Whodunnit? Karl Rove? Rupert Murdoch? Max Clifford? Who contrived to turn public debate so contrarily on its head? Why is the gross and reckless incompetence of Northern Rock’s management not a matter of public debate, while New Labour’s rescue is reviled as incompetent? How has Adam Applegarth (CEO at the time of the crisis) been erased from public view, while Alastair Darling is publicly flogged by much of the media?
The blame for this must fall on the failure of politicians to finger the private sector management and shareholders of Northern Rock for irresponsible, delusional behaviour and reckless greed. Above all, for the failure to accept free market rules: that those who take risks, and make gains from those risks, are also obliged to accept losses. Instead shareholders like those in Northern Rock, prefer to make gains, dump losses on taxpayers, and then abuse politicians.
Deplorable as these financiers are, responsibility still rests with government. Labour’s political failure to deal with Northern Rock is at heart, a failure of analysis. Their predecessors knew better. In 1944, Labour’s political leaders correctly analysed the appropriate role of the finance sector.
‘Finance must be the servant, and the intelligent servant, of the community and productive industry; not their stupid master’. (National Executive Committee of the British Labour Party (June 1944), Full Employment and Financial Policy).
Since 1997 finance has acted as ‘the stupid master’ of the UK economy and its stupidity has been encouraged. Above all, ministers have effectively turned a blind eye to the reckless creation of credit and debt, and the speculation, incompetence, gambling and fraud that some suggest are associated with this massive debt creation.
Throughout the 1990s ministers and their advisers brushed aside concerns about high levels of debt generated by unregulated, or loosely regulated financial institutions, expressed by amongst others, nef (the new economics foundation).
Instead they concentrated at the Aunt Sally that is inflation. Inflation has not been a problem for the UK economy for some decades now. Instead we are faced with the spectre of a debt-deflationary spiral, as asset prices fall, as debts are defaulted upon, and cash and credit becomes scarce.
Indeed the global economy is now faced by a terrifying prospect: large scale and systemic economic failure of a highly integrated economy – deliberately integrated by governmental action. This economic failure will have ugly social impacts and will be hugely destructive. The unravelling of the system will have begun in the big financial centres of the West – Wall St. and the City of London. But its huge destructive force will be felt all over the world.
The failure to correctly analyse and prepare for the collapse of overlent and over borrowed financial institutions like Northern Rock should act as a warning to ministers. It might be too late to correctly analyse and prepare for the prospect of large-scale and systemic economic failure, but they have a duty to the people of this nation to finally wake up to finance’s stupidity – and try.