credit crunch

Adam Posen, a member of the Bank of England’s Monetary Policy Committee has opened a catering sized can of worms, reported in today’s Telegraph

“Adam Posen, a member of the Bank's Monetary Policy Committee, said that the Government should consider slapping extra taxes on British properties, suggesting that in future homeowners should have to pay an extra charge if prices rise too fast. In comments which will cause extreme disquiet in the Treasury, he even indicated that this may mean imposing capital gains taxes on first homes and raising stamp duty”.

Now, fair play to the guy, I guess for even broaching the subject. Such bubbles are not earned rewards, but the result of existing policy preventing the market adjusting to the demand quickly enough and other policies putting more pressure on particular areas. Not only that, but they are effectively a zero-sum game - for those who gain, others have to lose out - on the cost of renting often or on their increasing inability to afford to join in the housing boom.

But the real and permanent mechanism is to base all our tax system on land value taxes instead of incomes and profits and sales. A land value tax will collect more, naturally, when the market overheats and prevent bubbles forming, not punish them when they do, or wait till sales happen to charge an extraordinary tax.

...then maybe you'll believe a published economist. Prof Steve Horowitz explains exactly what I have been trying to explain about the causes of the housing and debt bubble and thus the current recession. Or watch it here:

According to the BBC, today both Tories and Lib Dems will formally outline their current plans for dealing with the regulation of the banking sector in a post election world. Neither, it seems, are prepared to think "outside the box" as that early century cliche went: the Tories looking at returning banking oversight to the Bank of England, whence it came a few years ago, the Lib Dems more firm on plans to break up the biggest banks, starting at least with the ones in de facto public ownership. However, one thing we can be pretty sure of: neither will be proposing the single most important possible change to banking that would do the most to stabilize the money system and longer term the economy...Free Banking.

As a concept it's pretty simple: Free Banking is where banks, and potentially other organizations such as communities, trading companies and so on, issue their own currencies instead of trading in the "national" currency of the territory in which they are operating. These currencies compete against each other for users. The value of each rests solely on the soundness of the business practices of the organization issuing them. If one bank/issuer over-extends itself all the others who would normally accept their currency at par with their own (say when a business customer of theirs tries to deposit them at the end of each day) will want to pay less for them and the message will soon get round that the over-extended bank needs to change its business practices, its risk profile say, or risk complete devaluation of its issued currency. There are also lots of other mechanisms that, in a free market, but not a fiat system, would come into play to ensure the currency issuers play responsibly.

The system we have today, fiat currency "guaranteed" by the nation is whose name it is issued, is the result of a long term grab for power by the state. Why would they do that, in a market that functioned quite well? Well, there are profits to be had in issuing currency - so called "seignorage". However in the current system where fiat money tends to be introduced via lending by the commercial banks regulated to do so this seignorage profit has reduced, and has also been passed to those issuing banks rather than to the state. The big reason is inflation. We take it as axiomatic that inflation can be a good thing, if you are in debt. With your future repayments more or less fixed in numerical terms if you can inflate the money supply your payments will tend to fall in real terms with time.

Who are the biggest single borrowers in our economy? Well usually the government. So the government can inflate away the running costs of their debt. Well, okay, says you, but it also eats into the costs of everyone else's debt too, doesn't it - so we all benefit from inflation, right? Wrong. Lots of us may well be in debt, but after many decades of inflation and only a few of burgeoning private debt, the lenders have become savvy to this. How many of you are now on variable rate mortgages? Government induced inflation really assists really long term borrowers on fixed rates (ie gilt issuers predominantly).

And on that subject, on the other side of the coin, if you pardon the pun, inflation erodes savings. All of us need some of those, even if we are in debt - for example for our retirement. Inflation keeps eating into our pension funds - firms and returns have to grow faster in monetary terms just to maintain the value of our savings. But equally, if inflation undermines our savings, so it also undermines the money we have in our pockets now. If we think the prices are going to go up, we want to buy more now. Inflation actually drives us into more debt, transferring more in interest from less well off to the better off lenders, so we can buy now before the prices rise.

