Wealth and Poverty in United Kingdom

This briefing on wealth and poverty has been done for my Wednesday morning current affairs class

"For the poor will never cease to be in the land; therefore I command you, saying, 'You shall freely open your hand to your brother, to your needy and poor in your land.'
Deuteronomy 15:11.

‘He who dies rich, dies disgraced’
Andrew Carnegie (major charitable donor)

‘The rich lists are lists of shame’
Ted Turner ( founder of CNN who gave a $billion to the UN)

Historical Background to Poverty in Britain: from medieval times to 1990s.

Slavery: The reasons why ‘the poor are always with us’ are manifold but date back, in some senses to the days when there was still slavery in Britain, beginning with Roman times and then continuing through the Saxon period up to Norman times when about 10% of the population were still effectively slaves. The group of people at the bottom of the occupational ladder in terms of skills and ownership have always made up the ranks of the poor. Ironically, perhaps, the Black Death 1348-49 which killed a third of the population, especially the poor and weak, had the effect of boosting wage rates. It also placed such a premium on labour that slavery was ended by the close of the 14th century.

1530 Poor Law: this gave licences to beg to the disabled and poor. But those without the licence were whipped cruelly and then forced to return to their home parish.

1536 Poor Law: this embodied the whipping but for a second offence part of the ear was cut off; for a third offence they were hanged. It was clearly judged as wrong to be poor and without a job. Echoes of such attitudes survive strongly into the present day. Every parish was obliged to build a workhouse for the old and disabled poor where they would work at whatever they could.

1597 Vagrancy Act: the death penalty for vagrancy was abolished.

17th Century Poverty: it was calculated that half the population ate meat every day; 30% 2-6 times a week and 20% only once a week or less.

1601 Act: Overseers of the Poor were appointed for each parish, empowered to levy a local rate to help pay for care for the poor. Refusing work would earn a whipping and children were apprenticed to local employers.

18th Century: the epidemic of gin drinking took its toll on the poor in this century; it was freely available and cheap until taxed in 1751. Maybe half the population lived on subsistence level. London was marred by incredible poverty whereby people dead from starvation were left in the street. Inevitably, in these circumstances, people were prepared to steal, rob and kill to survive and crime was a desperate problem. One answer was transportation of convicts to American and then Australian colonies: several hundred thousand were shipped out during the late 18th to mid 19th centuries. The fact that they provided the basis for new law abiding populations proves criminality is not hereditary but often related to living circumstances.

19th Century: numbers on subsistence level reduced to about a quarter, though 10% were bereft of even the basic requirements. The industrial revolution had created factories and huge towns in the north; workers lived in squalid courtyards with no sanitation, often with two or three families sharing a single basement. Often survival was dependent on retention of work and there were frequent recessions in manufacturing industries at this time.

Victorians had a conflicted view towards the poor: they wished to help out of chariable and religious motives, but still blamed the poor for being indigent, the assumption being that they could work if they tried hard enough to find a job.

‘If we shield people from the consequences of their folly, we shall people the world with fools’ said social Darwinist Herbert Spencer.

‘Self-Help’, by Samuel Smiles sold thousands of copies; it was described by Robert Tressel, in his novel The Ragged Trousered Philanthropists, as a book "suitable for perusal by persons suffering from almost complete obliteration of the mental faculties".

The workhouse was regarded as a place to avoid as the regimes were strict; intentionally so as it was felt any degree of comfort would encourage the poor to avoid work completely. So children could not live with their parents and all had to engage in physically hard work. Denizens had to work hard, lost their liberty and were not allowed to vote. British Army recruiters complained at this time that most applicants were too small, weak and sickly to make good soldiers to fight in the Boer War.

1878, Salvation Army: this helped change attitudes towards poverty and poor children were provided in some cases with breakfast. Boot funds provided money for shoes and boots for children who otherwise went barefoot.

20th Century Poverty:

Roy Hattersley’s The Edwardians, cites Seebohm Rowntree’s report into York which showed 10% in dire, helpless poverty and another 18% in effective poverty. PH Mann’s survey placed the poverty wage at 18s 4p a week and by this measure 41% of the working class lived in this category. Suffering was often greatest however, not in the cities but in rural areas, where average wages were fractionally above 17s a week. About a third of these comprised the old and young.

Nationwide, it is calculated, 25% lived in ‘absolute’ poverty in the early part of the century. Absolute Poverty is the complete absence of the means to live while Relative Poverty is in comparison with other incomes. A good 10% were living on subsistence income- barely surviving day to day. In 1906 poor children were given free school meals by the Liberal government. In 1909 old age pensions started to be paid: 5 shillings a week. There were also wages councils to set minimum levels in certain industries. In 1910 Labour Exchanges were set up and sickness benefits for workers in 1911.

By 1924 only 4% were living in extreme poverty though this varied from region to region. Pensions and unemployment benefit were slowly increased though they were cut during the Depression. However during the war thousands of children enjoyed a ‘proper’ diet as a result of rationing and health levels improved. This was a factor in increasing support for Labour in 1945.

Wealth in Britain: From Medieval Times to Early 21st Century
Initially wealth was based in the land and agriculture. Land distribution was essentially political and this explains to a degree why royal succession and positions in the aristocracy were so eagerly sought after. Palaces, manor houses and grand residences in the country were paid for out of rents from tenants for the most part or inherited wealth. Blenheim Palace, built in the early 18th century was funded partly by the Duke of Marlborough and partly by a grateful nation to its war hero.

During later centuries manufacturers were able to construct huge mansions in the countryside outside the squalid towns which generated their wealth as any visit to the outskirts of northern cities like Manchester, Bradford and Leeds easily demonstrates. This wealth reached its apotheosis in Edwardian times when rich plutocrats paraded their wealth proudly and lived lives of great extravagance, cruising around the world, living in huge houses, employing armies of servants (2m in London alone). Anthony Sampson observes that the rich suffered some reverses 1914-1990 as a result of: World War I; higher taxes combined with economic recession; World War II and its aftermath of austerity and rationing, not to mention fears induced by socialism and communism.

However, he argues, the advent of the 1980s saw a change of atmosphere and removal of constraints. The upper limit on income tax was reduced to 40% while the Big Bang of financial deregulation and the ending of the Cold War opened up a world market place unleashing riches of which the fabulously rich Edwardians could only have dreamed. New phenomena began to be identified:

Affluenza: this was a condition diagnosed by psychologist Oliver James, in the book of the same name in which: very high value is placed upon ‘having money and possessions; looking good in the eyes of others and wishing to be famous’

The Super Class: in his book A Class Act, Andrew Adonis (before he entered politics) identified a new group of beneficiaries of the new atmosphere of the 1990s.

