The end of Thatcher’s experiment with ‘reckless banking’?

Nick Cohen with a pithy sign off on the banking crisis:

Margaret Thatcher had the annoying ability to produce quotes that even her opponents had to admire. “The trouble with socialism,” she said, as she began the west’s experiment with reckless banking, “is that you eventually run out of other people’s money.” We have learned the hard way that it is the trouble with financial capitalism too.

  • lover not a fighter

    I think that we should just keep loaning money (that nobody actually has) to one another on a worldwide basis. This will work until some unnecessarily smart ass – smart ass points out the situation.

    This is of course a crazy philosophy but the world is a crazy place and crazy places deserve crazy philosophy.

  • Drumlins Rock

    got this by email the other day, not sure if it beares out but has some logic to it.

    The Irish Bailout – how it works

    It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

    On this particular day a rich tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.

    The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.

    The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.
    The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.
    The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub.
    The publican slips the money along to one of his suppliers drinking at the bar, who has had to offer him services on credit.
    The supplier then rushes to the hotel and pays off his room bill to the hotel owner with the same €100 note.
    The hotel proprietor then places the note back on the counter so the rich traveller will not suspect anything.

    At that moment the traveller comes down the stairs, picks up the note, states that the rooms are not satisfactory, pockets the money and leaves town.
    No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
    And that, ladies and gentlemen, is how a bailout package works.

  • lover not a fighter

    Drumlins Rock

    Thats basically how our economic system works.

    Every now and again its ruined by some one telling us the 100 euro does not exist. Why ruin the magic. These are the same people that tell you there is no Santa.

  • Glencoppagagh

    DR
    I got this one as well.
    “No one earned anything” is a facile conclusion.
    Everyone in the chain sold something: they all simply offered it on credit. The German visitor provided the liquidity in the shape of a €100 note which enabled the debts to be settled.

  • Nunoftheabove

    The analogy’s tame. Where’s the incentive to settle when the services or products provided in the first place are by now worth 25 Eur and you have no other income sources ? And nobody pays any interest ? How stupid a tourist would you need to be to pay up front for a room you’ve not yet decided on staying in?

    With business sense that absent the tourist would have a bright future ahead of him should be decide to stay in the country and join Fianna Fail. That said, if he was in FF already he’d have used a fake 100 Eur banknote in the first place and emptied the till at reception when the hotel owner was out of the building.

  • Greenflag

    Well damn Nick Cohen for taking the words out of my mouth and getting in first with the Versailles analogy 😉 I had been ruminating about the aptness of such a comparison admittedly a bit of a stretch given that Ireland did not attempt the conquest of either western or eastern europe at the time .

    On the positive side the Germans never did pay up the full amount of reparations-they could’nt -which is one reason why the Nazis eventually climbed to power . . It’s unlikely that the bondholders will ever be paid in full either but the genie won’t be let out of that bottle until 2014 or thereabouts .

    Clemenceau’s France went ahead and built their Maginot line to no avail as it turned out ?

    Where btw is Ireland’s ‘maginot line’ and even if we had one would the international bond marketeers not find a way around it anyway ?

  • Comrade Stalin

    DR

    No one produced anything. No one earned anything.

    That’s nonsense, DR. The goods and services were produced by all the suppliers you mentioned at the point where they incurred their debts to each other.

    The concept of debt is as old as the concept of trade itself. It’s not some sort of fancy new concept dreamed up by people who wear braces and spend all day shouting down a phone.

  • Greenflag

    Would that the economy were as simple as DR makes out above . Confidence is of course a big part and when it goes for a long holiday then things fall apart and the centre can’t hold. There is a lack of confidence among consumers and taxpayers everywhere from Los Angeles to Skibbereen to Scunthorpe and the Costa Del Sol and points further east . There are a couple of places where ‘confidence’ is expressing itself in consumer behaviour -one is in Germany and the other is in Wall St with the expectation of larger bonuses this year while 28 million americans remain jobless and the richest of all Americans having had 10 years of tax reductions want even more of what they already have an excess of , and would prefer instead to see many more millions of Americans have no income at all:(

    One can safely conclude at this stage that the GOP like a certain Father Jack hate the poor and appear to hate even more those now formerly middle class who are being funneled into homelessness and non extricable poverty by market forces 🙁

    We should remember that in Irish Famine times it was the poorest people those in the congested south and west who died . Famines kill the poor whereas plagues are generally less discriminatory

    Nowadays there is more than one economy . There is the economy of actual goods and services and commodities -bought and traded and exported and imported , manufactured , processed , built , grown , engineered and tangible .

