financial mess

Britain Prays for Obama Miracle

by Iain Murray on January 20, 2009 · 2 comments

in Bailout Watch, Economy, Features, International, Stimulus to Nowhere, Zeitgeist

Over in the UK, their own financial mess is reaching genuine crisis levels. With a trillion dollar national debt, a currency crisis and their own bank bailout (the model Paulson followed) having conclusively failed, Britain is on the edge of bankruptcy:

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

The tastefully-named Iain Martin is obviously angry, but he has every right to be. Gordon Brown encouraged Britain to gamble much more of its national income on his watch than America did, all the time proclaiming he had put an end to “boom and bust.” Brown’s bust is now so large it wouldn’t look out of place in a Russ Meyer movie.

That is why Brown and his cronies will be watching today’s inauguration with an audacious hope in their hearts:

In this gloom, the Prime Minister has but one slender hope: that somehow, by force of personality, the new President Obama engineers a rapid American recovery restoring global confidence, energising the markets and making us all forget this bad dream.

If this is the case, it is plain that officials of Her Majesty’s Treasury have not read the So-Called Stimulus Bill.

UPDATE: More on Britain’s plight from the excellent Andrew Lilico.

How Not to Solve a Crisis

by Iain Murray on November 14, 2008

in Bailout Watch, Economy

…is the title of a useful contribution to the discussion from the International Policy Network in London and the Lion Rock Institute in Hong Kong. Their recommendations for finding a way out of the financial mess are worth attending to:

– Better mechanisms are needed to manage the failure of large financial institutions, some of which may now be both too big to fail and also too big to rescue.
– Open ended guarantees to depositors and other counterparties are expensive and unsustainable in the longer term.
– The rights and hierarchy of investors across the capital structure should be clear and honoured — not subject to arbitrary alteration by government.
– Closer attention to the rights of collateral providers and custodians in the case of failures can limit systemic risks.
– Hedge fund failures have not created systemic risks in this crisis and they should not be a target of policy action.
– Ad-hoc bailouts should be avoided, since they create ever expanding demands for further intervention.
– Much more thought needs to be given to the unintended consequences of over strict capital rules, rating agency privileges and rating based limits on pension investments.

As the authors say, “free markets thrive on creative destruction” and these recommendations would help in that respect. In fact, when it comes to free markets, creative destruction isn’t a bug. It’s a feature!