Swop Finance Ministers and we’ll fight again!

Well, faith and begoraah but isn’t it great to be Irish today? The government actually made a decision (quick – when was the last time an Irish cabinet made a decision?) to guarantee all savings in Irish banks and now cash is flowing from the UK into Dublin; to such an extent that Alasdair Darling is very upset and the UK banks are up in arms.  Aside from the “yeah sucks boo to you”, I actually think the blanket guarantee to all depositors, which probably should only be a short term measure, is better than the US bailout which tries to protect shareholders as well as depositors.

Wall St made lots of money out of bank stocks over the past decade, and many of those who made that money knew that “the value of your investment may fall as well as rise.” Well, now it fell, because people invested in institutions which everyone knew were lending money to bad risks and covering it with complex derivatives. Back in the 1990’s, I remember telling my Econonic History classes that about 95% of the stocks traded on “Wall St” had no relationship to an actual physical product with a price tag on it. By now the figure is probably worse. So no, I dont feel sorry for the investors. 

I do think that “Main St”, the small guy who is saving for a new car, or the small business who needs cash or a short-term loan to buy inventory or hire some new staff to service new business, needs to be protected. Guaranteeing the deposits – real deposits, not junk bonds – in banks gives those banks the liquidity to lend the cash that people who do real nuts and bolts business need from week to week. That money has been drying up, partly because people have been moving cash out of banks to safer places like the teapot or the Post Office, and Brian Lenihan’s move will help that. 

Our little Irish government is also right to say that the rest of the EU should do the same – London effectively is, even though they have not made it an official policy. It won’t cost a lot, because many European banks are not in bad shape anyway, but it will save a great deal and stop the fear. How many people remember that it was during his inaugural address at the height of the Great Depression that Roosevelt said “The only thing we have to fear, is fear itself”

And as for those moaners who bleat about this crisis being the death of capitalism, well, it’s not. It is the death of stupid “I want it all now and I want it free” capitalism, but real capitalism isn’t about 110% mortgages and derivatives; it is about investing real money in real products and services and making a reasonable return. Sometimes people lose money on real investments, but if the risk is properly assessed, it is manageable. Many people don’t want to think about risk anymore; they want to live in a risk free society – not just financially, but in every aspect of life. We -well, actually you, not me – have grown used to expecting other people to worry about the risks while we freewheel along. Back when Ted Heath made an abortive attempt to start the New Right in 1970, he spoke about freedom to chose, but also said the individual should be responsible for the consequences of their choices. Heath may have messed up a great deal, but he did get that bit right, and now it has come home to roost. 

The top line, by the way, for those of you who are half-recalling that you heard something similar previously, is a paraphrase of a famous quote from a Jacobite soldier after losing the Battle of the Boyne, when he suggested to the Williamite ranks that they should “swop Kings and we’ll fight again”