    And then there is the financial services ‘economy ‘ which in the past couple of decades has become increasingly hooked on taking inordinate risks based on supposedly mathematically based algorithms which promised eternal profits for those in the know and those with the capital . This was pushed at the same time as the property bubble and the politicians and mandarins and central bankers ‘averted’ their eyes . Those who raised their voices against the Mammon Calf were unheard and sent to the wilderness of their professions .

    For those interested in the ‘real economy’ the Economist Nov 27th -Dec 3rd edition ran an excellent article on the German Mittelstand (German medium size engineering businesses who have prospered ) while their British equivalents never fully recovered from Thatcher’s pursuit of financial services as being the economic future for Britain.:(

    We should remember that in Irish Famine times it was the poorest people those in the congested south and west who died mostly . Famines kill the poor whereas plagues are generally less discriminatory . And lets not forget that the ‘market’ took precedence in Irish Famine times . The priest and big farmer and the professionals and government administrators and the military survived -just as their equivalents do today in North Korea . When ‘ideology’ is used to justify human suffering as it was by Trevelyan & Co in the 1840’s where today are our modern Trevelyans ?

    Wall St ? the ECB ? the IMF

    It certainly seems so .

    And our ‘democratic ‘ representatives ‘ ?

    They are the ‘puppets’ of the above

    more anon

  • Greenflag

    When Wat Tyler -England first ‘revolting ‘ peasant (in the political sense) sat on his little white horse and parlayed with Richard II. The ‘revolting peasants’ demands had increased from being against exorbitant taxes initially to now asking that outlawry be banned and that the land of the nobility should be divided among all men and that no Lord should have lordship in the future , except the King . They also demanded that all Church land should be divided among the commons and that England should have only one Bishop . 🙂

    Earlier in the revolt Wat Tyler’s supporters had beheaded several bishop’s and had also beheaded many lawyers and those who were implicated in maintaining the tax rolls i.e anyone who could write and keep records of those who had and had not paid their taxes .

    The Great Peasants revolt 1381 had arisen for many reasons -one being the breakdown in the laws of supply and demand since the the time of the Black Death when one third to one half of the population perished and the Anglo French wars which cost money . Subsequently the self same Richard II who crushed the Peasant’s revolt was himself crushed in 1399 following his return from Ireland where he had foolishly convinced himself that he won the loyalty of the rebellious Irish chieftains by pulling their beards .

    A bit off topic I know but I was wondering if Ireland can resurrect a Wat Tyler to take on the modern day aristocrats of the ECB, IMF and Wall St ? It’s obvious even now that you won’t find any Wat Tyler’s among the smoked salmon socialists of Labour or the legal eagles that feast on FG ‘constitutionality’ and the expanding ‘girth’s of SF waistlines is noticeable above the din of protest .

    How about a General Mulcahy then if no Wat Tyler presents himself . Left or right ‘totalitarianism ‘ can work temporarily while anarchic capitalism fails . Of course you would’nt want to be one of totalitarianism’s targeted scapegoats now -would you ?

    I don’t know how this upcoming election in the Republic will turn out but for the first time ever since I first voted this time I confess to being a little scared 🙁 Not so much of any result but of the aftermath when the populace finally digests the message that their ‘elected ‘ government is not their government 🙁

  • My impression is that Thatcher coined very little herself, but had good script-writers (even if she didn’t always understand what was put in her mouth).

    The killer quote of the last couple of years (I can trace it all the way to dim and distant 2008) has been: “Every Labour Government eventually runs out of money”.

    The fallacy, of course,is that any current up-tick in the UK economy (so cheered by the likes of the putative 18th baronet of Ballintaylor and Ballylemon) stems from the doings of the previous administration. Furthermore, everything we have learned about UK plc is that things were nowhere near so bad as the Tories spewed out (and the Tory press regurgitated). But then (Churchillian mode required) “History is written by the victors” (funny how everyone knows that, but not his corollary: “There are a terrible lot of lies going about the world, and the worst of it is that half of them are true”).

    Yet the truths are that it needed a cast of thousands (Dubya, Greenspan, Bernanke, Paulson to the fore and hardly a “Labour Government” in sight) to engineer this continuing crisis. Moreover, to come more local, while Papadreou can reasonably suggest that the outgoing Nea Dimokratia lied in their teeth about the state of the Greek economy, Fianna Fáil have no such resort; and that is why they can expect no mercy from the most sophisticated (and now most aggrieved) electorate on earth.