‘The Super Class, like the medieval clergy and Victorian factory owners, has come not just to defend but to believe in the justice its new wealth and status. Buttressed by a revamped official ideology (which even New Labour does not dare question) lauding financial rewards as the hallmark of success and economic growth, and rejecting post-war notions of social cohesion, by the late 1980s the professional and managerial elite was unapologetic about the explosion of income differentials and prepared to concede few if any social disadvantages in the process.’

They enjoy a standard of living unimaginable only a few decades ago:

‘London; servants; second homes; globalism; the best of private education, health and leisure; exotic foreign holidays; modern art; and almost total separation from public life; intermarriage between professionals with both partners on large incomes- these are the dominant themes of the life of the Super Class.’

Richistan: this was defined by Robert frank in his book of the same name in which he identifies a small, but rapidly growing, group of mega rich people who seem to live beyond frontiers and national tax regimes; who live in protected mansions, have private health and personal travel facilities more appropriate to a suburb than an individual. They were:

‘Creating their own country within a country, their own society within a society and their economy within an economy’ (p3)

Frank was writing of an international phenomenon, but with London as one of its major hubs and showplace for aspiring new ‘citizens’.

Reluctant to give to charity: In the US the average given to charity is 2% while in UK it is 0.6%. In 1986 two leading businessmen Sir Hector Laing and Sir Mark Weinberg set up the Percent Club whereby they tried to encourage companies to contribute 1% of their pre-tax profits to charities. They soon had to reduce this to 0.5% but after ten years the average given by top companies was the same percentage as in 1976: 0.42%.

Unjust Rewards, by Polly Toynbee and David Walker: Toynbee and Walker present their case, basically in the first 35 pages of their book.

'Parental income pretty accurately predicts whether a child will win or lose in life: the more unequally income is, the tighter the link becomes.'

They observe that 19,000 people declared annual income of more than £500,000 2003-4. Over the next two years another 30,000 joined them and the incomes of the top 1% grew at double the rate of the average income. New Labour, having accepted the tenets of liberal economics, or ‘Thatcherism’, also seemed to like the company of rich people, or at least the PM did. While Brown’s style was more austere, he encouraged rich people to live in the UK, on tax lenient terms, on the assumption that they would be spending their money in the UK and that must be good. He had no objection either to remuneration committees allowing big salaries for directors.

Toynbee uses her (now famous) analogy of a camel train crossing the desert. If the whole represents society then, she points out, if the front part travels significantly faster than the rear part, there will come a time when it cannot be said the latter is part of the train, and hence the poor part of society. They are than ‘excluded’. She fears that the yawning gap between rich and poor had reached this point in the months before the banking crisis: ‘increasingly we do not belong to the same community’; ‘a canyon divides moneyed and sub-median income Britain and the bridges across crumb le and collapse’. The rich were getting ever richer while the chances of the poor to ever acquire any assets ‘diminish further’.

The Economist (1/2/07) noted how income was ‘distributed more unequally than in almost any big rich country except America.’ The top 10% of income earners get 27.3% of the cake; the bottom 10% get 2.6%. In 1988 'the average chief executive of a FTSE company earned 17 times the average employees pay; 20 years later the ratio was closer to 70-1. An ICM poll in February 2008 showed 75% of respondents think the gap between rich and poor is too wide. Grant Thornton Accountants calculated that the UK’s 54 billionaires paid only £14.7m in tax in 2006 on fortunes totalling £126 billion. At least 32 paid no tax whatsoever and few paid capital gains tax. Toynbee and Walker calculate that if the ST’s Rich List paid all the taxes they should on income and assets, the Treasury would harvest a further £12bn per year. If tax avoidance by accountants was included this figure would rise to £25bn. £3.4 bn a year would lift enough families out of poverty to reduce it by half by the year 2020.

Worryingly social mobility seems to have ground to a halt in that the middle classes have ensured the lion's share of the good jobs are occupied either by them or their children. Alan Sugar might have emerged from a poor background, but he is very much the exception and few broad conclusions can be drawn from his experience regarding the fairness of the social system. Everyone is now aware of the mega, US-style salaries being earned by top executives, some earning more money than they could ever spend in a lifetime. Toynbee points out that the super-rich can employ super accountants to minimize their tax liabilities. Out of the 54 billionaires living in the UK, thirty two pay no income tax at all and the whole group paid only a tiny fraction of their earnings. Thereby, calculate Toynbee and Walker, the Treasury and the rest of us taxpayers are denied some £12bn a year.

On the poor the authors argue those on low incomes are despised, whether in or out of work. Such work-cleaning, looking after the elderly, working check-outs- is necessary for society to function properly, yet ‘their paltry pay devalues the work they do- the poor have been excluded. They live in an archipelago of estates where there is frequently no law and order and their children have nom option but to avoid the schools middle class people take pains to avoid. They are no longer buttressed by a strong trade union movement and are mocked by the middle classes for being vulgar ‘chavs’-Wife Swap, Shameless- and feared for their potential disorderliness. Many middle class people will cross the road when approached by more than one shell be-suited, base-ball hat wearing or ‘hoodied’ denizens of the sink estates.

‘A child from a family getting by on around £200 a week has known from the first day at school what it feels like to be worthless. This child has no birthday parties, no holidays, no plane or even train rides, no Xbox games that other children talk about and no computer for online chatting. Face-book is a closed shop. Shop windows, television images and playground conversation all painfully remind this child that he/she is excluded from the mainstream. Is it any surprise that a few of these children will devise for themselves the private gang culture that causes a national outcry?’

In the next chapter the authors report on two focus group meetings with a clutch of lawyers and bankers on the subject of wealth and poverty. They displayed an astonishing ignorance of salary levels, claiming that their own salaries were way down the top 10% of earners when they were easily in the top 1%. While they earned over £15K each, they had no idea that 90% of people earn less than £39, 825, the higher tax limit. They seemed locked in a denial that they were even rich in the first place. When questioned on the morality of their high incomes they justified them by citing their extraordinarily hard work and desire to get ahead, especially compared to teachers.

They also seemed to accept unquestioningly the traditional Tory justification of the 'trickle down' theory- that more riches for the rich equals more ‘cascading’ down to the poor; even the Conservatives have recently admitted that it's wrong to 'pretend a rising tide raises all boats'. They reckoned a ‘poverty wage to be £22K, closer to the average income of course. When asked in surveys the general public have reckoned the level to be around £11K and under.