But inflation also distorts in all sorts of other ways - if it is more difficult for us to work out as individuals whether we should borrow to buy that new Hi-fi today and pay the interest, or wait until we don't need to borrow because it will still be there at the same, or perhaps a lower price, how much more difficult is it for people who have to make borrowing decisions about investing in capital goods? Inflation corrupts the signals that prices are sending to manufacturers for example - they don't know necessarily whether they are getting a better price because of inflation or because their product is in greater demand.

Since the US finally adopted central bank run currency, followed by a fully fiat monetary system a few years later, the state has overseen a devaluation in the currency of over 98% - roughly a period of a hundred years; the Federal Reserve system was established in 1913. But this most recent decade shows the problem at work perfectly and the government's part in it. At least until 1997 the government, through the regular collaboration between the Treasury and the Bank of England, was instrumental in setting the base rate as we call it here. That is used to create a signal to all the banks who are regulated to lend in sterling that they should lend more, if the base rate goes down, or lend less, perhaps call in loans, if the base rate goes up.

After the political turmoil caused by the events of "Black Wednesday" when speculation against the pound led the government to raise interest rates three times and to 15% at one point, we were left with hundreds of thousands of households who could no longer afford their mortgages. A housing slump ensued and led to a policy for the next few years of keeping interest rates as low as possible - lower probably than the economy deserved. Just as the housing market was getting back to relative values from before that crash, another asset was bubbling - the "dot com" stocks and shares.

When that bubble burst, there was a great concern in Treasuries on both sides of the Atlantic that the burst would turn to recession (and indeed it did in the US). Gordon Brown in the UK was so concerned that Labour's first term in twenty years would end with a recession that again base rates were kept artificially low, signaling to the commercial banks that were part of this cosy central-commercial bank cartel that they should lend even more, even more irresponsibly, and we had the housing price bubble that has resulted in the current economic carnage. All the way up that price bubble the least well off are encouraged to transfer more of their wealth to the lenders and now, all the way down, that cosy relationship means that the banks, the lenders, are the ones being baled out while everyone else will suffer vast capital losses with no compensation.

And finally, central banking and its bastard daughter inflation kills. Literally. You'll notice that the history of central banking has been closely related to when government wanted to borrow to fight wars. In the past century, more of this has been done via inflation than by direct government borrowing. If there's an inflationary surplus already in the economy, go to war, destroy some capital goods, and with it some human capital and all of a sudden there are things to spend that surplus inflationary money on. If you are already n a war, perhaps an unpopular one, and you cannot finance it via extra taxes or selling debt, inflate, inflate, inflate and you'll be able to buy up your war-goods before everyone else sees the inflation in the form of a reduction in the value of their money.

So, which of Vince, or George, will take such a brave step? Of course, we know the answer - what they really want of course is for themselves to be in charge of this vast power inflation gives. But wouldn't it be great if just for once, politicians made the right policy decision for us not them.

In a quick diversion from my task of preparing a business plan to rescue Oxfordshire's distressed home-owners and businesses from the worst effects of the state-created credit crunch I noticed the other day, in a rare foray into blogging himself, a Lib Dem Federal Policy Committee member, Geoffrey Payne, has been reading Vince Cable's new book about the credit crisis, The Storm. Geoffrey is one of those Lib Dems with a visceral hatred of anything "economically liberal", which he will always equate to something akin to "what Maggie and Ronnie did".  He notes that Vince quotes Herbert Spencer, saying that it shows how little Vince thinks about "extreme libertarians":

I have read the book and would heartedly recommend it. I agree with most of it. Because it is short there are obvious gaps - the chapter on Malthus is rather short and inconclusive which is a shame as I for one think it ought to be the most important part.

