Blogged this at Labourhome

Another one I just put on www.labourhome.org. I like the crowd over there. It's stuff I've done before here but I still don't know the answer. Maybe a helpful banker will tell me one day.

Show me the money!

I need some expert help. OK, I know that the current financial crisis was caused by lack of regulation and allowing the markets to govern themselves. And I know that because we had to bail out the banks with jillions of pounds we are in terrible debt, so much so that we have to cut social spending and our children's children will still be paying it off long after we are dead. I'm told that if we hadn't done this the financial system for the entire world would have crashed and we would all be very poor.

What I don't know is where did all the money we gave the banks end up. I've asked this on a number of sites and nobody seems sure. I mean if we say to a bank, "Here's a couple of billion, Fred", where is that money now? It can't still be in the bank vault surely. Neither Brown, Darling or the civil servants have really told us.

So the banks were going broke and their customers were saying, "We want our money back". The banks didn't have the money as they were sitting on sub-prime mortgages or suchlike. If we didn't give the banks money then they would have defaulted and these customers would have lost their money.

Of course the small customers were already covered by government bank insurance so I suspect that most of the readers of this blog would still have their money. Some of the money would probably belong to pension funds, charities and local authorities but one has to suspect that much of it has gone to very rich people. You know people that have far more money than would be covered by the small depositor insurance. I'm thinking of Russian oligarchs, oil rich sheiks, Swiss bankers, hedge fund managers and people like David Cameron and the other 16 millionaires on the Tory front bench.

I smiled when someone told me that Michael Caine was saying he would leave the UK because of the 50% tax. I wonder if some of his deposits were saved by the rest of the tax payers. See Michael, "Not many people know that".

I can't argue if people tell me that if we hadn't bailed the banks out we would have far larger problems than if we had let them fail, covered the small depositors, and then cherry-picked the best bits for nationalization. They would say, "Les, if we had done that then the reputation of the City of London would have gone down the tubes." Sure I know that since we no longer have any manufacturing or industry in the UK, we have to have all these financial geniuses in the City bringing in the money we need to pay for bits and bobs from China.

I accept all this as all three major parties say it's so, but will someone please show me where the money went. If Michael Caine, David Cameron and Fred Goodwin have some of it, I might go and ask for it back.

So where has all the money gone!

What Brown, Darling, Cameron and Osborne have in common in this financial crisis is it was correct to save the banks and because of the cost of doing this with taxpayers money things like health and education will be cut. The differences will be in how big the cuts are. The Tories are reverting to old style Thatcherism so forget all about the hug-a-hoody PR.

I read on the BBC website that Mandelson said soundbites are not dead. How about this one then? Following on from Tom Cruise's "Show me the money" in Jerry Maguire, "Follow the money".

Now I'm sure there are good reasons for keeping the banks solvent, bailing them out so they can repay the people they owe money to may be a good thing. Maybe the future earnings and tax income of the City investment banks justifies paying off the present investors in them and keeping London's reputation untarnished among the rich and powerful. If this is the case shouldn't Darling show us the maths?

Now don't confuse saving the banks with small depositors savings or even bank workers jobs. Deposit insurance protects the former and nationalization after bankruptcy would take care of the latter. All I am saying is there was an alternative, bank failure, to throwing billions at the banks. It might not have been the best option but it would be nice to know why not.

So where did the money go? Who had invested in all these failing funds and bad investment instruments at the banks? I wonder whose names would come up. For sure from the UK would be the pension funds. So we have indirectly bailed out some pension funds but that doesn't stop Mandelson talking about the problem of funding the Post Office workers pensions needing outside money. Who else? Must be some UK based hedge funds I guess but then I would be looking overseas. How about the Russian oligarchs, the oil rich Arab sheikdoms and the money that the Chinese have been putting out on the world markets instead of raising the standard of living of their own people. On top of that we would find the rich and famous both from the UK and overseas. Probably find we bailed out the Blairs and the Camerons.

Wouldn't it be nice to know?

At last a choice.

I have been getting a little too one-eyed recently and allowing my dislike of New Labour and the sleaze around them to miss some important choices coming up ahead. The Tories and New Labour are beginning to split away in how to deal with the economic crisis. Up until now Brown, and Blair before him, have been following the economic ideas of Milton Friedman who inspired Thatcher and Reagan. This did not give David Cameron much room to maneuver. John Maynard Keynes, pictured, and his ideas were consigned to the dustbin of history. Now it's beginning to change. As Brown starts to look for Keynesian answers to the crisis Cameron has stayed true to Thatcherism.