‘Here were professionals who deal daily with money, yet how little they turned out to know other peoples’ incomes.’

Toynbee and Walker conclude:

'Here were people who may be technically adept, or good at deal making, but as a group-with one or two exceptions- they were less intelligent, less intellectually inquisitive, less knowledgeable, and, despite their good schools, less broadly educated than high flyers in other professions. With minds this coarse they wouldn't succeed in the higher ranks of the civil service, as heads of hospital trusts or good comprehensives, nor would they match up to the level of good junior ministers. Most dismaying was their lack of empathy and their unwillingness to contemplate other, less luxurious lives.


No doubt the recession will introduce some changes in attitude and awareness. Already most people have realised the house price increase bonanza has ended and high street stores are reporting reductions in spending. No doubt the rich will carry on spending, as the4 ST reported regarding socialite Nicky Haslam’s 800 guest bash on 16th October. In anticipating the recession everyone expects, Will Hutton, Observer 19/10/08 argued that the rich will have to make every effort to cross and reduce the wealth gap:

‘This is going to change the politics of the next few years. In recessions there is always a renewed impulse for fairness. In good times when everybody is doing well, the super-rich can be indulged. In bad times the shared view quickly becomes that the pain should be fairly distributed; those who are wealthy should help to alleviate the distress of those suffering the bad luck of unemployment through no fault of their own.’

Reading
R. Frank(2007), Richistan, Piatkus
O.James, Affluenza,(2007) Vermillion.
R. Hattersley(2004), The Edwardians,Abacus
A.Sampson (2004).Who Runs this Place? Headline
P. Toynbee and David Walker(2008) Unjust Rewards Granta





Bill Jones October 2008
http://skipper59.blogspot.com/

The Race for the White House 2008

‘He(McCain) hasn’t lost it, but it is slipping away’ Frank Luntz, Pollster, 9/10/08

‘If the election were held today, yeah, he’s toast’. David Johnson Republican strategist, 9/10/08

Only once in the past 50 years has a party won three terms on the trot to the presidency: 1988 when G. Bush Snr won. Then a popular president , presided over a strong economy. Now a hugely unpopular president approaches his last few months in office and the economy is close to possible extinction-though fingers crossed this won’t happen. The contest to take over the White House from George W Bush has been the most enthralling for fifty years. The Democrats managed to honour the attempted replacement of the most unpopular ever US President with two unique categories of candidate; a woman and a black man.

One alone would have been unusual but two at the same time was truly remarkable. Those who claimed the USA was not ready to vote in either for the highest position in their land have had to rethink their positions as Hillary Clinton pushed her candidature to the brink of nomination while Barack Obama, the Democratic candidate, is now in a position when he can create history on 4th November. Inevitably, where politics is so personalized, biographies are of key importance.

Barack Obama: born 4/8/61 in Hawaii, where his Kenyan father was a foreign student and his mother, Ann Dunham, was a white American from Wichita. His parents divorced when he was two and then his father died in a car accident in 1982 His mother remarried a man from Indonesia where the family moved in 1967 and Obama attended school there until he was ten. Then Obama moved to live with his grandparents, moving to Los Angeles to complete his schooling in 1979. [His mother died of ovarian cancer in 1995]. Obama admitted dabbling with drugs and alcohol during these years but it did not stop him from attending Columbia University where he studied political science with some distinction.

He then moved to Chicago where he worked as a Community Development Organizer, achieving much in a short time. He entered Harvard law School in 1988, doing very well and then, astonishingly at the time, selected on the basis of his grades and written work, to be the first black editor of the prestigious Harvard Law Review. He was later elected as the first black president of the Review, in charge of 80 editors. He was appointed to Chicago University in 1992, as a professor, lecturing in constitutional law. He married fellow lawyer Michelle Robinson in 1992. In 1995 he wrote a book on race relations which morphed into a memoir, Dreams of my Father. He also worked for a number of private law firms before being elected to the Senate for Illinois in 1996, re-elected in 98 and in 2002. In 2004 he was elected to the US Senate. In July Obama ‘arrived’ nationally when he wrote and delivered the keynote address to the Democratic Convention in Boston. It was a huge success and boosted his campaign for the US Senate. He was only the 5th black Senator to have been elected. He became a candidate for the presidency in Feb. 2008. Obama’s biography is necessarily shorter than that of his opponent John McCain.

John McCain (born 1936)
He was born in Panama where his father was serving at the time as a naval officer. He has Scotts-Irish and English ancestry. He comes from a military family with his father and grandfather as 4 star admirals. He attended 20 schools as service child but excelled as a wrestler and boxer as a young man. He attended Anapolis Naval Academy in the 1950s but his volatile temperament meant he had a chequered career there and finished only 894 out of 899 cadets, despite, as his wikipedia entry says ‘having a high IQ’. He then trained as a naval aviator, gaining a reputation, in the process, as an extroverted party going person-fond of drink and girls and with a quick temper.

He completed training in 1960 as naval pilot ground attack pilot on aircraft carriers. He crashed two of his planes in his early career but became a competent, if somewhat reckless flyer. He married a model, Carol Shepp, in 1965 and had a son to add to her two step children. He was involved in the severe fire on USS Forrestal in 1967, when he was almost killed but managed to save a fellow airman involved. His bravery cannot be questioned. In October 1967 he was shot down over Hanoi and taken prisoner in Hoa Lo prison (the ‘Hanoi Hilton’ as it was called by US troops).
Dragged out of a lake he was beaten and stabbed by North Vietnamese and further very badly treated in captivity, though wounded. But his treatment improved when his captors discovered his father was a senior admiral. He lost 50 pounds in weight and his hair turned white. In March 1968 he was placed in solitary confinement -for shouting obscenities at his captors- where he stayed for two years. However, he refused early release unless those captured ahead of him were also first released. In August 1968 a programme of torture was initiated, with frequent beatings every two hours. He actually attempted suicide but guards prevented this. Finally he signed a ‘confession’, having reached his breaking point, as he later admitted. Injuries sustained left him permanently disabled, unable to raise his arms above his head.

He was released March 1973. He required months of therapy for his injuries but resumed his career, being made commander of a training establishment in Florida. During this time he admits to extra-marital affairs initiated by him. In 1977 he served in the Navy’s liaison to the Senate and absorbed his first taste of politics. In 1980 McCain met heiress Cindy-Lou Hensley whom he married after an amicable divorce from his first wife. His children did not attend the wedding and were not reconciled for some years. In April 1981 he retired from the navy with the rank of captain, heavily decorated from his war service.