    I’ve been reading Nick Cohen for longer than I care to recall. This piece, in today’s Observer is a good’un. So is his other, for the Spectator, on Why the poor loathe the Coalition. It’s little more than a gloss on a report from Worksop by Susie Boniface reporting from Worksop for the Sunday Mirror. He notes the fear of people who had once worked in the pits. They lost their jobs, found menial work in the public sector and now believe that they will lose that too. That fear is a consequence of ConDem misfeasance or sheer malevolence:

    The best Tory criticism of Gordon Brown to my mind was that he had stood by while the boom bypassed large parts of Scotland, Wales, Northern Ireland, the North and South West. He left them with Soviet-style local economies, dominated by the public sector. Their populations’ prosperity depended on state subsidy rather than private endeavour.

    True enough, but now Conservatives and Liberals are cutting the public sector, without ensuring that the private sector is ready to plug the gaps.

    By the way, Drumlins Rock @ 10:29 am, I think you’ll find The Irish Bailout – how it works has scored 1,500 hits on Google. It’s even better when the line about the hooker/”lady of the night” (depending on the degree of bowdlerising) gets her mention.

  • Nunoftheabove

    Dunphy read it out on his radio show this morning, prostitute included !

  • Alias

    “The terms Ireland’s new rulers in the EU have imposed on their subjects are inexcusable. It is hard to tell which is worse: the stringency of the EU’s demands or the immorality that lies behind its choice of targets. The debts of Ireland’s private banks are now the Irish public’s burden. Rather than force senior bond holders in German, French and British banks to accept the consequences of their reckless lending, taxpayers will take the loss and bail them out.”

    He’s right about that but wrong to refer to it as a failure of capitalism. It is a failure of government: the puppet government that colluded with the colonial regime in the EU and more specifically the colonial regime itself.

    The EU government and the said local puppet government bailed-out the eurosystem, and that was their decision. If your neighbour’s business goes bankrupt and you sell your house to pay off his debts: don’t blame your neighbour’s business skills for your homelessness – blame your decision to bail him out.

    The statist mentaity, of course, simply can’t countenance that its trust in the state and its love of big government has failed it.

  • Munsterview

    Malcolm “…. “History is written by the victors” (funny how everyone knows that, but not his corollary: “There are a terrible lot of lies going about the world, and the worst of it is that half of them are true”).

    Malcom if you have a source for that I would like to see it as I have frequently cited an approxmation of the quote.

    This from my book of quotes, ” History belongs to the victor and the victor will never be asked if he told the truth” except Hitler was given as the author.

    It did give this for Churchill “truth is so precious that we must always surround it with a bodyguard of lies”

  • Munsterview @ 8:16 pm:

    Err. Umm. Yes.

    I’ll try and find a precise source for that one (but not before I’ve finished this rather nice Cabernet). [Scutters off in embarrassment.]

  • Mack

    DR –

    That’s pretty much the solution to a liquidity crisis or credit crunch, wouldn’t do feck all for you if you are insolvent however. The €100 being used in part payment for €1.67 trn foreign debt means it leaves the system long before reaching the hooker..

  • Drumlins Rock

    I found the wee story mildly amusing, I didnt really mean it was accurate! but on furth thought have rewritten it slight to closer reflect how Ireland (and the resto f us) worked previously – additions in brackets

    “On this particular day a rich tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. ( and that he will probably stay 2 night at €100 a night )

    The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher. ( he then orders an additional €200 of beef from the expected room charge plus his usual credit amount)

    The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer. ( he then orders an additional €300 of pigs from the expected beef sales to the hotel, plus his usual credit amount)
    The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.( he then orders an additional €400 of supplies from the expected pig sales plus his usual credit amount)
    The guy at the Farmers’ Co-op takes the €100 note and runs to pay his drinks bill at the pub.( he then orders an additional €500 of whiskey(its the Xmas box for customers!) from the expected supply sales plus his usual credit amount)
    The publican slips the money along to one of his suppliers drinking at the bar, who has had to offer him services on credit.( he then orders an additional €600 of drinks from the expected whiskey sales plus his usual credit amount)
    The supplier then rushes to the hotel and pays off his room bill to the hotel owner with the same €100 note.( he then books an Xmas dinner for his staff he thought he couldnt afford at an additional €700 from the expected drink sales plus his usual credit amount)
    The hotel proprietor then places the note back on the counter so the rich traveller will not suspect anything.
    Who takes his note and leaves the hotel owner shocked and a bit worried….

