Manifesto for a free market

In covering the unfolding financial crisis, journalists duck and weave along with the people who have to bear the burden of policy making but without carrying any of the real responsibility. They have the privilege and the freedom of non-responsibility and the daily churn – today’s oracle is tomorrow’s fish and chips wrappings and all that. (Though if you’re interested in the latest foray into the theme of journalists’ responsibility for financial collapse, read this report of the Treasury Select Committee’s encounter with Robert Peston et al by Michael White – yes, another journalist and a political one too ). Over-excitability is decidedly absent in the Independent today, where City editor Jeremy Warner issues the most ambitious set of prescriptions to tackle the crisis long term that I’ve seen yet – cogent, well-argued and easy to read. I summarise the seven points of his “Manifesto to save the free market” below.

1. Start fire-fighting
Previously unacceptable levels of public debt become inevitable and may be part of the cure.

2. Restore sound money
To win credibility in markets, governments must set out a clear road map for restoring balanced budgets and reducing public debt over the medium term. Any attempt at “quantitative easing” – the technical term for printing money as a way of funding these newly acquired, public liabilities – should be used with the utmost caution.

3. Nationalise the banks
Only by nationalising the banks outright and funding vital domestic lending directly from the public purse can governments properly address the viciously negative effect of bank “deleveraging”.

4. Complete Doha
Some countries already see protectionism as the medicine. In fact it is the poison which will stifle all hope of swift recovery. Yet … it’s entirely reasonable for nations to want to support their key strategic industries through the storm with subsidy, soft loans and other forms of government assistance. The temporary suspension of such rules therefore looks justified provided it is done according to an internationally agreed framework with a firm commitment to their reintroduction as soon as economic conditions improve.

5. Introduce counter-cyclical measures
Governments must move swiftly to reform the Basel capital requirements, which encourage banks to lend recklessly during the good times but to wrench the gears into reverse during the bad. The same is true of “fair value accounting”, which similarly encourages banks to expand their balance sheets during the boom but shrink them during the bust.

6. Reduce capital imbalances
The Chinese and the rest of the developing world have been lending us the money to buy their goods. For years, economists have been saying it’s unsustainable. A free-floating Chinese exchange rate would be a good place to start.

7. Enforce corporate responsibility
A statutory code of conduct may have to be introduced to ensure generally accepted ethical values are injected back into the system, and to encourage long-term thinking in investment decision making. Bankers should be forced to take something similar to a Hippocratic oath. Alternatively, they could be made personally liable for failings within their institutions, leading to confiscation of their ill-gotten gains when things go wrong.

8. Retribution
There will be no closure on this crisis, or end to the growing sense of public injustice, until those responsible are subjected to the full force of public and criminal inquiry.

9. Don’t forget climate change
Developing nations cannot be frogmarched by the West into a low-carbon future but helped and nurtured into it.

10. Reform international institutions
a treaty-based organisation such as the World Trade Organisation, with powers of enforcement on internationally agreed standards, is a reasonable aspiration. (to enact the above.)

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