McCain initially worked for his father in law’s car dealership but ran for Congress, being returned for the Republicans in 1983, serving out his term as a staunch Reaganite. He and his wife had two children and adopted a Bangladeshi child as well. He was elected to the US Senate for Arizona in 1987. He soon made his mark but became enmeshed as in the ‘Keating Affair’ as one of 5 Senators who gave assistance to a private businessman who had given them favours. His career in the Senate has not been conventional and he has done much in collaboration with Democratic senators. His reputation as a ‘maverick’ stood him in good stead when it has been necessary to distance himself from the Bush presidency, over issues like abortion and global warming for example.

In September2000 McCain ran for the presidency against GW Bush and it was dirty primary campaign with smears re McCain fathering a black child and other accusations e.g. that he was gay and his wife a drug addict. He declared his candidacy for the presidency in April 2007.

Obama’s Primary Campaign: this was dominated by his battle with Hillary Clinton, wife of Bill and part of the Democratic ‘establishment’. He surprisingly won Iowa but Hillary came back in New Hampshire. However, Obama did better at raising money for his campaign and it was obvious he had struck a chord with his emphasis on ‘change’; his meetings were like revivalist religious meetings with vast audiences responding to his oratory. Hillary could not compete in terms of charisma though she won most of the debates held with other candidates. Obama however, established good fundraising via the internet and mobilized young people as no-one has since the Kennedys; millions more are now on the electoral register as a result of Obama’s participation.
One by one the others dropped out but Hillary insisted she could still make it. However, husband Bill, proved less than an asset with his interventions tending to be negative and alienating to his audience within the party. Slowly it became apparent that Obama would win and he even reneged(19th June) on a former pledge to accept state aid for his campaign as he was now able to exceed official limits and wished to avoid the constraints of federal aid. On 23rd August, 40 years to the day after Luther king’s ‘I had a dream’ speech, he accepted the nomination of the Democratic Party at Denver with Joe Biden becoming his running mate. The Economist (23/8/08) rated Obama’s achievement in beating the Clinton machine as ‘monumental’.
Positions
Obama inevitably began to tack to the centre once adopted as candidates tend to, but his liberal positions on opposing Iraq, urging action on Darfur, introducing health insurance for the 50 million without it in the USA, taking collective action against global warming and reforming the tax system to advantage the poorer people. He would close down Guantanamo Bay and pour cash into alternative energy.

John McCain Primary Campaign
McCain faced tough opposition from rivals like Rudy Juliani and Mitt Romney in the primaries and had some difficulty in raising the millions needed to win the long primary road to nomination. Indeed, in January 2008, McCain’s campaign seemed dead in the water and many expected him to give up in favour of the stronger candidates, especially that of the former mayor of New York who had a national hero’s status. However, his only moderate speaking skills and his lack of name recognition compared to the former mayor of New York did not prevent him from making his mark as the most impressive as his party’s would-be successors to George W Bush’s disastrous reign in the White House. By going for the early primary contests he improved his name recognition and established some momentum while Juliani’s decision to hold back until later in the process proved a fatal error. By winning Super Tuesday contests in February McCain never looked back and by early March, with Mike Huckabee beaten, he was confirmed as the winner.

Political Positions
McCain had long been seen as a maverick Republican with policies opposed to his president re immigration –he was more in favour of illegals being given a route to legality; global warming- he agreed man-made actions were responsible and on abortion and gay marriage he was less inflexible. He was also less inclined to follow the religious right in their various extreme ‘culture wars’ positions. However, he agrees with Bush on being hawkish in Iraq and towards Iran and regarding terrorists. He would also close Guantanamo as a blemish on the US reputation. His unconventional background has proved an advantage as US voters decide Bush inclined Republicanism has taken USA on the wrong road.

Mutual ‘attack’ positions
McCain attacks Obama for being inexperienced, rather as Clinton did. He tries hard to avoid even the slightest suggestion of racism, though, as with Bill Clinton, on behalf of his wife, there have been occasions when he has failed. Referring to him as ‘that one’ in a televised debate was seen as openly disdainful though not racist. Republican outriders have tried to suggest Obama is variously, a Marxist, a Muslim and a terrorist but with no real purchase for any of these slurs, none has so far stuck.

Obama attacks McCain mostly for being ‘more of the same’, seeking to identify him with the discredited Bush. His age-72- is also a factor as he would be the oldest president ever, though Reagan was older beginning his second term. Otherwise Democrats seem not to have used slurs overmuch as there is evidence that voters begun to react negatively to such approaches.

The Campaign Proper since August
Given that the Democrats were favoured by 10 clear points over the republicans, it was not surprising Obama held a lead over his rival early August but there were danger signals for Obama at that time. At that time he took a break home in Hawaii to allow a lower profile for a while. Polling evidence was suggesting voters had overdosed on Obama news. Worse, news that close ally John Edwards had had an affair while his wife was suffering from cancer, had not pleased potential Democrat voters. His ecstatic public meetings had allowed Republicans to pin the tag of ‘over confidence’, even arrogance, on Obama. 51% of voters in a Pew poll said they had been hearing ‘too much’ about the man. McCain’s ads compared his rival to Paris Hilton i.e. a brainless ’celebrity’ figure.

Given the fading of Al Gore in 2000 and Kerry in 2004 at about this stage in the proceedings, Democrats were understandably worried. They were also annoyed that a man with a huge fortune and six houses (he didn’t know how many when interviewed on TV) could portray their man as a member of the privileged elite when he was the one who came up the hard way, raised by a single mother and his grand -parents.. Obama’s visit to Europe, designed to improve his low profile on foreign policy produced some amazing footage of 200,000 enthralled by his speech in Berlin but failed to impress US voters who tend to be ethnocentric and the right wing of whom regard Europeans as virtually communist anyway. On 10th August, Obama’s lead over McCain was down to a single point.

Sarah Palin as VP Candidate
In late August McCain chose 46 year-old Sarah Palin, governor of Alaska as his running mate. Compared with Obama’s safe choice of Washington veteran, Joe Biden, this was a bold and possibly rash decision. Palin had been a beauty queen, a mayor of her home town and was known to hold ultra conservative religious right views which were unreconstructed ‘Bushite’ in content. Democrats hoped for skeletons in the cupboard and teams departed north to dig for dirt. However, Palin’s address to the Republican convention was a sensation as this straight-talking handsome woman, with five children with weird names, offered her unabashed Americana aimed at ‘hockey moms’ and ‘Joe six-pack’.

