Why does the UK need to follow America?

Is the UK falling into the old trap of blindly following the Americans? Across the Atlantic, the financiers are still master of the universe but only just. The Poulson package is in trouble. At $700 billion and rising it could cost every American family $5000. It As a New York Times analyst puts it : “The initial scepticism that greeted its unveiling has only deepened. Some are horrified at the prospect of putting $700 billion in public money on the line. Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure.” But Times columnist Gerard Baker may be right: “Mr Paulson has time and chaos on his side.”

Ever more global plans are now demanded, a G7 plan a Euro-plan,. Where is the British plan, they ask? The Bank of England strategy is more cautious. Against these calls and the advice of the radical and deeply gloomy state interventionist Will Hutton, the extension of the Bank of England’s Special Liquidity Scheme from the end of next month to January shows the Bank prefers jump-starts to a full high octane new engine to get the banks to lend again. Along side the Scheme Gordon Brown is putting his faith in his long-term advocacy of an international framework of regulation to boost confidence. You’ve got to wish him luck; its a whole lot cheaper. It may have to be faced: just as in the 1950s and 60s the British economy could not support an international post-imperial Sterling Area, so the UK of today may not be able to sustain the position of London as joint world centre with New York of international capital markets.
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As Bill Emmott, former Economist editor tells it: “ the true impact of this expansion of public spending lies in politics, and in what this rescue will now make more difficult or perhaps impossible: the expansion of other areas of public spending, such as healthcare or public programmes for alternative energy.”
In the end it comes down to politics. The problem is, politics has never been this weak for thirty years. The timing of this financial crisis couldn’t be worse and augurs badly for for a new era of international banking confidence. A lame-duck unpopular US president, an election campaign thrown off the rails and in Britain, the near-collapse of government authority. We’re lucky that the only external enemy is al-Qaida.

  • Different Drummer

    Well Brian

    UK has been following a very different model from the panic-nationalization of the debts and the privatisation of the profits model adopted by the US.

    UK has gone one better – it has nationalised dissent. But it’s not that odd look at Iraq – where the death squads are co-oped and integerated as part of the state.

    Martin McG is very proud to be part of this and told the Iraqis himself that being nationalised by the British government was the best thing that could ever happen to anyone seeking to liberate themselves.

  • [aside]Another UK-USA story where Devenport, apparently, has mistaken Ulster Champ for Ulster Fry – and the URL has been dropped into the deep fat fryer.

  • Brian Walker

    Nevin, God knows why you’re ploughing this narrow furrow but re Devenport, no mistake. The Champ referred to is not poundies and scallions but a little-hands-across- the-divide group run by life peers May Blood and Alf Dubs, which is a co-sponsor (still, I assume) of the annual Ulster Fry breakfast at the Labour party conference. Stick to high finance!

  • [aside]Now if Devenport had referred to CHAMP instead of writing this tosh: “It’s a weird situation we find ourselves in, as the compere of the annual Ulster Champ Breakfast at the Labour conference, Channel 4’s Gary Gibbon pointed out.” …

    Low finance can sometimes be very revealing too, Brian – but it seems to have passed Devenport by.

  • Times columnist Gerard Baker may be right: “Mr Paulson has time and chaos on his side.”

    Indeed. May we reflect in silence for a moment on all those instant apples-of-some-expert’s eye that have subsequently gone pear-shaped? Now let’s look beyond the political arena and Brian Walker’s final paragraph: will it play in Peoria?

    While I’m not the world’s greatest follower of staged opinion polls, yesterday’s Rasmussen finding might give the critics in Congress (see, for example, Herszenhorn in today’s NY Times) a bit more spinal support:

    Most Americans are closely following news reports on the Bush Administration’s federal bailout plan for the country’s troubled economy, but just 28% support what has been proposed so far.

    Over one-third of voters (37%) oppose the $700-billion plan, and nearly as many (35%) are undecided…

    Investors, who account for 62% of the nation’s voters, are evenly divided on their views of the plan: 36% favor it, and 36% oppose it. Twenty-eight percent (28%) are undecided.

    Among non-investors, only 15% support the plan, while 41% oppose it. A plurality of non-investors (43%) are not sure yet what they think of it…

  • Comrade Stalin

    The $700bn could be paid for within a three years by a 50% budget cut at the Pentagon. In any case, this is academic. We are not talking about $700bn being written off; we are talking about $700bn being borrowed by the US government, and then cashed out for a profit in a few years time by that same government which will also have a nice windfall when it sells it’s shares in AIG and FHLMC/FNMA. I believe those windfalls will, in turn, go significantly towards paying of the present $1trillion deficit run up by those business-friendly Republicans.

  • Comrade Stalin @ 08:02 PM seems to have the thing by the throat here (except for the crazy notion that the military-political nexus could be contained: yes, I read my C.Wright Mills, too).

    Particularly so if the Paulson plan is superseded by the Dodd proposal. The statement put out by Senator Dodd, yesterday, suggesting amendments to the Bush Administration plan, is as sensible as it gets in the circumstances. The micro-economic provisions for assistance to mortgagees, aiming to avoid foreclosures, are highly significant, an immense and focused improvement on the Paulson proposals, and should be a major point on which the Obama campaign can gain traction.

    The main macro-economic difference Dodd proposes is that the US Treasury would be guaranteed against potentially-immeasurable loss by pre-emptive rights (the $700B increasingly feels like a number plucked out of the air). If the assets prove less valuable than the financial firms declare (as if a banker would lie!), then the Treasury warrants could be converted into a share of the firm’s equity. The spirit of FDR lives.

    By the look of it (see my previous post; and the generality of editorial opinion) Paulson — with Bush as cheer-leader — over-played his hand by the Chicken Little screetch of “It’s a crisis and we need to act now“.

  • Comrade Stalin

    Malcolm,

    You’re right, I do not expect that the military-industrial complex will be tamed. But that’s what is necessary, and those who lecture about the evils of socialism and state intervention need to have a good long look at that area.

    I was not aware of the detail of the alternative proposals. I thought it would have went without saying that foreclosures were to be avoided. Foreclosures generally only tend to happen when the assets are not sufficient to pay off the loan in the first place. Banks will always try to negotiate more agreeable terms before they fall back on that option.

    I do like the second part of Dodd’s proposal which essentially insures the government against problems with the debt. It’s almost a debt-for-equity swap.

  • BfB

    Ahem…But there’s one giant paternal elephant in the room that has slipped notice: how illegal immigration, crime-enabling banks and open-borders Bush policies fueled the mortgage crisis.

    ‘military-industrial complex’
    Pass the spliff Buffy….