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Wednesday, October 08, 2008 

They say, we pay.


In what is now a multimedia age, it's two newspaper front page headlines that still sum up a day's events: the Telegraph going with back from the brink, while the Guardian has staring into the abyss. If you believe both the politicians and the wider commentariat, all of whom seem to be in basic agreement that today's/yesterday's bailout was both on the whole a good package, and one to which there was, in the age old phrase now so hollow, no alternative, then what would have been considered hyperbole weeks ago is now wholly justified.

That very lack of dissent is what ought to worry us the most. Today's givens, or in Rumsfeldian, known knowns, are tomorrow's deepest regrets. It is even more telling that around the only two people who are objecting to the bailout as set out are on what would be considered the further reaches of both left and right: John McDonnell, who advocates a controlling stake in the banks that will apply for the immediate £50bn of funds being made available, and John Redwood, who appeared to oppose the sort of plan which has emerged on Monday but who now appears to have rowed back somewhat.

Perhaps a better example is in two more well-known economic thinkers. Reading Ruth Lea's whole-hearted welcome was enough for the alarm bells to really start ringing: her past is impeccable having both been chief UK economist at - who else - Lehman Brothers, and also director of the unashamedly Thatcherite Centre for Policy Studies. In much the same vein, Will Hutton, who's had a new lease of life thanks to the "credit crunch", sings the praises so profusely that you'd not be surprised to find he was sporting a huge erection while writing it; apparently the markets were too "shell-shocked" to assimilate the greatness of the Brown and Darling bailout, hence why the FTSE continued to drop like those who threw themselves off buildings in New York in 1929.

It would of course be ludicrous to judge the plan by how the market reacted to it, especially on a day on which the IMF produced a grim as it gets report on how the economy is likely to contract slightly next year, with most even thinking that at the moment is too optimistic. The Dow later plummeted after Paulson made clear that he believed institutions in the US would still fail despite their own bailout being passed and now slowly being put into place.

There are however more than legitimate reasons to be incredibly apprehensive about this plan, not least because unlike in America, our own legislators seem unlikely to even be offered a vote on whether it should be put into action or not. Partly this is because the problem is so urgent that something has to be done now, or so we're told, and it's also true that in the current, almost war-time consensus which has fallen upon both the media and the politicial classes it would be passed with hardly a single vote against, but that is besides the point. This is something far too serious, especially when it involves such vast sums which the taxpayer will be providing collatarel upon, to be decreed simply by a prime minister and his chancellor in agreement with the other very people who brought us into this mess.

This £50bn, or is it £500bn, is itself a hall of mirrors, as we don't have such sums in the coffers to instantly pay out. No, this money itself is to be borrowed, pumped into the banks in the form of the government taking a stake via preference shares. Of the four banks which are in the most relative trouble - HBOS, RBOS, Lloyds TSB and Barclays - three could be bought outright with that £50bn, while you could take a significant stake in the one left out. After all, as we're splashing money around, why not take control, wind down the businesses and put the deposits in one big bank? This is not to say that the government should be in the job of running banks when it can't so much as run its own departments properly, but could they really be any worse at just running them down than the current proprietors that got them into the situation today?

For taking this stake which will, if the plan works, in effect prop failing institutions up, with the eventual promise that there might be a profit in it for the taxpayer if they wait long enough and don't die in the mean time, the deals that the government has supposedly received in return are not worth the paper they aren't even written on. Banks will apparently have to cut to the bone their executive bonuses this year, shareholder dividends will similarly fall under the knife, while small businesses must be offered better rates than currently on their own borrowing. There is perhaps a tendency in such times to call for heads on sticks, as someone has already put it, but whilst there must be stability, surely those responsible at the executive level at these banks must at some point be shown the door, starting as Nils Pratley suggests with Sir Fred Goodwin. Again though, perhaps the reason why there has been far more carping from the Conservative side, with David Cameron demanding, almost Trot-like that no banker receive a bonus this Christmas, is that if the chief executives and others at the banks have to go, then surely also does this country's chief executive for his own role in the crisis. If they are to be treated as Justin suggests, like the benefit scroungers so demonised for their weekly pittance, then Brown and Darling and the rest of them should all be exposed to such penury and shame also.

Fundamentally, the current consensus cannot last, and nor should it. Despite the apparent undoubted Conservative part in the deregulation and the "age of irresponsibility", as well as how if they were in power they would be doing much the same, the resentment that today's payola will breed will likely be easily built on by Cameron and friends, even if they have been so woeful thus far. As we stumble into the recession, the bills will just keep mounting up, with the increases in welfare spending for those newly unemployed already starting to hit the Treasury. Make no mistake, despite everything that has happened, the poorest in society, the sick, the elderly, all will be hit the hardest as those very same bills are aimed to be kept by down by a government that has just bailed out the very richest with our own inheritance. Already the ridiculous one-off cases like the Afghan single mother supposedly living in a "mansion" for which the taxpayer pays out £170,000 a year are being highlighted, with the one direct aim of hitting the welfare state as a whole. How bitterly and cynical typical that it is one of the richest men in the world, with some of the most comparatively better off individuals in the country in tow that are doing such sniping now, and this is only likely to be the start of it.

New Labour could have prevented this. It was always going to win the 97 election, and it could have done so without the support of Rupert Murdoch, of the City, of the CBI, and everyone else that has directly contributed to the current crash. It could have properly regulated the City, rather than ticking boxes and slapping backs; it could have restrained the buy now pay later culture; and it could have condemned the bonuses which are now being criticised far earlier. None of the above though deserve the blame except for Labour themselves. We must not let them forget it, and we must fight to ensure that those blameless in all of this are not the ones held responsible any more than they already are.

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