Wednesday, October 22nd, 2008...4:45 pm

Who Takes The Credit For The Crunch?

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An economic tsunami is reverberating around the world. The foundations of financial institutions are shaking. Governments, in an unprecedented move, are pouring billions of tax payers’ dollars into financial markets, guaranteeing customers’ savings and taking full or part control of major banks in an attempt to re-build confidence in lending and stabilise the economy. In effect, governments are offering financial Prozac to offset a world wide depression.

Economic ruptures are not new of course. From The South Sea Bubble of the 1700s, the Great Depression in the 1930s, through to the UK housing crash of the 80s, western capitalism seems to follow the Chinese philosophy of Yin and Yang, always in a state of flux, always striving for balance.

So, the De-regulators have had their day, for the time at least, and the Regulators are intervening to save us from spiralling inflation, high unemployment, poverty and destitution. Using our dollars! Oh well.

What they should do of course, is legalise and tax our drug and prostitution industries. That money would surely fill a big hole. Of course, those responsible for such a radical change in policy would either be viewed as heroes or villains, visionaries or pariahs. Here’s a light hearted look at some movers and shakers, duckers and divers, heroes or villains who have influenced today’s standard of living.

Thatcher and Reagan
Ronald Reagan and Margaret Thatcher, political soul mates, economic engineers of free markets, decentralisation, the individual riding off into the sunset to seek his fortune. ‘Lunch is for wimps’, money is the lynchpin of society, and every citizen has the right to make his own way, free from the shackles of the State. Whatever your political hue, these two reached back to the days of laissez faire capitalism and imbued their economic and political philosophy with a basic Christian morality. In the end you will meet your maker. Make peace with yourself and then with God.

Certainly people made loads of bucks. Some say the decade of the 80s was one of greed, envy and insensitivity, while others have a rose-tinted view of the era’s maxim that a free market will right itself. People will find their place. Some might say it’s a choice between the Devil and the deep blue sea.

Gordon Brown and Alistair Darling
There has to be a degree of sympathy for these two. That old eel-like customer Mr. Blair got his timing just right as he handed over the baton of power to Brown. No doubt he and Cherie are chuckling all the way to the bank.

You can think what you like about Gordon Brown, but he does have the sense about him that he wants to do what’s right for Queen and country. It may be wrong of course. But he and Darling, fresh from an audition for Thunderbirds, recently grabbed the international spotlight by responding decisively to the financial crisis. Announcing bold measures, such as capital injections into financial institutions through acquisition of their shares and government guarantees of inter bank loans, Gordon is no moron. Alistair on the other hand…..

Henry Paulson and George Bush
Well who would have thought it? Government intervention in the ‘free market’, government funding of financial institutions?!? Is George Bush going to give up on the great American hamburger too? Well, he’s quit the booze, anything’s possible.

A $700 billion rescue package to save the American economy. Calling for an overhaul of US financial regulations to deal with ‘our 21st century global economy’ he cited Henry Paulson’s ‘detailed blueprint for modernising these regulations’.

Climate change – let’s takes the long way round; after all, the planet ain’t gonna collapse on Bush’s watch. But when it comes to the financial climate, it seems ol’ W. will do whatever it takes to avoid disaster and protect his legacy…

War
The Congressional Budget Office has estimated that the cost of the Iraq and Afghanistan wars could reach $2.4 trillion dollars over the next decade! That’s about $8000 per person in the United States! Some of this cost will be met by the interest on international loans the US Government has sold, but of course a significant part will be funded by the tax payer.

Expert opinions vary widely on the impact of these wars on the US economy. The first Gulf war typically meets criticism for having pushed the USA towards the 1991 recession. Others argue that the second Gulf war allows the US greater access to Iraq’s oil reserves, estimated to be the second largest oil producer behind Saudi Arabia, which will lead to a longer term positive impact on the economy.

Of course, if the US ever does legalise and tax illicit drugs, it would already control one of the world’s largest poppy producers in Afghanistan. Bring on the lateral thinkers!

Alan Greenspan and the Sub-Primers
Greenspan, regarded by many as the best chairman of the Federal Reserve, oversaw unprecedented economic growth, budget surpluses and booming stock markets.

He was also hailed universally as a hero for shepherding the economy in the aftermath of 9/11. Not afraid to cut rates, 13 were made under his tenure, and taxes, to stimulate growth whenever the economy was slowing, he was bathed in glory.

Up until that was, the sub prime mortgage lending crisis reared its ugly head and triggered off today’s worldwide financial crisis. Greenspan’s critics claim he was too keen to establish a pattern of bailing out Wall St. investors who were busy reaping short term rewards for long term, shaky investments.

Banks and mortgage companies were signing up millions of home buyers and speculators, often with poor credit, for sub prime mortgages, that have led to record number of defaults. Some were fraudulent.

Greenspan admitted he was aware that these practices were going on, but that he had no idea of their significance until it was too late!

History can be a harsh judge of character!

Ordinary Joe
Some people will argue self-responsibility, live within your means Joe, owning a house is not a divine right after all! But then again, The American Dream is one of the strongest and most powerful brands on the planet, isn’t it?

The phrase ‘the American dream’ was first used by John Truslow Adams in his book The Epic of America published 1931. Adams interpreted the American dream to be one where equal opportunity to reach one’s potential existed for all citizens, irrespective of race, colour, creed, or social standing. A just and fair society.

Some argue this spiritual vision of the American Dream has become corrupted into meaning purely material wealth, bigger cars, larger houses, dog eat dog competitiveness, where the size of your bank balance reflects your value as a human being.

If this is so, is it any wonder that bankers and businessmen will seize on opportunities to increase the size of their greenbacks, even if, in their drive to get a larger slice of The American Dream, they sell sub prime mortgages to less financially astute and credit unworthy Ordinary Joes, who are also chasing the dream?

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