Her arrival ignited the often moribund Republican campaign. It had been high risk but it appeared to have come off. Before her nomination McCain stood at 41% in the polls to Obama’s 49%; afterwards the figures were, respectively: 48% and 44%. Palin delivered a huge shot in the arm to McCain and seemed to havde mobilized the rightwing coalition which had placed Bush in the White House. Things looked very bad for Obama in the second week of September.

Presidential Debates
When the polls are so close, as they were in the two previous elections, the televised debates play a key role in presenting the candidates to the public in a direct form. Obama is more intelligent and intellectually accomplished then McCain but much less experienced. Voters anyway do not always warm to cleverness or Reagan and Bush would never have been elected. At the time of writing two debates have been held and the single VP one. McCain has performed well in both debates, appearing relaxed and confident as well as being mostly courteous but signs of tension and aggression have been evident on the Republican side. Michael Tomasky, US editor of the Guardian, reached a significant conclusion on 6th October: it was ‘substance’ which was proving decisive in these debates.

Convention has it that appearance and demeanor count for more than content in these artificial confrontations but Tomasky points out that these have been different:

‘McCain had more zingers and one-liners than Obama did and was generally speaking the aggressor. And Sarah Palin, with her repeated winks at the camera, had far more folksy ‘I’m just like you Joe-Six-pack’ approach than Joe Biden did. One liners, aggression and emotive warmth are supposed to win these contests, we are told, and they usually do. But literally every poll I have seen show voters think Obama and Biden- who were direct and substantive and between them barely said one folksy or zingy thing- won the debates and handily so. ‘

Interestingly media experts rated the debates narrow draws or wins for McCain but the public disagreed. The USA Today poll poll showed that after the 30th September debate respondents divided 46-34 in Obama’s favour. CNN had it 54-30 and CBS 39-27, with similar numbers saying Obama came over as more likeable. Palin also has not impressed in interviews, trying too hard perhaps to mug the camera and gush feminine charm rather than intelligence. There was some evidence by early October that Palin’s magic was beginning to fade. The satirists made hay with her gauche performances in the media. In response to a question about the banking bail-out on TV she replied:
‘That’s what I say that like every American I am speaking with we’re ill about this position in that we have been put there where it is the taxpayers looking to bail-out, but ultimately what the bail-out does is help those who are concerned about the healthcare reform that is needed to help shore up the economy, um, helping the, oh, it’s all got to be about job creation, too, shoring up our economy and, putting it back on the right track, so healthcare reform and reducing taxes and reigning in spending has got to accompany tax reductions and tax relief for Americans and trade we have got to see trade as opportunity not a, a , competitive, um, scary thing, but one in five jobs being created in the trade sector today we, we’ve got to look at that as more opportunity, all those things under the umbrella of job creation, this bailout is a part of that.’

Economic Crisis Hits McCain’s Campaign
Soon after the problems with Fannie Mae, Freddy Mac and AIG, where Bush was seen regularly on television trying to explain why tax-payers’ money was being used to assist the richest group in society, it became clear that McCain’s campaign was being badly hit by the crisis. The Republicans, as the party of business, banking and rich people, was being blamed for the crisis. Steve Lombardo, long time Republican campaign runner is quoted in an October 8 Guardian article that:

‘The dynamics of this election race are being driven almost entirely by the financial situation here in the USA and globally, and that works for Barack Obama.’

He saw no comeback for McCain as ‘voters have decided that the base of the problems they face are the Republican party, George Bush and by extension, John McCain.’
On this day Bush registered a new ratings low of 25%, one point above Nixon in 1974 just before he resigned. Lombardo also argues that attacks on Obama’s character are inappropriate now and will ‘smack of desperation’. No amount of tactical maneuvering over the next 29 days will change anything. 15th September, when Lehman Bros filed for bankruptcy was the crucial day: McCain told a rally: ‘the fundamentals of the economy are strong’. Veteran Republican Senator, Chuck Hagel’s wife did not help much by coming out for Obama as well on the same day.

Issue Standings in early October
The Economist 4th October gave national standings on a variety of issues for both candidates.
1. Economy: O-44; M-36: % placing issue in top 3 concerns, 84.
2. Regulation of economy: O-32; M-29: 6%
3. National security: O-31; M-48: 40%
4. Foreign policy: O-31; M-47: 40%
5. Iraq/Afghanistan: O-40; M-44: 44%
6. Healthcare: O-44; M-27: 44%
7. Immigration: O-30; M-31: 27%
8. Energy and Environment: O-45; M-19: 15%
9. Education: O-44; M-24: 16%
10. Crime: O-29;M-32: 5%
11. Culture wars(values): O-33; M-39: 15%

Current Standings in Polls
Now staunch Republican states like Indiana, which has always voted for a Republican president, both candidates are tied on 48%. Moreover, the key state of Florida, where Bush won in 2004 by 537 votes, it is now too close to call. Poll trends analysed in the article suggest electoral college votes would allocate as follows:
Solid for Obama……..196
Solid for McCain……..143
Too close to call………111
When the ‘leaning towards’ numbers are added from state polls and translated into delegates to the electoral college the numbers are:
Obama………264
McCain………163

When it is realized Obama needs 270 delegates to win, it must be obvious McCain faces a tough uphill fight to win from here.

Palin Scandal: Into this unhappy situation came the announcement on 12th October that the officasl Alaskan inquiry into Palin’s dismissal of a senior official who had refused to sack a trooper from whom Palin’s sister was obtaining an acrimonious divorce. It concluded that Palin had abused her position of power in this instance, a devastating judgement for someone seeking election to the second highest office in the land and who, because of McCain’s age, might have more expectations than most to have to step up to the presidency over the next four years, should McCain be elected.

Conclusion
To return to the opening remarks in this briefing, circumstances are far from favourable for a Republican victory and McCain is far from being a perfect candidate, aged 72, with a history of cancer. But the polls have been close enough to suggest Obama cannot assume victory. The man whom a Pew poll showed was the firm favourite of majorities in 22 countries might well succeed in healing race relations in USA and offer a gleaming role model to young blacks of a successful black man with a happy and intact family. But life is not so simple. He is such an untried novice politically that despite his dazzling gifts as a speaker, voters are still unsure for what he stands. It is by no means assured that he will win.
It is also a fact that he is to an extent a divisive figure. Those who will not vote for him because of his colour, would never admit it but up to 10% of voters might well fall into that category and in the privacy of the ballot cubicle many voters may choose to vote according to their prejudicies. However, if McCain does get elected he will find it virtually impossible to get his proposals past Congress which will be solidly Democratic after 4th November.

