After George Osborne opens up the housing market to fragile inflationary pressure and bankers get fat bonus packages, Jack Peat explores whether we will ever learn from the lessons of the financial crisis.
By Jack Peat
Novelists generally have a good grasp on adversity, and they would be the first to tell you that mistakes – no matter how monumental they may be – are just a part of life. “Mistakes are the portals of discovery,” James Joyce would say, in the same way Oscar Wilde would surmise that they are just another term for experience. But as inevitable as they may seem, mistakes are only excusable if their lessons are learned, and in the case of the global financial crisis – the money squandered and the lives irreparably altered – the adage with most semblance is: “Fool me once, shame on you; fool me twice, shame on me.”
The great financial crisis started in the US when the mortgage bubble burst. A dominoe effect of huge financial firms started to topple as Fannie Mae and Freddie Mac called from state help and Lehman Brothers filed for bankruptcy, followed by the Bank of America which had to be bought out and AIG which also required state aid. This caused the stock market to crash and prompted the then president George Bush to bail out the banking industry, with the stigma of such a crisis biting most developed nations in the world, particularly the UK.
The economic impact of the global financial crisis was as devastating as a world war, Andy Haldane, the Bank of England’s executive director for financial stability said late last year, adding that public anger at the banks was fully justified.
“In terms of the loss of incomes and outputs, this is as bad as a world war. That is the scale we are talking about.If we are fortunate, the cost of the crisis will be paid for by our children. More likely it will still be being paid for by our grandchildren. There is every reason why the general public ought to be deeply upset by what has happened – and angry.”
Joyce and Wilde may, in some form of romanticized way, say the economic downturn was necessary if we are to fully understand a world built on invisible money. But if we are to forgive the mistakes of the crisis, we surely wouldn’t be fooled twice by allowing the same things to happen again?
Ever since the fall of Lehman Brothers, it has been a popular view – and one increasingly held by officials – that banker bonuses are at least partly to blame. Last week nine banking fat cats were celebrating a £40 million bonus in a year that has been described as the “most shameful in Barclays’ 323-year history”.
The news of the Barclays bonus came on the same day as the budget – wonderfully timed for those of us who can add two and two together and get ‘disaster’. Despite chancellor George Osborne’s risk averse tax and spend policies, he has still managed to be breathtakingly dangerous with credit policy, embarking on a madcap scheme to subsidise home ownership and even effectively buy stakes in private homes, a move which could have been directly inspired by the sub-prime fiasco in America.
America’s latest response to the financial crisis was to sue Standard and credit ratings agency’s assessment of mortgage bonds before the financial crisis. They say S&P’s high ratings in 2007 for some mortgage-backed securities which later collapsed in value was part of the reason for the financial collapse, and although the agency says the case is without factual or legal merit, they may have a case in blaming the fanciful workings of the economists.
In a New York Times column titled ‘How Did Economists Get it so Wrong?’ Nobel laureate Paul Krugman argues that economists mistook beauty for truth, falling under the woozy sway of predictive power. Unfortunately, at least under this government, we will be intrinsically tied to these economic systems and detached from the truth, making our ability to react completely compromised.