Monday, January 25, 2010

So what would Obama's proposal have prevented?

Nothing, in the UK in any case.

Allister Heath in City AM - the UK's only consistently pro-capitalist newspaper - says:

Barack Obama’s plan to ban banks with retail arms from those activities – endorsed by shadow chancellor George Osborne – would have done nothing to prevent the crisis; not a single bank that got into trouble since 2007 would have been saved had those rules been in place.

Why?

Northern Rock, HBOS, Bradford and Bingley and the Dunfermline did not engage in prop trading. They lent to people who couldn’t repay, assumed property prices wouldn’t fall, relied on money markets for funding rather than deposits, and purchased securitised sub-prime debt as a “safe” high-yielding investment, often tucked away in off balance sheet vehicles. They held too little quality, liquid capital as a buffer against losses.

So you see it's a mirage. What about RBS?

It was over-leveraged, bought vast amounts of sub-prime securities, lent willy-nilly to unsound borrowers and blew a fortune buying ABN Amro, suffering massive goodwill write-offs. RBS made every mistake in the banking book; it would have been doomed with or without Obama/Osborne.

The Tories are jumping on the bandwagon for political reasons. It makes them look like they aren't beholden to rich capitalists in the City of London, and helps attract the envy vote across the country. At the same time the British government, to its credit, is NOT jumping on the bandwagon. Gordon Brown, for all his faults, is smart enough to not frighten the sharemarkets even more by blundering into nodding in unison with Obama.

Funny though how those on the left who would decry the UK following in step with the US when it was Blair and Bush, now want Brown to follow Obama. Funny that it isn't about making your own decisions, but about making decisions they agree with.

A Guardian poll showed nearly 100% support for doing so, but then who reads the Guardian besides those who think the state should intervene in more, except when it comes to overthrowing nasty dictatorships in the Middle East. So of course it has articles saying "yes Obama", as does the Independent and even the Telegraph is conditionally supportive.

It is deeply unfortunate that many who understand the financial sector are typically without much knowledge of public policy or political philosophy. Indeed, the reverse is true with many political pundits, bureaucrats and journalists not understanding the financial sector.

In the meantime too many are prepared to blame anyone but themselves, and to find solutions that are about addressing symptoms not causes.

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