However there is no doubt what he thinks about extreme Libertarians;

"(quote from Herbert Spencer) 'The ultimate result of shielding man from the efects of his folly is to people the world with fools' . This approach was influencial in the years of the Great Crash, and it helped inform the advice given to president Hoover by his treasury secretary, Andrew Mellon: to do nothing. '[Panic] will purge the rottenness out of the system ... People will work harder and live a more moral life ... enterprising people will pick up the wrecks from less competent people.' Since Hoover and Mellon emerged as the fools who precipitated the Great Depression, their abstemiousness become seriously unfashionable", page 46, The Storm. [From Left Liberal: Vince Cable lays into Libertarians]

Now, I don't suppose for one minute that Geoffrey has bothered to read the Spencer essay from which this quote comes. I hope Vince has. For in "State-tamperings with money and banks" which can be found in Vol 3 of his "Essays: Scientific, Political and Speculative" available on the web courtesy of the Online Library of Liberty Spencer produces a fantastic critique of state controlled money systems and how they will inevitably exacerbate bubbles and crashes.

Allowing for the slightly convoluted Victorian English prose style, it is a fabulous analysis of why, as Hayek concluded a hundred and tenwty years later, or as both Mises and Rothbard have concluded in their ciriticism of the Federal Reserve system, the state is incompetent in the running of currency.

What the government is doing by quantitative easing is abolishing the rule of law and its part in enforcing contracts. What they are saying by creating additional money into the system is that you no longer need to pay all the debts on contracts you have issued, because here's some extra money-tokens to cover them. And that if banks were allowed to run under free banking these crises would never been as deep or as pervasive as they are through manipulation of the currency by the state and the banking system by regulation.

It is a brilliant exposition of the origins and effects of what we know of as "moral hazard". And that the effects of us being shielded from that moral hazard by state offered, ultimately worthless, guarantees, is to populate the banking system with the sort of fools we have witnessed, from Fred the Shred to Adam Applegarth.

I encourage you to read Spencer's essay (it runs to about 23 pages of one and a half lines width print on A4). If we are to avoid this sort of crisis again, we need to learn from the likes of him, and Hayek, and Mises and Rothbard, about how these crises come about through the state currency system. I am very proud that English liberals understood this a hundred and fifty years ago, and equally ashamed that politicians ever since have believed themselves immune to these facts of economic life.

I have long argued that the current crisis will not be solved, nor a future similar one prevented, by doing "more of the same" - tinkering with regulation and so on is fiddling around the edges of a money system that is fundamentally corrupted. A few weeks ago I wrote that we had until 2nd April to persuade leaders to change the system rather than shore up the old one.

There is now one of those petitions at the Number 10 site which asks that monetary reform be included in the options for the G20 when they meet. Now, I don't agree with the nature of the reform the petition writers wish to see (although I used to). But I do agree that "something must be done" and all the petition actually asks for is greater reform to go on the agenda.

So if you agree that the G20 needs to take a more fundamental look at what money is and how it works, rather than just altering the regulatory regime of the current flawed system, maybe you'd like to sign the petition too.

Jim Murphy first:

Whilst it is important to stress that the financial mess is not down to the effect of minimum wage strawberry pickers from overseas...

Warning over credit crunch racism

Scottish Secretary Jim Murphy will warn the country not to pander to "credit crunch" racism, when he addresses the Scottish Labour conference. He will outline the increasing pressure on jobs amid the financial crisis, while attacking "irresponsible bankers on £1m bonuses".

[From BBC NEWS | Scotland | Warning over credit crunch racism]

...the irresponsibility started, for electoral reasons, at number 11.

And now for Vince:

Vince Cable has called for highly paid executives in the private and public sectors to be named and shamed. In his speech to the Lib Dem spring conference, the party's deputy leader demanded full disclosure of salaries more than £194,000 - what the PM earns. [From BBC NEWS | Politics | Name and shame high paid - Cable]

...I commend the words of Winston Churchill a century ago this year:

I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment [in land], is morally a worse man than any one else, who gathers his profit where he finds it, in this hard world under the law and according to common usage. It is not the individual I attack; it is the system. It is not the man who is bad; it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy, were it not to endeavour to reform the law and correct the practice. We do not want to punish the landlord. We want to alter the law.

