemployment and I can see why to be blunt.

James gives us three options;

1)Take a minority stake in companies. This is what has happened in the financial sector but the reality is that the banks are not responding in the ways they should as pointed out above. So, the effect this can have is limited. When this is the case then governments are effectively backed into a corner which is exactly what the banks are now doing.

2)Breaking-up companies. This maybe an indirect result of the acceptance of our proposals if, for example, the Post Office was given a lending capability in the financial sector. However, a forced merger would have the same effect of shedding unnecessary duplication; damage would still be done but the state would then have to wade in on the 'support-end'.

3) Force firms, through legislation to create their own safety net. This would have been relevant and helped a year ago but it is not the solution now; you can't build flood defences with water lapping around your ankles. James imagines that this proposal should be implemented in the financial sector which it should but it will not solve the immediate problems.

So, what can be done? In the immediate case of Chrysler, Ford, and General Motors the damage done can be limited by a merger.

However, this problem begins and ends in the finance sector. I think there is nothing wrong with telling the banks that we expect something in return for our money; that we expect measures taken to be passed on, that we expect repossessions to fall, that we expect every measure to be taken to make lending function again although I think a return to 2007 levels is an unrealistic expectation. If they won't 'play-ball' then they are giving people no choice; either the government will have to nationalise or assume some lending function. Doing nothing is not an option....


Anonymous said...

I suggest a fourth clause.
4) To secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof that may be possible upon the basis of the common ownership of the means of production, distribution and exchange, and the best obtainable system of popular administration and control of each industry or service.

Charlotte Gore said...

God and people think I'm in the wrong party.

Darrell G said...


You really werent paying attention were you. If you follow the link then you will see James raised 3 ideas so they are not 'clauses' at all...


People may very well think that but I couldnt possibly borrow a phrase...i would however suggest John Redwoods blog as recommended reading for yourself :)