  • Drumlins Rock

    another Churchill quote – ” I believe history shall be be kind to me, I intend to write it”

  • Munsterview

    Drumlin, …… had that one ! took it to heart too, my political files are sorted out with a University….. one of these days I will get the book done as well!

  • Drumlins Rock

    how about a similar one to thatchers from Churchill

    “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery. “

  • Munsterview

    Drumlin : Hey this is good ! Just a two word change and we have Southern election slogan.

    “Capitalism is a philosophy of failure, the creed of ignorance, and the gospel of greed, its inherent virtue is the equal sharing of misery. “

  • Drumlins Rock @ 11:33 pm:

    Sorry: that was past my bedtime. Anyway, I was re-reading the long answer: James Connolly, The New Evangel – State Monopoly versus Socialism.

    As in one of the opening thoughts: The fact that large sections of the capitalist class join in demanding the intervention of the State in industry is a sure sign that they, at least, have lost the overweening belief in the all-sufficiency of private enterprise which characterised their class a generation ago; and that they have been forced to recognise the fact that there are a multitude of things in which the ‘brain’, ‘self-reliance’, and ‘personal responsibility’ of the capitalist are entirely unnecessary.

    Then it’s all the way down to: It will thus be seen that an immense gulf separates the ‘nationalising’ proposals of the middle class from the ‘socialising’ demands of the revolutionary working class. The first proposes to endow a Class State – repository of the political power of the Capitalist Class – with certain powers and functions to be administered in the common interest of the possessing class; the second proposes to subvert the Class State and replace it with the Socialist State, representing organised society – the Socialist Republic. To the cry of the middle class reformers, “make this or that the property of the government,” we reply, “yes, in proportion as the workers are ready to make the government their property.”

    Not bad for an ill-educated lad sprung from the lowest orders of society.

    Is banking not an “industry”? And now in large part across the archipelago a “nationalised” one?

  • Drumlins Rock

    Malcolm, we have seen nationalism occur on its largest scale since the 1920s, in that the banks control so much, however it will probably be reversed quite quickly.
    Back in the real world, neither pure socialism or pure capitalism will work, what happened to good old fashioned mixed economies? but the right mix that is, the South seems to be mixed ok, taking the worst parts of both systems!

  • Drumlins Rock @ 10:17 am:

    When the mixed-economy going gets rough, it becomes a public responsibility?

    I think you neatly underscore Connolly’s point: that the capitalists resort to state ownership when capitalism fails (like ambulances rushing from the private clinics, in hope of delivering expiring patients to the NHS). However, while privateers expect the public to provide the safety net, they are not prepared to share control with the public.

    “Light-touch regulation”, anyone?

  • Munsterview

    Bang on Malcolm

  • Nunoftheabove

    Yes but can you not also see that it would have been the working class that would have been impacted – directly and indirectly, had the state not stepped up to save the Banks ? Do you genuinely believe otherwise ?

    Even then, it wasn’t only banking and banks that were and would have been at stake, remember. You seem to only appreciate the damage done to institutional investors in Banks had they been left to rot and die. The mistake made in my view was that the conditionality placed on the Banks in return for the bail-outs were entirely inadequate and the interests of the state and its citizens were not as primary as they should have been. Then again, it was somewhat of a Catch 22. The only way to encourage the banks to pay back and pay back quickly was to allow/instruct/incentivize them to lend irresponsibly in the circumstances; even in straightforwardly commercial terms this would have been madness however in the longer term there should have been a balance worked out between the short-term cash finance requirements of British businesses – and some whips cracked on responsible lending and the credit parameters within which this could have happened – and a longer term perspective on what would have represented a reasonable rate of return for the treasury as the state withdrew (if it still felt it had to), probably fairly gradually, from its stake in the Banks.

    I still believe it’s a genuine disgrace that some of the key players didn’t get the jail however as Connolly himself might have said, in the capitalist state, profit is the only law-giver. An even worse error however is that I am entirely unconvinced that it couldn’t happen again given the absence of accountability of the banks even yet, the utter incompetence of regulatory authorities, the extent to which market bubbles and credit crashes can still be engineered and large institutions short-sold into oblivion by spivs and the fact that the banks, who we were rightly told were too big to fail, look likely to be every bit as big a part of our economies going forward as they were in 2007. Progress, do we think ?

  • Drumlins Rock

    Nun, its far far from over yet…