From "Liberalism and the Social Problem", LAND AND INCOME TAXES IN THE BUDGET, available at Project Gutenberg.

I have no wish for my part to defend what have been obscene amounts of money paid to bankers who have ended up destroying their shareholders' wealth, but there is an increasing tendency, an ugly tendency, to blame a whole arbitrary group of people, call them bankers, call them fat cats whatever. The fact is that politicians wanted the bubble and bubbles eventually burst. They wanted it for electoral ends. In the process they have conned millions out of their money by making them pay more for their most basic need, shelter, and now that that bubble has burst and they are defending their friends in the City, they are going to be conning all of us out of our future wealth to pay for their bail-outs.

Of course for us proles, it's easier to think that someone creaming off loads of money is really to blame, and not those we voted for trusting in them not to screw us. And for those we voted for, they of course do not want the blame pinned on them. But for liberalism it is absolutely crucial that people understand that it is those in whom they naively trusted politically as well as with their savings who have conspired to create the current situation. That they understand and get angry about it. And that we use that anger to take power away from the institutions involved - the State and the City in equal measure.

It is not the individual we should attack; it is the system.  And so far there is no sign that politicians are willing to shoulder responsibility for that.  In any party.

Denying the State's, and her power hungry politicians', role in all of this is ugly and means we will try to fix the wrong problem, and that has the risk of plunging us into a really dark age of over-confidence in government and envy and hatred of individuals or groups who after all mainly helped do governments' bidding.

No doubt there was a flurry of excitement amongst bansturbators and regulators today in Harrogate as the Lib Dems debated a motion on banking regulation, the credit crunch and whipping city boys. And there comes a time in a man's life when you realize that you are so far out of step with the way everyone else is thinking that you can lose confidence in your own opinions, maybe even think you are wrong and ought to cave in to the prevailing opinion. Especially when the prevailing opinion is being promulgated by such august people as former city regulator and current regulation specializing barrister Charles Marquand in his motion "Reforming the Financial Sector".

And when an alternative motion on the nature of credit creation itself was refused by the conference powers that be (even though I didn't support all of it it came closer to pinpointing the problem than all this regulatory stuff) one gets the additional feeling that actually, what the party wants, is simple messages, not necessarily the right messages. Populist measures not technical systemic change for the better.

We have three times I think now tried to get a proper motion on the monetary system debated at three consecutive conferences, and been knocked back every time in favour of these anodyne, populist and "don't have to think too hard" debates.

And this is a big problem for me. These systemic problems with the economic landscape in our world are so fundamental to equity and fairness for everyone, problems which our Liberal forebears knew and understood a hundred years ago and more and which we have an opportunity to address anew in this biggest of financial crises when everyone is looking around for a different paradigm to avoid it happening again.

Every single policy debate this weekend that I can see, on schools, on higher education fees and so on are so crucially underpinned by these fundamental economic issues. Economics is about the efficient allocation of resources of course and what are these public policy debates other than tussles for the different allocation of resources.

We will never, NEVER I say again, make significant headway in addressing inequality in our country or the world until we have grasped these fundamental problems of the economic system. If, when such an important and yes, exciting, opportunity to change that economic landscape as our ideological ancestors wanted to do occurs and we miss it, can anyone give me a good reason for sticking around? When it IS, quite simply, the most important opportunity in nearly a century to make the right changes, not just the right sounding changes.

The evidence suggests that we are a party that cares more about political grandstanding, good headlines for one constituency or another, and tinkering, than about addressing the real causes of inequity and unfairness. It may be "democratic" - in which case I am clearly on the losing side of the demos's opinion making, but one has to wonder about its commitment to liberty and liberal values if it misses the big picture so spectacularly.

