Skip to Content

The Spectator's Notes

The Spectator’s Notes

It is a fascinating feature of this great financial disaster that everyone — or at least everyone sensible — is confused.

24 September 2008

12:00 AM

24 September 2008

12:00 AM

It is a fascinating feature of this great financial disaster that everyone — or at least everyone sensible — is confused.

It is a fascinating feature of this great financial disaster that everyone — or at least everyone sensible — is confused. I do not mean the basic, widespread confusion about terms and processes — about what is short-selling or a derivative, what are monolines, HELOCS, etc. I mean confusion about what is good news and what is bad. Has America nationalised its banks, and if it has, is that good or bad? Was it good to allow Lloyds to swallow HBOS, because it saved the latter, or bad, because it overthrew competition requirements and created moral hazard? Was it good that Gordon Brown met Sir Victor Blank at a party and told him he could push through the Lloyds deal in defiance of competition law, because that showed masterful crisis management, or bad, because it was cronyism? Why was it clever to save AIG but good to let Lehman Brothers go? Is it good to turn Morgan Stanley and Goldman Sachs into ordinary commercial banks, because now they can no longer behave in their former racy way, or bad, because they have now been officially placed in the ‘too big to fail’ category, and are therefore protected from their own folly? Behind all these questions is an even bigger one. Why is it that government, which we generally, rightly, consider more inefficient than business, is nevertheless the authority to which we look to save us in such a crisis?

The Labour party conference’s response to these problems has been to expend emotional energy on attacking something of which we shall now see very little for a year or two — the City bonus. This has allowed the government to distract attention from the painful things which it is doing — enormously increasing its borrowing — and which it is about to do — putting up taxes. The fact that Gordon Brown had to devote his speech to winning over the people in the hall rather than the people in the country was his tacit acknowledgment that what is happening economically is so big that normal politics is irrelevant to it. He can — and must — still fight for his position within his party, but what he has to say now makes almost no difference to the rest of us. His credit has been crunched.


Mr Brown assured his audience that he has never wanted to be part of any ‘establishment’. All politicians say this. But establishments do have their uses. For an interview which appears in this Saturday’s Telegraph magazine, I have recently spent time with David Cameron and with several people who know him well. I have never before come across a party leader with so many genuine, long-lasting and influential friends. Through a huge web of family, school, university and work relationships, he knows personally most of the people likely to be able to help a government decide what to do about anything. (The exception to this is the international scene: I would say he was rather poorly prepared with American contacts, for example.) All party leaders find that doors open for them, but what is unusual about Dave is that the doors have been open throughout his life and many of the friendships are real. How much he planned all this when young, who can say? At his wedding, though, guests were amused by his pragmatism in having two best men. But what strikes one about poor Mr Brown in Manchester this week — and always — is his loneliness. Next week in Birmingham, the ‘novice’ has made sure that he will be among friends.

Derek Simpson, the joint general secretary of the trade union Unite, told the Labour conference that all these ‘spivs’, ‘fat cats’ and so on (he left no cliché unturned) should be ‘taxed out of existence’. It is unusual to have such a direct admission of one of the strange things about socialism, which is that it advocates forms of taxation which, if fully implemented, would end up raising no revenue.

There is much castigation of what Mr Brown called ‘reckless speculators’ who were short-selling stocks such as HBOS and other banks. Surely, though, the much more common fault in the world of equities is the opposite. In normal times, the majority of those involved — brokers, business journalists, analysts, the companies themselves — have an interest in talking shares up. It is false optimism, not shorting, which creates the bubbles that cause such disaster. Reports at the weekend suggested that dealers in the works of Damien Hirst had helped push up the prices at the great Hirst auction at Sotheby’s which coincided with last week’s Wall Street smash. If so, they were just as greedy, and just as damaging to the innocent buyer, as any hedge fund target-bombing a vulnerable bank.

The staple of cartoonists in times of financial disaster is the image of men standing on the parapets of high-rise buildings, preparing to throw themselves off. Nowadays, this is virtually impossible to do, because air-conditioning means that you cannot open the windows. But according to J.K. Galbraith, who studied suicide rates during and after the Great Crash of 1929, hardly any more people than usual killed themselves in the crisis, though the rate rose a bit in the ensuing Depression. What did happen, though, was that suicides sometimes threatened the market. J.J. Riordan was president of the County Trust Company and treasurer of one of the campaigns of Al Smith, the unsuccessful Democratic candidate in the presidential election of the previous year and a leading contender for the 1932 nomination eventually secured by F.D. Roosevelt. Riordan borrowed a pistol from one of his bank tellers, went home and shot himself. It was a Friday, and the markets were still open. Al Smith made sure that the medical examiner did not notify Riordan’s death until after the bank had closed for the weekend at noon on the Saturday. A run on the bank was prevented. If you are wondering where a bank stock is going in these difficult times, it might be worth checking that all the senior executives are present, correct and alive. If not, short.

A recent report by the Ofsted inspectors said that the teaching of maths in most schools was only ‘satisfactory’. Without the trace of a smile, the Today programme explained that ‘“Satisfactory” is Ofsted code for “not good enough”’. In which case, Ofsted may be qualified to inspect mathematics teaching, but you wonder whether it can be much use on the teaching of English.


Show comments
Close