Brown's short-term memory
So Gordon Brown is warning that the “world needs to act in concert” to avoid a re-run of the 2008 collapse of the financial system that, you may recall, happened on his watch.
The former New Labour prime minister is busily trying to reinvent himself as the man who saved globalisation from itself. He has written an apparently impenetrable book called Beyond the crash: overcoming the first crisis of globalisation.
Brown is also touted as a possible successor at the International Monetary Fund to that other alleged “socialist”, Dominique Strauss-Kahn who is currently in a maximum security prison in New York (not, unfortunately, for the crimes committed by the IMF itself).
Once Brown was a cheerleader for the global financial system that grew and grew to fund and drive forward globalisation. Who can forget his memorable speech to assembled bankers in June 2007, just before he replaced Tony Blair as prime minister.
The warning signs were already evident. Mortgage defaults were mounting in America, with home loan companies filing for bankruptcy. In Britain, personal debt had more than doubled inside six years, while people were being lent six, seven or eight times earnings by mortgage companies.
At the Treasury in Whitehall, studied ignorance was bliss. Brown’s speech praised his audience for creating an era “that history will record as the beginning of a new golden age for the City of London”. It was due in part, he said, to the City’s “deep and abiding belief in open markets” and noted how Britain was “a world leader in stability”.
No praise was too high for his audience, who heard: “The financial services sector in Britain and the City of London at the centre of it, is a great example of a highly skilled, high value added, talent driven industry that shows how we can excel in a world of global competition. Britain needs more of the vigour, ingenuity and aspiration that you already demonstrate that is the hallmark of your success.”
But a global economy driven by debt had reached and passed a tipping point. Within weeks of Brown’s speech, in August 2007, the credit crunch began as overnight inter-bank lending stopped. In September, worried savers started queuing outside Northern Rock branches to get their money out. The bank was nationalised by the end of the year.
Brown is admittedly more sanguine now. Writing for the US magazine Newsweek, he warns that “if the world continues on its current path, the historians of the future will say that the great financial collapse of three years ago was simply the trailer for a succession of avoidable crises that eroded popular consent for globalisation itself”.
Rest assured, Brown is not referring to capitalism as the problem here. He is worried that there is no system in place – despite the 2007-8 crash – to chart “volatile and unsustainable wave of speculative capital flows” and no global consensus on capital and liquidity requirements for banks.
He rues the fact that despite the euphoria of the G20 summit in London in January 2009, nothing came of its declaration. The summit, says Brown, “has given way to indecision, to vested interests, and to a retreat into national shells”.
This admission of failure says as much, if not more, about the nature of capitalism than it does about world leaders. Brown, Blair, Bush, Clinton, Reagan and Thatcher encouraged the deregulated growth of the financial sector. Only if people were provided with credit could they buy the commodities the corporations were churning out.
As finance became footloose and fancy free, transcending borders and nation states on the click of a button, and developing unfathomable “products” like collaterised debt obligations, it became impossible to re-regulate. Worse still, the indebtedness that ultimately brought down the banks is still present, an albatross that no one can get rid of. Brown’s fears of another great crash are absolutely justified.
17 May 2011