Of course, I should have been there to join in the debate and put forward counter-proposals, though part of the reason I am not is the refusal of the party apparatus to accept such counter proposals for debate in the first place. But here is my contribution to the "Reforming the Financial Sector" debate for what it is worth:

F6: Reforming the Financial Sector

Conference notes that:

A. From the end of the 1990s financial institutions increasingly engaged in highly risky practices, such as excessive lending to individuals, and creating and trading extensively in complex and poorly-understood financial instruments.

From the end of the 1990s the government in power in the western democracies felt that as a result of a previous asset bubble - the "dot com" bubble bursting there was a danger that we would go into recession. For Labour in the UK that would have meant an early disaster in their claim to have become the party which the country could trust with the economy - one of the significant factors in them not regaining power earlier. Gordon Brown has made much of "ending boom and bust" and "the longest continuous period of growth in history".

Had we gone into even a mild recession in the late 90s and early years of the new century they could easily have lost the 2001 election. The "feel good" factor had to be maintained, and the way to do that was to ensure we could spend our way out of any impending recession. The Bank of England, independent in name but not really in policy, was given a commission to ensure that borrowing was kept cheap and the only way to do that without inflation was to ensure money was lent against the one thing that did not feed properly into the inflation figures - real estate. As a result, millions of people have overpaid for their most basic need, shelter, have taken on debts they would not normally have countenanced, and all for a political aim.

Of course bankers liked the idea since it meant profit for them if all went well. They knew, however, that it was risky - the old models of debt affordability had to be rewritten to enable those previously less able or willing to borrow to do so without too much additional default risk to the banks. Yes, they created esoteric new instruments which have ultimately become so difficult to value that the system has ground to a halt, but they did so in clear pursuit of public policy to inflate the money supply as surreptitiously as possible.

In summary: the bubble, the bursting of which has created the current problem, was created by politicians trying to manipulate markets for political ends and in the process has stolen, there's no other word for it, stolen billions of pounds of ordinary folks' wealth (not just now in the collapse, but on the way up too - rising house prices and rising debt are a massive transfer for the poor to the rich, just as printing new money to cope with the collapse is a massive transfer from the poor to the rich).

B. The financial sector has lost sight of its primary function of providing investment funds to businesses in favour of speculative activity and in so doing has become disconnected from the wider economy.

I don't know about others, but if you work in debt advice, you will see these symptoms in everyone. You are encouraged to borrow, to trade, to gamble, and when you start to see that it is more risky than you might have first thought you try and mitigate it, many hide it, in ever more desperate attempts to avoid addressing their problems. What we have witnessed is no more than what would be for an individual in debt a pretty normal panic response. But let's not forget, they were acting in pursuance of stated public policy - to increase levels of debt. Eddie George said so. The Treasury Select Committee heard him say so. Did they not wonder at the time what he meant? What are our representatives for?

C. In 2008 the financial sector underwent a significant shock which pushed major financial institutions into insolvency, threatening systemic collapse and having severe consequences for businesses, ordinary consumers and their families.

Indeed. So much, so obvious...

D. These events were the direct consequence of acts, omissions and developments during previous years and in particular the result of:

I. Failures by government and the regulatory agencies to take heed of the warnings of the Liberal Democrats and to take action to moderate levels of personal debt, rising property prices and excessive risk-taking by financial institutions.

II. Remuneration policies in financial institutions which encouraged individuals within them to engage in excessively risky behaviour without regard to the consequences.

Yes, the Lib Dems, both under Vince Cable at the treasury brief and Matthew Taylor before him were flagging up these issues, but the fact that nobody listened to us back then does not mean the reasons have suddenly changed. We knew this was a public policy issue back then - the encouragement of saving Britain and Labour on tick. That reason still applies, in spades, today.

