Friday, September 21, 2007

Northern Rock

Recriminations go on over this fiasco, but without resolve, as both sides of the argument are valid - on the one hand to bail them out is a reward for bad risk-taking, on the other it would be sheer stupidity to allow a crash whose contagion risks bringing down the entire economy.

Alan Bond, when in difficulties said that if you owe the banks $1000 you have a problem whereas if you owe them $1,000,000 they have a problem. Same situation, roles reversed.

On the wider scale, we have an entire economy based on debt, consumer debt estimated at over £1000 million, a huge raft of mortgages based on ever-increasing house prices and behind the scenes, an indebtedness of the big financial institutions to one another made ever more impervious through repackaging and derivative dealing.

The capitalist economy is a cyclical one, of building up huge amounts of false value then shrugging it off. Sadly the Keynsian concern of economists to iron out the peaks and troughs has been replaced by the 'history is bunk' blindness of the Friedmanites.

Disentangling this mess will no doubt be far harder than stacking it up.


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