I shiver as I listen to what is going on in Washington these days about the debacle of the derivative/credit system and I reflect on this country's idea of the market system.
Regulators and the law are slowly strangling us until they own us. Not by design. It is just the process. What happened to taking risk and let the winner win and loser lose?
What did the regulators do and think when a great housing bubble started deflating? There are books and books written about the real estate credit cycle and consequences of the contraction of this crucial sector of the economy. Why did they not worry about it?
Because bureaucrats do not have responsibilities and do not have anything to lose. Their standard answer is: we do not have enough power and we need more regulations.
This is how power is slowly transferred from the public to the bureaucracy. This is what will happen to us. It is inevitable. I have seen it before.
Yours truly.
George Dagnino
2 comments:
At the heart of this is the nature of the banking system which reaps the profits and 'cannot be allowed to fail' (socialise the losses).
There is no better example of this than Northern Rock.
At first the Bank of Englands governor was adamant that thier should be no bailing out of the bank which was facing funding problems - why should banking be different from Rover or other industries?
He reaffirmed that the central bank would act as lender of last resort, charging the bank a penality rate (until it was taken over at a knocked down price, the shareholders wiped out, by the banks debt holders).
However all that changed when the poltical classes realised that a bank the size of northern rock who was lending recklessly, with 100 bln of assets, to suddenly stop lending, would result in knock on effects through lower asset prices and bond prices as credit tightened to more normal standards.
Of course, what should have happened, with this large bank out of the market, the conservative 'strong hands' of other banks would then be able to take up the space of northern rock, and lend at higher interest rates to new mortgage customers with much better value collaterial as asset prices come down.
But this would be poltically damaging. Northern Rock is a major employer - Not only are there 12 seats in the area with Labour MPs who have only small majorities, the overall effect of the transmission of tighter credit on lending would result in lower house prices - the highest value real estate in the world and the one source of getting rich quick in the over-regulated, uncompetitive, highy taxed economy which is now more over regulated than Germany, and is spending far more than it takes in.
Ever rising houseprices have become the compensation for the destablising effects of mass immigration, rising youth crime, flat wages, more insane regulation and incomprehesible taxes every year.
So the bank in the end 'cannot be allowed to fail' and it was not long before the BOE governer did a U-turn and supported the poltical elites plans to first underwrite the banks assets and lending model - (it was still selling risky loans throughout this saga) with taxpayers money.
We now end up with the bank now fully nationalised with any reckless lending underwritten by taxes - to the overall tune of £2000 per man woman and child in the UK.
Thats how you end up with from a reckless capitalist model which should have failed and suffered the losses and adjustments, to a socialist bank with all losses underwritten by taxpayers!
Here in the UK we have a version of south africas nortorius passbook scheme due to hit workers in a few years time with ID cards - Northern Rock making billions lending recklessly and then its losses being underwritten by taxpayers puts a grimmer outlook on these inescapable taxation/id cards.
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