With hindsight we can add in other reasons like II. but let's face it, whenever anyone has mentioned banking reform in the past we've been met with the claim that our pensions owned the banks, so as shareholders they should have been more concerned, yes, but that does not make it a matter for public policy. If the government wanted banks to lend more to keep them in office, then their executives should have been rewarded for doing the government's bidding.

But we also know that the bonus culture and the obscene amounts of money involved, arise not because of short termism per se, but because of what it is they are trading in - they have long had massive bonuses based not on what the real economy is doing but on the massive volumes of "our money" that passes through the city every day. Some people look to the likes of George Soros for a way out of this - actually it's things like his trading in vast unfathomable volumes of money that create this bonus culture.

Like estate agents, if part of your earnings are based on the commission you earn by your deals, when you are trading daily in over a trillion dollars worth of currency (as has been going on for two decades) then even the smallest percentage of commission is going to be pretty impressive. Market makers will claim that such volumes, unrelated as they are to the money moving needs of the real economy (foreign currency transactions for business requirements for example are a small percentage of daily turnover in those markets), are necessary in the way the market finds the correct price for any commodity.

Yes, the figures sound gross, but they are so gross because the commodity they are dealing in - they have a very privileged position in being able to create, manipulate and move vast sums of effectively fictitious money around - is one which we collectively underwrite for them - our currencies. The problem is the very basis on which the system works, not the rewards for playing that system. We forget at our peril the words of Winston Churchill in the 1909 debates that we should not be attacking the people who play the system we support but the system itself. None of this motion attacks the system itself - the way we create money.

And so the remedies offered by this motion amount to little more than the palm court orchestra playing on while the ship sinks...

Conference believes that:

i) The failure of government and the regulatory agencies to take action flowed particularly from an attachment to the principle that financial markets and actors in them should be subject to as little regulation as possible, which became known as ‘light touch regulation', and generally from an erroneous belief that free markets will always produce the best outcomes for producers, consumers and society as a whole.

No, the failure of government to take action arises from the fact that the powerful, politically and financially, are the only ones actually to benefit from the corrupt money system we have. Inflation helps government conceal their profligacy and fiscal failures by revaluing their debts downwards. The system, as we have seen, allows them to try to manipulate markets for political ends - in this case saving Labour's skin in 2001 by borrowing our way to avoiding a recession.

ii) These principles and beliefs, as shown by the events in late 2008, were flawed in that they led to the privatisation of profit and the socialisation of risk, such that incomes of individuals and institutions in the financial sector soared whilst business and individuals in the wider economy were exposed to high risks of financial harm in the event of failings and defaults in the financial sector.

This one contains a grain of truth which is then lost - the "privatisation of profit and the socialisation of risk" is precisely and undeniably what John D Rockerfeller Jnr and J P Morgan Jnr (notice who gave T Blair his first post-premiership contract) persuaded teh state to collude in with them in the formation of the central banking system we have today. When will we realize that it was constructed by the rich and powerful for the rich and powerful and there is no earthly reason why the money system we have now should be the only one we consider. The nature of money has changed throughout human history and the current crisis should be seen as the death of this particular incarnation.

iii) Events in late 2008 and the role of the financial sector in producing them highlight the need to reform radically the financial sector.

..or highlight the need to reform the money system - anything less is tinkering, and not radical at all.

iv) Far from retreating, the state will need to intervene to ensure effective regulation of financial markets in order to promote stability, counter short-termism and protect the interests of business and consumers.

The interests of business and consumers are fundamentally opposed to the interests of the monetary authorities and politicians in this respect though. What we need for sound business decisions and sound savings and investment is a sound currency. The rich and powerful need a money system they can manipulate, which is the opposite of sound money.

v) Incentives within the financial sector should be better aligned with the broader goal of building a fairer society.

In a free money system the financial institutions would only be able to make a profit if they were contributing to fair and free trade. Since the money system is anything but fair and free trade, but a state regulated and protected oligarchy one wonders whether politicians will ever countenance the reforms needed unless we do allow this to go spectacularly bust.

