I sit in one of the dives - as a low, dishonest decade goes splat
I sit in one of the dives, on fifty-second street...actually I am in a Madieran fry up cafe in Kennington but it still feels as much the end of an era as in the famous Auden poem about 1939. Tonight myself, Mark Urban and Michael Crick will be giving you our big-picture take on the situation as it stands. Here, heavily influenced by Nouriel Roubini, is mine:
This was spillover week: the crisis spilled into the stock markets; into the savings system; and into the world of anybody who banks with Iceland - from celebrity chefs to local councils to taxicab drivers...
The relentless breaking news, the flurry of financial terms, the shortage of adequate hyperbole make it hard to understand exactly where we are in the crisis. Here's where I think we are...at the end of week four... we're on the brink of a system-wide meltdown of the world economy.
- When Lehman went bust, that sparked the freeze in lending between banks that has lasted 26 days
- That led to a wave of bank failures or near failures: HBOS and B&B here, the Benelux giant Fortis, Hypo in Germany and much of the Icelandic system
- That in turn sparked what they're calling a "silent run" on the banking system. There were no queues. Because one by one, governments moved to give implicit or explicit guarantees to savers.
- Finally, this week, the inevitable stock market panic began, spreading the pain to Asia...
The stock market crash is being fuelled by several factors:
- First the spillover of the credit freeze to the real world. Airlines, telecoms companies, high street shops - across the globe they've seen bank managers tighten their overdrafts, raise interest rates.
- Second the failure of politicians to end the chaos.
- Third, the realization that the coming recession is going to be longer and deeper than expected.
Today he FTSE100 has fallen 8% so far
The Dow plunged last night 7.3%
And the Nikkei has fallen 24% overnight
All told, several hundred billion dollars of wealth has been wiped out. And this is the kind of wealth that the government does not replace with taxpayers money.
At every stage the politicians have looked behind the curve. Paulson's three page request for $700bn took a week to pass, and still hasn't worked. Gordon Brown's plan - widely praised as the template for the next stage action in Europe and America, so far has not worked. Even in Iceland, where the government has seized the commanding heights of the economy, there is chaos.
There's a pattern emerging: after 20 years of neoliberal economics, almost no politician is mentally prepared for the severe state capitalism they've had to impose. So they've done things reluctantly and late. And in some cases without conviction. But the most striking thing is the lack of co-ordination.
In the 1930s, the different national rescue plans pulled the world economy apart; but today's economy is global. The solution has to be global and co-ordinated.
The successful outcome to the next policy response will be a prolonged recession and a heavily socialized banking system. The unsuccessful outcome could be a depression.
Either way take a long look at the high-debt economy...as I write students are arriving in London to run up an average £30k of debt that will hang around them for a decade, people are paying for drinks on credit cards. Taxi drivers are passing in cabs effectively the property of the Icelandic government. So look around, as Auden might have put it:
"As the clever hopes expire, Of a low dishonest decade"