Entangled Alliances

photo credit: hitthatswitch

In yesterday’s Guardian, Simon Jenkins complained that none of the major UK parties are attacking the Chancellor Alistair Darling’s decision to bail out the banks in 2008. After watching Tuesday’s Chancellors debate, Jenkins was left wishing for some “good old Labour blood and guts”, someone who could say to the would-be Chancellors:

“You blew it! When those petrified, knock-kneed smoothies from the City came pleading for help, you caved in and gave them the people’s money. You panicked, you bunch of creeps.”

Now I’m all for a bit of bank-hating, and I agree it’s important to stand up to any ”petrified, knock-kneed smoothies” that come your way (has there ever been a better description of bankers in the credit crunch?) and I definitely agree with Jenkins when he says that the better option would have been to nationalise the banks, not bail them out, but the idea that a better option would also have been to let the banks fail isn’t left wing, it’s just wrong. And it’s particularly wrong to say this:

Of course we shall never know what the world would be like today had Darling reacted differently in 2008. It could hardly have been worse. Some scenarios, such as just letting the banks fail, are undeniably hairy, though the global market in finance is astonishingly resilient and would, by now, probably be picking up the pieces and getting back to normal. America still eats and breathes, despite the failure of Lehman Brothers.

Wow. Saying that America still eats and breathes despite the failure of Lehman Brothers is like saying that Dick Cheney still lives and breathes after his heart attack. Technically true, but avoiding the minor detail of the triple-heart bypass in between. The crash of investment bank Lehman Brothers started the credit crunch proper and almost brought the world’s financial markets to their knees. Its collapse sent waves of panic through the markets, causing investors to try and dump all their dodgy financial products, which simply made the crisis worse. The mistake of the US government was to assume that the financial markets could cope with the failure of Lehman Brothers, and it learnt its lesson by bailing out all the other massive banks that needed help, and in doing so (narrowly) averted the complete collapse of America’s banking system

If Darling had let banks like RBS fail instead of bailing them out, then Britain might have had its own mini Lehman Brothers crisis. Jenkins says “it could have hardly have been worse”, but it really could have. At least we still have a functioning banking system. Obviously this doesn’t mean we shouldn’t still be angry about the respective parties’ current approach to the banks - no-one seems to be willing to make the banks pay for the mess they created, and no-one is taking the steps necessary to stop it happening again - but venting this anger by wishing that we’d just told the bankers to, uh, go collapse themselves instead of bailing them out is not admirably Old Labour, it’s just silly.