Conference therefore calls for a reconstitution of financial regulation so that:

a) Financial institutions and their staff are discouraged from excessive short-term risk taking, for example though remuneration policies which reward only long-term success and which ensure that those whose actions are harmful or cause loss bear the consequences of their actions.

...or by governments not telling them to take on riskier debt in order to bale them out of an electorally damaging recession.

b) Financial institutions make credit and investment available on reasonable terms to businesses and individuals in the wider economy.

...which would still be happening if governments had not run up the flag of irresponsibility by asking them to make lending artificially cheaper.

c) ‘Intermediate' financial institutions, such as hedge funds and private equity vehicles, are properly and effectively regulated and in particular are required to be transparent.

...or how to ensure the City of London never recovers. Most of these are simply "investors". Professional investors to be sure. But if we regulate them they'll just start spending their days on the beach in sunnier climes than ours with a laptop and a phone to their brokers. Furthermore, the level of regulation already in existence means that for good ideas to get capital they tend to need these venture capital style sophisticated investors. Get rid of them and our economy potentially will never recover because the adventurous investors willing to take a punt on a business idea will evaporate.

Conference also calls for:

1. The encouragement, support and promotion of credit unions and other kinds of mutual financial organisation.

2. The government and financial regulators to work for more decentralised banking institutions and a localised financial infrastructure.

Neither of these are achievable through more regulation. I should know, I've been trying to set up local, mutual financing mechanisms and the weight of regulation is such a barrier to entry that it is next to impossible unless you are already very wealthy and are allowed (which c. above would probably prevent) to invest freely as a sophisticated investor.

3. Improved access to financial services thorough the Post Office network.

...yadda, yadda, yadda...just more posturing for the Focus leaflets.

4. Free and independent financial advice to be made available to those on low incomes.

With a system of competing currencies in a free market it would be likely the responsible financial institutions intent on gaining and keeping customers would provide such services. In an economic landscape that was more favourable to the less well off, by eradicating rent and interest, this would be less necessary in any case. People are quite sophisticated you know - it is quite patronizing to think otherwise. The "grey economy" testifies to that.

5. A statutory duty to be imposed on all lenders to lend responsibly, giving borrowers a statutory right of action in cases where there has been irresponsible lending.

See - the state intervenes again. What's wrong with contract? And above all, banks responsible for their own fortunes via their own circulating currencies, would have every incentive to ensure they did not take on dubious assets - irresponsible loans. But for the state to start deciding what is or is not responsible (as Gordon Brown has this past couple of weeks with his railing against 100% mortgages) is hardly a liberal response. It is a statist response.

6. Consumer protection to be strengthened with stronger penalties for those who mis-sell financial products using aggressive selling practices; with a statutory maximum interest rate to protect vulnerable groups from predatory loan sharks and doorstep lending.

...yeah - and I'll bet the people who dreamed up this motion wouldn't hesitate to support Mohammad Yunus and his micro-credit system.

No doubt this motion was received with some rapture amongst the faithful at Conference. If so, it is in my opinion a disaster for the party and the country. We keep shying away from this once in a lifetime opportunity to argue for real, radical change, for liberal policies and we return to state regulation and protection. I am beginning to get ashamed of my membership card!

Over in the latest Lib Dem Voice debate, on whether we should support FairTrade or not, the name of Dr Michael Hudson has come up in the comments, and I thought this was worth highlighting (H/T Disinter):

I am quite familiar with the work of Michael Hudson and Fred Harrison as they are both prominent advocates of Land Tax and the work of Henry George. Here Hudson is putting into much better words than I have so far been able to what I have been advocating since the run on Northern Rock or before about why the current bank bail-outs will not work and are aimed not at rescuing the real economy, ie us, our jobs and homes and personal wealth, but that of the lobbyists and the financial sector that keeps politicians in office, and in lucrative work of course after they've given up office!

