Crunches, Guido and Seigniorage

One of the more entertaining aspects of the current global financial meltdown is watching Guido Fawkes, aka hedge funder Paul Staines, transform from arch-cynic about all things political to dewy-eyed innocent about all things financial. It isn’t that I’m a capitalist-hating trot who fervantly believes that this current crisis is going to lead to world socialism, but reading Guido you would think that the financiers have no culpability whatsoever.

At Lib Dem conference on Tuesday I moved an amendment in the debate on the Housing and Mortgage Crisis. I think it was the poorest speech I have delivered in years (if you want to add to my humiliation you can still watch me on iPlayer – I’m about 40 mins in), mainly due to the fact that even after my crash course in all things monetary the night before, I wasn’t at all sure of my subject.

But at the same time, it is a subject very close to my heart. I heard a lot of speeches from MPs this week about how money worries are giving some of their constituencies mental health problems. As someone who went from someone who diligently filed all his bank statements every month when I was younger to someone who gets panic attacks opening letters from banks and generally keeps bank statements, unopened, in a box under the bed, I think its fair to say first hand that I know how they feel. Having gone through the process where my bank (Halifax, natch) wouldn’t give me an affordable loan and instead left me with no alternative but to try and manage a mini-financial crisis with a credit card, there’s a reason why I have a habit of talking about economic issues in moral terms – it’s the only morality that really matters in my humble opinion.

I’d agreed to do propose the amendment on behalf of ALTER, whose own speaker couldn’t attend. And I have to admit that while the idea of the credit creation charge (specifically a tax on bank’s creation of credit) has some appeal, I’d want to look into it a lot more before deciding whether to support it or not. While Neale Upstone and I could have probably done a better job at prebutting the criticisms made by Vince Cable in his summation, an out of the blue amendment is frankly not the way to win the argument, or even particularly to create debate.

We certainly need some kind of mechanism for controlling cheap credit, and the CCC has the advantage of using it to raise revenue which can be doled out to the wider public in the form of tax cuts (and possibly a citizen’s income), but there may well be other mechanisms. This week Vince Cable seemed to at least acknowledge there was a problem which needed solving.


  1. FWIW, I think the seigniorage arguments are flawed, and are behind the credit charge idea. I won’t consider joining ALTER until they shut up about seigniorage and cap their ambition for land tax at a sensible rate, say 20% or so.

    Clearly there does need to be better banking regulation, but regulation won’t eliminate risk and moral hazard, nor even will deposit insurance, although that is a good idea too.

    Unfortunately I missed the debate, but my guess is that Vince’s rebuttal was sound.

  2. Aren’t you contradicting yourself? In one breath you bemoan your bank for not giving you an affordable loan, and in the other you want more regulation of cheap credit. Which is it? Cheaper credit, or more expensive credit?

  3. “Guido, aka hedge-funder Paul Staines “.

    I didn’t know that, thanks for clarifying. I wondered why he has been rubbishing Vince so vigorously lately, and now see it is because Vince has been criticising hedge-funders’ activities.
    And I have been reading him trustingly, thinking he is an investigative political sleaze busting amateur journalist! A sort of blogging Private Eye.

    But these hedge-funders have no financial morality problem. It is disappointing.

    I read through the comments on his last anti-Vince article, to see if anyone supported the case with a good argument. But they seemed to be something of a rabble with abuse as their only debating weapon. And John Redwood as their financial hero!

    Elizabeth Patterson

  4. Guido – I’ve been reading your blog and (apologies if I got this wrong) it sounds more like you blame Vince Cable 95%, Gordon Brown 125% and the speculators -200% (sic).

    Bishop – to clarify: I wanted a small loan based on what I could afford. The only option I was offered was a virtually limitless credit card not based on anything at all. I will gladly admit that I should never have taken them up on the offer, quit the nightmare job that didn’t pay my expenses or on time two months in a row, and done something else. I cocked up but ended up paying far more than a proportionate amount for my mistake. And because I could just scrape by (and went on to earn more), the bank made a lot of money.

    You could argue they took a risk, but it was a pretty bloody small one. The calculation is based on the fact that most people will struggle through rather than claim bankruptcy. If creating credit was less insanely profitable, there’d be less incentive for them to get so many people in debt.

  5. Strangely though, you aren’t even slightly critical when the US Republicans nationalise anything that hasn’t been nailed down.

  6. My understanding of the course of events is:
    Vince didn’t say nationalise Northern Rock in the first place. You must remember that this saga took place over a period of more than six months.

    Vince criticised the private buyers like Branson, because Branson wanted NR for peanuts, and was only interested in making money out of other peoples’ grief.
    At that stage, Vince said that he would have preferred a private sector deal provided it was fair. But no fair minded white knight came along. And the government dithered, for six months trying to persuade people not to take their money out and worrying about job losses in the north.
    After NR had gone on bleeding to death for six months Vince said that the best thing was to semi-nationalise it, throwing out the existing board and appointing a crew to run it like a prize ship until it was stable.
    Then sell it.

  7. James

    They’re always taking a risk. Everyone in business takes risks. Clearly they looked at you and decided you were high risk, so they offered you very expensive debt. According to some of your thoughts this is exactly right – you have said that you think there’s a problem with a surplus of cheap debt. I agree. But you can’t then complain about not being offered cheap loans, can you?

    If the banks are going to crack down on cheap debt, then the poor will (overall) have less access to loans. This is the only way to go, right?

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