Prospects: The Economist is sure that whatever the outcome the future of the USA will be much different under either Obama or McCain. Both favour multilateral solutions for foreign policy. Both want to close Gauntanamo Bay Prison. Both want to join worldwide efforts to combat climate change. Both would travel the world as Bush has never done and both would receive a better welcome: Obama especially so. Both will achieve more with Congress, for which Bush showed open contempt. McCain in particular has a record of bipartisanship; Obama would have useful majorities in both houses. McCain is a classical economic liberal who wants tax cuts and less intervention to stimulate economic growth. Obama has complex intervention plans involving subsidies of various kinds; he aims to reduce the weight of tax on the average person. Obama wants to spread health care comprehensively while McCain wants to reduce costs to improve affordability. On foreign policy, there seems to be more difference than there is. Obama would stand up to Russia and China and not roll over in the Middle east either.
Bill Jones October 14th 2008

Apportioning Blame for the Crisis

Occasionally a time happens- and this is probably one of them- when you feel a watershed in being passed. The global financial system has ben found wanting and no-one quite knows what will happen; it seems nothing will be quite the same again. So I thought I'd try to identify the reasons why things have gone so irrevocably pear-shaped over the past year or so. I have written a longer briefing on this topic elsewhere but here I'll confine myself to pointing fingers at a few culprits, some well known, others less so.

Ideology
The 1970s were a turbulent and unhappy time for the left: high inflation, unemployment, union power excessive and living standards in decline. Thatcher and Reagan came into power determined to allow market forces to 'work their magic'. Over here this meant crushing the unions, privatisation, slashing taxes and deregulating financial dealings via the Big Bang. These steps helped to launch trading in shares and securities to phenomenal heights and racked up levels of debt in the way investment banks operated. These changes also introduced the City bonus culture and the arrival of the 'super-rich'.

Subprime Loans
Faced with a glut of investment during the 1990s US banks hired it out to initiate a boom in home buying. Urged by government to help the low paid, just about anyone qualified. Some loans were given on the basis of 'no income, no job, no assets' or 'ninja' loans. Often they came with 'teaser' discounts of 4% or below, set to double after a couple of years. It followed that irresponsible lending like this caused an avalanche of foreclosures, rising from a quarter of a million in early 2007 to three quarters of a million in mid 2008.

Securitization
The secondary mortgage market has long existed. This entails mortgages being sold on, like IOUs, to investors abroad who hope the income stream of payees will realise a profit for them. In the past this has worked perfectly well. However these subprime loans loans were dodgy so financiers wrapped them up with good loans in Collateralised Debt Obligations which were so complex few could separate the good from the bad. By now, the 'build my bonus' culture was such that few bothered to look too closely and these toxic CDOs flooded the world's financial system. As debtors in the US began to cease paying, however, the extent of the problem slowly became obvious.

Underwriting High Risk Mortgages
Underwriters are the people who assess the degree of risk attached to loans regarding the borrower's ability to repay. Assessments used to take a week but a near automatic electronic system was introduced in the USA which completed the job in 30 seconds. These guys carry a heavy burden of responsibility in the wake of the crisis.

Credit Agencies
These bodies assess the credit worthiness of issuers of securities plus the securities themselves. Their incompetence was fully demonstrated by the case of Enron but in the euphoria of constant growth and huge bonuses they alolowed their eyes to be taken way off the ball and the CDOs were often given triple A ratings. These agencies also carry a heavy responsibility.

The Bonus Culture
Finally, as we all are now aware, bankers became transfixed by the ridiculous sums they could make if they acquired sufficient business for their firms. Close scrutiny and caution- the once hallmarks of bankers- gave way to a desperate desire to acquire that parking space beneath the skyscraper HQ in Wall St or Canary Wharf, for the new Ferrari. The super-rich thought nothing about spending a £100mn on new yachts or even private submarines to swank their way around the world's pleasure spots during vacations or a hugely early retirement, funded by all those bonuses, companies bought and sold.

Simon Jenkins suggested a week or so ago that a tribunal into the crisis was required. Well, he could fill up his dock from the above three categories with no trouble and if public executions were still allowed many would gather at Tyburn to watch those responsible breath their last. However, there is a problemette here. There is another group of people responsible and this is a huge one: all those people who exploited cheap money by loading up with chronic debt, which they now find they cannot sustain by further borrowing. We are all complicit, to a degree in what has happened and, I'd guess, will have to return to a much more sober and cautious way of spending from hereon. If you need a mortgage, you might even have to spend an awkward hour or so in the bank manager's office, as my generation had to back in the 1960s and 70s.

Explaining the Banking Crisis

The Collapse of Capitalism? The World Banking Crisis Examined

‘Greed is good. Greed is right, greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed in all its forms: greed for life, for money, for love for knowledge, has marked the upward surge of mankind.’ Gordon Gekko, Wall St 1987.

‘Crisis, what crisis? Enough kerfuffle, it’s just a slowdown.’ Bill Emmot (former editor Economist), Guardian, 12th August, 2008

‘No need to worry, this crisis will probably turn out to be another storm in a tea-cup’ Anatole Kaletsky, The Times, 6th September 2007[and many similar statements since…]

Slow Realisation
It took a while-well over a year- for the world to wake up to the fact that the crisis was indeed a serious one and that it had to get much worse before it would get better. Kaletsky, for example, wrote, ‘a US economic recovery is now assured’ on 8th September 2008. Since then even he has realised this is the worst crisis since the Great Depression. For most of us these developments have been ‘noises off’, something happening to a much envied and much disliked group ‘fat cats’. However, the repercussions of plummeting shares, bankruptcies and non available credit will hit everyone soon enough in the form of unemployment and recession.

Sources of the Crisis

1. Eighties Reagan-Thatcher Economics
During this decade a reaction set against what was seen as the ‘over-regulation’ of the left-leaning seventies: union power was confronted and reduced; state owned operations were privatised; prices and incomes policies abandoned; upper tax rates slashed. More crucially, for the present crisis, the financial system was progressively deregulated. All this was reinforced by the fall of the USSR which seemed signal that ‘capitalism’ had won all the arguments. All over the world countries began to open up their economies to liberal capitalism: the new technology made globalization possible.

2. Big Bang 1986: this removed the distinction between stockjobbers, who were intermediaries when any stock was sold between stockbrokers, the professional financier who buys and sells on behalf of investors. It also made redundant the system whereby shares were traded via ‘open outcry’ through moving most trading to electronic processes. These changes had a dramatic effect making London the centre of world finance and helping to boost enormously the volume of world financial trade. Financial flows grew exponentially now that constraints had been loosened or scrapped; as in the 1920s debt levels grew to astonishing levels.