Basically we need to have a biblical style Jubilee - the one in fifty years in which all debts were written off, those who had become indentured to landowners to pay off their debt are freed, and the origin of the happy cry of "Hallelujah". This would be better than the write-offs and government guarantees being so gleefully doled out by governments around the world. Banks, or some kind of Zombie fund, could take on the toxic debt and renegotiate them down to the value of the underlying asset - the home or perhaps the business - and turn the debt back into a performing asset rather than toxic debt - even potentially making a profit on the current market value of the debt.

This is something I've been working with trying to setup in Oxfordshire - using limited liability partnerships into which the debt, the property and the rental yield from the property are put to turn the nearly repossessed home into an affordable home for the occupant but also an income generating asset for the lender. But why is it just us off-beam unschooled economists who are promoting this sort of thing? Where are the adventurous young bankers coming up with this sort of thing? Oh yes, that's right, it's easier if they can just persuade our governments to bail them out and let the tax payer take the risks of their over-enthusiastic lending.

It's no big secret that one of the things political Islam rails against the west for is what they consider to be its harram banking system based on debt/usury. Abu Hamza even said on a Newsnight one night (even Jeremy didn't really pick up on it at the time from memory) that attacks then being carried out against French banks were legitimate.

So, might I suggest that one way, if you really want to, to get back Sir Fred's pension and all those other bonuses would be to incarcerate them (and especially the politicians that egged them on in the "age of irresponsibility" as Brown christened his Chancellorship a few weeks ago) in Belmarsh and use recent suitable anti-terror laws to confiscate their assets.

After all, between them they have contrived to do more harm to our way of life (and for several decades to come even after ground zero is cleared up) than the Al Q'aeda big-wigs could probably have dreamed of.

We could even recycle GTMO for their exclusive pleasure - after all, it seems many of them like Caribbean hide-aways!

Of course, it's at least half-in-jest - but when we think of the damage that cock-up rather than conspiracy has wreaked on the global financial system and the billions so dependent on it, how much worse can it be? I remember Bjorn Lomberg once saying that providing a clean local water source for everyone on the planet currently without would have cost less than what we have put in to bail out these fuckers.

I'll bet it would change the entire popular view of "waterboarding" if it were Richard Fuld or today's favourite whipping boy Fred Goodwin undergoing it! Maybe "retired" bankers could even be the next group to get ID cards.

Drowning Brown: How much longer is he going to wriggle?

I've long been of the opinion that Gordon Brown, for all sorts of reasons, would wait until the last possible moment in 2010 to go to the country.

I've now changed my mind. I don't think he can last another couple of months. I do not see how Darling can get a budget through that is not either going to have to be full of more lies to cover up the seriousness of the position or be honest and open and expose the farce that the various rescue attempts have been and the true cost of them.

We already have the police worried about a "summer of rage", and one way, perhaps, to prevent that rage boiling over may be to give the middle class a say in how this economic drama plays out and who they  want the main actors to be from here on in.

My only real quandary is over whether Gordon Brown's government can now last as long as the European Parliament elections on 4th June. Though since there's no way of having another G20 summit hamstrung by a reasonably major player in the middle of a power transfer I don't suppose he can go to the country before April 2nd, unless of course his hand is forced this weekend.

So, a snap election with a three week campaign starting more or less now, polling day of March 26th, or dissolution after April 2nd but before the budget on 22nd April with polling day on Euro-day. 

Personally, I don't think Brown is capable of being honest enough to see that it would be better to have a new government in place for both G20 and the Budget, so my guess is that he'll go either between the two and shelve the budget but have his moment strutting about at the global blathering, or perhaps after the budget in a sort of "dare you do better" sort of move.  I also think there's a good chance he'll get lynched by someone before 22nd April!

Just a note for those of an historical bent - 22nd April 2009 will be exactly one week before the centenary of Lloyd-George's People's Budget in 1909. Whoever delivers this year's budget could still do a lot worse than look to that 1909 budget for ideas!