As much as the Tories would rather not get tied down on policies before the election, and many of the voters will let their dislike of New Labour control their vote, the election will have an enormous effect on the standard of living of most British voters. Now I cannot pretend to be an expert on economics, but seeing that the experts have got it so wrong recently I will try and explain what I feel is the difference between the parties policies and the results this might give.

I will start with the Tories as this is the easy one. It's now clear that David Cameron will not try and spend his way out of the recession/depression. This is the pure laissez-faire much favoured in the past by the likes of Thatcher and Enoch Powell. Companies and banks in trouble will be allowed to fold. As less people are at work and able to pay tax, social services will be cut. The government will rely on charities to support the weakest. We will start to see deflation and a depression like that of the 1930's will occur. We will see strife on the streets. Those with considerable cash savings will benefit although house prices will tumble as more default on their mortgages. In the end the middle class will be hurt along with those underneath but the very rich will get away without too much pain. This will be explained by Cameron as not allowing future generation to be saddled with the enormous debt.

Now to New Labour. Brown and some of the others seem to have had a road to Damascus moment and are seeing the dangers in a Thatcherite answer to the crisis which following those ideas has led them into. It might be that some of these New Labour ministers can't bring themselves to break from old ideas and there are rumours that Alistair Darling may resign if forced to keep on spending. So what is the Keynesian response to the crisis? Basically it is to spend our way out of the recession. It will need money printed and acceptance of inflation to work. What they are attempting is to buy growth. This was how FDR pulled the US out of the depression, although the war may have contributed also.

What effect would New Labour's policies have? Well because of inflation, unless interest rates rise fast, those with cash savings will see the real value decline. It will be hard to see this policy propping up housing prices, or at least the real property value after inflation, but the fall could be less than that with depression and deflation. If we get the desired growth, then those in the middle class and lower may see a smaller drop in their standard of living than otherwise. Inflation will of course make the government debt smaller in real value. The danger is stagflation where we have the inflation but no growth which is a possibility as the damage to the economy is already so great. That could put us into a pre-war German-like situation. One of the problems that could lead us in that direction would be if the government was forced to protect the exchange rate or get finance for the government debt by raising interest rates.

So we are caught between a rock and a hard place and a decision will have to be made. The Tories would much rather we didn't think about the outcome of their policies while Labour has no guarantee that theirs will work. I know what way I'm leaning, but I suspect that Brown and Blair have created such a bad smell that it will make no difference.

Doing the Right Thing

Credit where credit's due, Gordon Brown and Alistair Darling have at last made, in my view, the correct decision over Northern Rock. The word is it will be nationalised. So maybe Richard Branson will not call Darling darling anymore.

Branson could have started a bank at any time in the past. The only reason he wants one now is he could get one subsidised by the taxpayer. If he had to pay a fair price he wouldn't want it. The rest of the banking industry had their chance to save Northern Rock before news broke on the trouble it was in but didn't, so deserve no say in the matter.

My disagreement with the government is to say it's only a temporary measure. Why not think outside the box as they say. How about looking at the German model where Deutsche Post buys DHL? Let's roll Northern Rock into the Post Office and have a national savings bank again!

Nothing Nice To Say

I was so hopeful I had something nice to say about Gordon Brown and his darling Darling. I almost did a post yesterday saying they were taking a principled stand and nationalizing Northern Rock. At least that way the taxpayer's money wasn't just cheap finance to some fat cat.

Instead he was on a plane to China along with Richard Branson. Today the BBC website says that Branson is confident he will get his hands on Northern Rock. Doesn't even need smoky rooms now, just a champagne junket to China.

Wouldn't it be good if instead of helping the likes of Branson it was the nurses who got the money. One of the boy Milibands says to the Fabian Society that Labour needs to show it's excited about a serving a fourth term in order to get elected. Well it might take a bit socialism to do that.

Does Virgin call Alistair Darling Darling?

Sorry about the Black Adder title. With Darling about to finance a Richard Branson takeover of Northern Rock by allowing a long and not guaranteed payback of the tax money put in, they certainly should. The love affair between new labour and the rich becomes clearer every day.

I heard cabinet member Tony McNulty on Radio 4's Any Questions allowing blame on the missing data CDs to be put on a generic "post". He must know that most people would be blaming the Post Office and not a private courier company like TNT who could well be to blame. On top of that we hear that the reason the data wasn't cleaned of personal details was because the department didn't want to pay Ross Perot's EDS to do it.

How many contracts with private companies are there that should be done by the public sector?