Wednesday, December 30, 2009

The king was in his counting house ...

... handing out our money.

This was the year that Mervyn King & Alistair Darling managed to spectacularly fritter away billions of taxpayers' money.

I was never opposed to lending money to banks but quantitative easing (QE, a dishonest way of printing cash and giving it away in truckloads to the usual cronies) was disgraceful. If you're going to print money then at least have some direct investment, don't just hope that the export economy and money supply will magically solve our problems. 

QE combined with low interest rates may be bully for banks, shareholders and homeowners by creating an influx of cheap foreign capital but in a mainly import led economy it will hit the cost of raw materials and inbound goods whilst squeezing the spending of savers. The net effect is a trade - inflation and a weakening internal economy in order to maintain stock and house prices. Great for banks, the wealthy and those in unsustainable debt but sucks for ordinary people and pensioners who were not responsible for this mess. As I've said many times before, this will just make the recession deeper and longer. However, it's a bit like boiling frogs - throw them into hot water and they try and get out but put them into tepid water and slowly raise the temperature and they won't notice. In this case, the frogs are called savers.

The amounts of money to boil our own is huge. The tally to date is that the taxpayer has been exposed to £1 trillion of potential debt through cash injections, state guarantees, quantitative easing and other interventions. As a result of this, the taxpayer is expected to lose anywhere between ten to a hundred billion. All of this is to prop up an industry which will spend the next few years trying not to pay tax because of "losses". 

Why is it that when the taxpayer acts as a lender of last resort, we have to make a loss into the bargain? When the hard up resort to loan sharks, you never hear tales of some financial wheeze where money is given away.

Of course, it's different because we couldn't let the banks fail despite no-one explaining why not? Still that doesn't mean we have to be 'soft' and being the lender of last resort should be a time of piracy. For some reason the city, unlike the poor, got let off the hook.

We could (and should) have demanded equity equal to any loans plus the loan capital plus punitive interest rates, but we didn't. Where's our pound of flesh and 2000% APR?

We could (and should) have invested heavily in social housing, bought out the building industry when it was on its knees and grew our state owned banks by providing liquidity into the economy. 

We didn't. We're not going to. Our institutions are soft.

What did happen was that Meryvn & Darling were cheered by the financial giants like a pub landlord who has wiped the tab clean for his heaviest drinkers. Naturally, the taxpayer got lumbered with the bill and the underlying causes of the mess (huge debt, delusional valuation, excessive gambling, economic instability) have been unresolved.

Expect more bad news to come.

At least Darling has got a dubious excuse in trying to mess things up for the Conservatives. If only some of the largesse had been spent on things that really matter, like combating global warming (which from the Copenhagen Accord laughingly only gets £60 billion a year by 2020).

A wasted opportunity but then that's how I feel about New Labour - a decade of disappointment. 

Whilst the noughties have been personally good for me, in general it failed to live up to the expectations. Unless of course you consider that WAGs, myspace house parties, wii fit, 4x4's, an endless war on terror, draconian legislation reducing civil liberties, excessive celebrities and a highly materialistic and self serving environment are the pinnacle of human nature.

To summarise the noughties, you'd have to say "nought for the environment, nought for social mobility and lots of noughts for bankers".

On a positive note, Doctor Who was utterly brilliant.

[Update - Nov '12 - Mervyn is still in power but will apparently be leaving in 2013. Depressing how things turned out.  Some typo's and tidy ups needed in this post ... cleaned up]