3. Abundance of Credit: From the early nineties investors, from Europe and especially Asia, believed a good return on their money could be gained by buying shares and securities from US banks. This meant that these banks had huge amounts of cash to lend out as capital to earn them even more money. Americans wishing to fulfil their dreams of owning their own homes constituted a large part of those seeking to take advantage of this glut of money.

Such availability of funding led to a price rise in housing and it was commonplace for homebuyers to exceed what they could afford in the knowledge that prices were soaring and that they could refinance their mortgages on more favourable terms once the discount period had expired. While the bubble of confidence lasted it seemed impossible for investment in the property market to be a poor judgment. These were golden days for builders, estate agents and property financiers.

4. Prices Ease Down and Interest Rates up: Homeowners increased from 65% to 70% of the whole and house prices more than doubled 1997-2004. Many remortgaged their refinanced properties to generate funds for consumer spending; something similar was happening in the UK as well. However, by 2005-6, when it became evident that house prices were falling and interest rates edging up; refinancing became problematic.

Notwithstanding, these developments, confidence in property was such, even at that date, that builders overestimated demand and produced surplus stock, which in turn led to reductions in values. This meant that many homeowners, overextended financially on adjustable mortgages, were prevented, through loss of equity, from refinancing, as before, when the higher rate kicked in. The result was a rising number of defaults. But worse, much worse was in store.

5. Subprime Loans: this was the practice of giving mortgage loans to bad risk customers. In some cases they had poor credit histories, insufficient deposits and poor or no employment. Some have been dubbed ‘ninja’ loans for which ‘no income, no job no assets’ were required. Companies often used ‘teaser’ rates-often 4% or even less- to acquire the business which then leapt up several points or doubled after a year or so. This often caused payment failure and subsequent repossession. It was adduced by some critics that banks and loan company staff were encouraged to sell to such risky customers because they were keen to gain the commission paid on each mortgage contract signed.

Many such sales went through in 2005-6 until by 2007 the value of such mortgages was $1.3 trillion, 20% of the whole. In March 2008, 11% of homeowners had zero or negative equity: their homes were worth less than their mortgage. By the middle of 2008 a quarter of such mortgages were not being repaid. In the first quarter of 2007 there were 239,770 foreclosures; by the fourth quarter 527,740 and by the second quarter of 2008, 739, 714, more than double the figure in just over a year.

6. Securitization: This innovation also proved toxic in that financiers devised a system whereby rights to mortgage repayments(a bit like IOUs) could be sold on to investors as ‘asset (or mortgage) backed securities’(MBS) or, a more complex formulation, ‘collateralised debt obligations’ (CDOs). These new financial products were often so complex, few could understand them, but in the atmosphere of the time, they were bought up by investors convinced they would reap a good reward. Those selling the products were, like the mortgage vendors, intent on maximizing their cut: their end of year bonuses.

Consequently these products, cleverly designed so that the ‘dodgy’ mortgages were wrapped up together with sound ones, were accorded good credit ratings and were sold far and wide to investors overseas. ‘Derivatives’ are complex products whereby a buyer agrees a priced at which something can be bought back in the future. Those embodying mortgage debts were often so complicated few could disentangle the ‘toxic’ elements of the product.

These products were often bought up by Structured Investment Vehicles (SIVs). An SIV is like a bank in that it borrows money at the standard rate from other banks and uses it to buy mortgage backed securities (MBSs), thus providing funds for mortgages, credit cards and student loans. The SIV would typically earn 0.25% more on these purchased bonds than it would pay on the money originally borrowed from other banks, thus accruing profit.
In consequence the ‘subprime’ crisis in USA was exported all over the world, especially, perhaps to the UK, where we have similar attitudes to home ownership and the centre of world securities trading: the City of London.

7. Inaccurate Credit Ratings: CDOs and MBS securities were given high investment grade ratings by the relevant agencies, thus fuelling the housing boom and encouraging the viral spread of the crisis. The US Securities and Exchange Commission, in June 2008 resolved to assess the rules governing such ratings.

8. Mortgage Fraud: this phenomenon, misrepresentation of mortgage information, hugely increased, by over 1000% 1997-2005.

9. Underwriting of high-risk Mortgages: Underwriters are the people who assess the risk of loans for banks and establish the criteria of lending, regarding the ability of the borrower to repay the loan. In 2007 40% of all loans were underwritten automatically via an electronic process. A process which took up to a week was reduced to a mere 30 seconds. Many point the main finger of blame at the underwriters who did not do their jobs properly.

10. Government Policies: critics claim the regulatory machinery is outdated and helped cause the crisis. There is much debate and accusations are being made regarding who is culpable, including the following candidates:

i) Repeal of the Glass-Steagal Act in 1999. This enabled banks like Citibank to operate outside conventional banking activities like taking deposits etc.; the most important consequence was that they were able to set up SIVs and buy the dodgy MBS and CDO securities.
ii) US Dept Housing and Urban Development Mortgage Policies assisted the issue of risky loans, it is alleged. In 1995 Fannie May and Freddy Mac began to receive housing credit for purchase of loans by low income borrowers.
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Explainer: Fanny Mae and Freddy Mac: what are they?
‘Fannie Mae was founded as a government agency in 1938 as part of Roosevelt's attempt via the New Deal to provide liquidity to the mortgage market. For the next thirty years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.
In 1968, to remove the activity of Fannie Mae from the annual balance sheet of the federal budget, it was converted into a private corporation. Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae). Freddy Mac was invented in 1970 as a further vehicle to assist the function of Fannie Mae.
In 1995, Fannie Mae began receiving affordable housing credit for buying subprime securities. In 1999, the Clinton administration and Fannie Mae shareholders encouraged the lender to increase the number of mortgage loans offered to those of low and moderate income, both to improve rates of home ownership among those groups and to increase profits.’
How do they operate?
They buy up mortgages from banks, building societies and the like. It then repackages them by ‘pooling’ the accounts and sells them on as ‘Mortgage Backed Securities’ on the ‘secondary mortgage market’. But these huge national institutions provide a guarantee that the loans will be paid whatever the borrowers’ circumstances. So they provide both a guarantee that mortgages will be paid and, with the money they pay to banks, a hugely increased liquidity with which they can offer yet more loans.
Critics of the two institutions pointed out how they received financial support from government and then repaid in the coin of political contributions. In April 2006 Freddy Mac was fined $3.8m for making illegal campaign contributions with much of them going to members of the House Committee on Financial Services, which has some responsibility for the mortgage providing bodies.
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Progress of the Crisis

1. Stock Market falls: these had been in progress since July 2007 when the Dow Jones Index had stood at a record high of 14,000 by August the decline had begun and it continued throughout 2008, with builders and mortgage lenders suffering the most. All over the world investors withdrew from mortgage bonds and invest in ‘safe havens’.

2. Investment Banks: In March 2008 investment bank Bear Sterns, in desperate trouble, was the object of a bale-out, assisted by the Federal Bank. The rescue attempt failed and the bank, founded in 1923, bit the dus when it was taken over by JP Morgan. The Guardian reported:
In London, leading City figures said the scale of the crisis was virtually unprecedented: "It does scare me," said veteran trader Terry Smith, chief executive of specialist inter-bank broker Tullett Prebon.
"I have been working in finance in the City and worldwide for 34 years and I have never seen anything like this," Smith told BBC Radio 4's Today programme.
"I don't think anybody alive has seen events of this seriousness and magnitude affecting the financial markets."

3. Fannie Mae and Freddy Mac Nationalized, 8th September 2008
Fannie Mae and Freddy Mac guarantee half of all US mortgages, worth $5.3 trillion so their role is crucial to the US economy. Given their remit to assist lower income house purchasers, it was unsurprising that they should have been in the firing line as the subprime housing crisis developed. When it did, shares in the two institutions plummeted and rumours spread that they were no longer able to provide guarantees as foreclosures had reached such a crisis point.
On 7th September the Federal government stepped in to take over -i.e. nationalised- the ailing giants. George Bush explained their risk of failure was ‘unacceptable’ to the overall economy, affecting home loans car loans and consumer credit, not to mention business finance. The crisis was now exposed to the whole world and the battle by politicians to pre-empt panic and construct solutions had begun.

4. Related Failures: Shares in other investment banks, especially those known to have invested in the toxic mortgage securities, now tumbled. Investment banks were vulnerable as they do not carry large cash deposits but are dependent on big inflows of credit. Once banks stopped lending to each other this made their position desperate. On September 15th Merril Lynch’s shares, $97 in January 2007 were bought at $29 each in a takeover by the bank of America. Four days earlier shares had been only $17. 16th September AIG, the huge insurance concern was bailed out to the tune of $85bn. On 22nd September The Guardian reported:
‘The concept of a Wall Street investment bank was in its death throes today as Morgan Stanley and Goldman Sachs succumbed to a collapse in confidence in their financial stability by converting themselves into lower risk, tightly regulated commercial banks.
Beset by plunging share prices and alarmed by the demise of competitors, the two remaining standalone Wall Street banks accepted licences from the Federal Reserve which allow them to take deposits from the public backed by federal government guarantees.’

5. 25 September, the biggest bank failure yet: Washington Mutual closed by authorities. No government however, could allow a really big bank to fail as the knock-on effects could bring the whole system down in ruins.

6. Paulsen Plan: Within a few weeks the phenomenon of investment banks, vehicle for huge incomes for their board members and CEOs, had been virtually wiped out. The world’s financial system had become frozen, with banks unwilling to lend to each other in case they also began to slide. This was the situation in which US Treasury secretary, Hank Paulsen, former CEO Merril Lynch and someone personally worth £700m, announced his hastily constructed rescue plan for the US economy, an injection of a $700bn bail-out to purchase bad debts from banks.

7. 29th September: House of Representatives throws out the Paulsen plan, at the direction of their constituents who vocally point out in media interviews and elsewhere that these Wall St ‘fat cat’ bankers had only themselves to blame for the crisis and that the little guy on Main St had traditionally been allowed to go bust, or become unemployed in the case of millions of former Rust Belt industries. Around the world shares go into free-fall as an air of panic takes hold.
Ist October: Revised plan is passed by Senate
3rd October: House of Representatives also passes the revised deal.

The Crisis According to the UK

Britain had been keen to ape the deregulation of markets pioneered in the USA, with Gordon Brown as cheerleader for New Labour. Financial services flourished; the City now contributes about 10% of the economy. As important banking is an ‘enabling’ function, allowing business to function. Without credit, business is like a body without oxygen. Debt increased within a decade to an average of 180% of disposable income, the highest proportion of any member of the G7: £1.44 trillion (equals million millions).

12th September 2007: Northern Rock sought emergency help from Bank of England causing a run on their reserves. Government steps in to guarantee all deposits in the bank.

17th February 2008: Northern Rock nationalised.

21st April: Bank of England announces it will swap risky mortgages for up to £50bn government debt or ‘liquidity scheme’.

17th September: Lloyds-TSB buys HBOS, the owner of the Halifax, for £12bn. Gordon Brown has encouraged the sale.

28th September: Bradford and Bingley nationalised.

The days of cheap credit are now over: mortgages issued have shrunk to a fraction of a year ago and formerly extravagant consumers have opted to tighten their belts. The number of mortgage products on the ,market has reduced from 30,000 in 2007 to 6300 now. Shopping has ceased to be a national obsession as more discriminating practices have begun to be adopted. Even Prince Philip has been reported as having had a 51 year old pair of trousers restyled in Saville Row. Houses are now only being sold because of debts, divorce and death; playing the market is over for at least 3-4 years. A deep recession, comparable with the 1930s seems likely to affect UK for several years.

The crisis has also affected Ireland, Iceland, Germany, France, Greece, Russia, China, virtually every developed economy. When Ireland and Germany and Greece offered blanket guarantees to savers and account holders, there was some unease with the EU lest money leached across borders to such safe havens, thus disadvantaging countries like UK which has held back from such general measures, though may now be forced to follow suit.

So far,[but see below] it would seem, politicians have floundered for a measured response. Blaming bankers for incompetence might be understandable and accurate but to revive, the economy needs a functioning banking system and such resentment is irrelevant, though clearly politically significant. Something like a restructuring of the economic system seems necessary as in 1945 at Bretton Woods. Will Hutton, in the Observer, 5th October sums the situation up as follows:

‘A 30-year experiment has come to an end. The world of go-getting investment banks has gone forever. The danger is that we go from feast to famine; debt remains a vital element in any economy, and if we too suddenly try to live without it we will crush ourselves economically. What we are witnessing is a system failure that requires a systemic response – the creation of a new system that sponsors a fairer, more productive capitalism in its place, while maintaining high flows of credit and debt.’

Postscript: On 8th October, the British government announced a £500bn bail-out of banks in the firing line aiming to improve liquidity and confidence so that banks can start lending again. Strings were attached however and it seems clear the era of big bonuses has passed.
Bill Jones October 2008.
http://skipper59.blogspot.com/