Storm, The (28 page)
The notion that national (or broader) identities might spill over
into conflicts about the international order are described in particularly apocalyptic terms in Samuel P. Huntington’s
The Clash of Civilizations
(Simon and Schuster, 1997), and more subtly in Michel Albert,
Capitalism versus Capitalism
(Whurr, 1995). Concern that such competition might result in an exclusive, discriminatory form of regional integration are
expressed by Jagdish Bhagwati,
Termites in the Trading System: How Preferential Agreements Undermine Free Trade
(Council for Foreign Relations, 2008), and in Vincent Cable and David Henderson,
Trade Blocs: The Future of Regional Integration
(Royal Institute of International Affairs, 1994). The uses and abuses of the concept of ‘economic security’ are discussed
in my
International Affairs
article ‘What is Economic Security?’ (April 1995).
The debate around what kind of capitalism should emerge from the experiences of the recent past has been touched on in the
debate on Greenspan’s legacy (see notes to
Chapter 2
). Those who consistently argued for a less permissive approach to financial
markets include Joseph Stiglitz,
The Roaring Nineties: Why We’re Paying the Price for the Greediest Decade in History
(Allen Lane, 2003), and George Soros,
The New Paradigm for Financial Markets
(Public Affairs, 2008). The case against Greenspan’s fatalistic approach to the regulation of financial markets is best described
in a series of exchanges in the
Financial Times
: Martin Wolf, ‘Why financial regulation is both difficult and essential’ (15 April 2008); Henry Kaufmann, ‘The principles
of sound regulation’ (5 August 2008); also his
On Money and Markets: A Wall Street Memoir
(McGraw-Hill, 2000).
Chapter 7
refers to the extremes of inequality. There is often a confusing (sometimes deliberately confusing) distinction between stock
of assets (wealth) and flow of income. The main contemporary sources on global wealth and income are helpfully pulled together
in Stephen Haseler’s
Meltdown: How the Masters
of the Universe Destroyed the West’s Power and Prosperity
(Forum Press, 2008).
Underlying the policy debate in
Chapter 7
about what can and should now sensibly be done is a theoretical argument. Until
the current crisis, there was a wide belief in the academic world that financial markets were best explained by the ‘efficient
market hypothesis’ – part of a broader neoclassical approach that assumes rational behaviour by companies and consumers. Markets
do not, on this view, ‘misbehave’, but correctly factor in all the available information. It follows that asset prices are
always ‘correct’ and do not manifest themselves as ‘bubbles’. There are many recent sources explaining why this approach has
proved to be dangerously wrong, among them George Cooper’s
The Origin of Financial Crises
(Harriman House, 2008), John Calverley’s
Bubbles and How to Survive Them
(Nicholas Brearley, 2004), and also George Soros (see
p. 164
). The definitive explanation of why markets do not work when
there is a collapse of trust is provided in George Akerlof, ‘The Market for Lemons: Quality, Uncertainty and the Market Mechanism’,
Quarterly Journal of Economics
, 84 (3) (1970), 488–500.
The arguments for aggressive monetary policy in the face of a severe credit contraction are dealt with in the classic monetarist
text: Milton Friedman and Anna Schwarz,
A Monetary History of the United States 1867–1960
(Princeton University Press, 1963). The various policy initiatives to improve monetary policy – taking account of asset markets
– are discussed in detail in my 2008 annual lecture to the Institute of Fiscal Studies, and are set out in C. Goodhart and
A. Persaud, ‘A proposal for how to avoid the next crash’,
Financial Times
, 31 January 2008, who describe counter cyclical adequacy rules; see also
Making Macroprudential Concerns Operational
(IMF, 2004). The idea that measures of inflation should include asset prices was originally mooted in Irving Fisher,
The Purchasing Power of Money
(Macmillan, 1911), and has been updated as in Sushil Wadhwani, ‘Should Monetary Policy
Respond to Asset Price Bubbles? Revisiting the Debate’,
National Institute Economic Review
, 206 (1) (2008), 25–34.
A good discussion on how to reform bonuses is in R. Rajan, ‘Bankers’ pay is deeply flawed’,
Financial Times
, 9 January 2008. The broader question of how to reconcile the necessity for maintaining a commitment to an open, globalized
economy with a sense of fairness and equity is addressed in,
inter alia
, Joseph Stiglitz,
Making Globalization Work
(W. W. Norton, 2006).
This book was written in some haste in the gaps left in a very busy few months in the summer and autumn of 2008, as the storm
was raging. Because of the speed involved I have been unable to rely on the comments and advice of colleagues and friends
to the extent that I normally do, and any errors of fact and interpretation are mine alone.
I have benefited in terms of ideas from the community of British financial and economic journalists and columnists who provided
regular, understandable commentary on the crisis. Several, like Alex Brummer, Martin Wolf, Larry Elliott, Will Hutton, Gillian
Tett, Roger Bootle and Anatole Kaletsky, have published their own analyses separately, in varying degrees of detail, on particular
aspects of the crisis.
I also want to acknowledge the role of my political colleagues who have been generous with their time, helping me to understand
the issues and their political significance, including Matthew Oakeshott, Chris Huhne and our party leader, Nick Clegg. And
I still owe a lot to my former colleagues at Shell who taught me about ‘think the unthinkable’ and ‘the art of the long view’.
I am grateful to my P A, Joan Bennett, and my Westminster staff, Sally Duncan and Paul Scaping, for typing parts of the manuscript
in their spare time. My biggest debt is to my wife, Rachel, who typed most of the manuscript, as well as providing constant
encouragement and, on her farm, a haven of peace in which to write.
Finally, I am grateful too to my literary agent, Georgina Capel, of Capel and Land, for encouragement to write – and complete
– the book, and to the extremely professional publishing team at Atlantic Books.
Abbey National building society
Adelmen, Morris
Africa
agriculture
AIG
Alaska
Alliance & Leicester
aluminium
Ambac
Anglo-Irish Bank
Angola
Applegarth, Adam
Arctic
Argentina
Asian financial crisis
asset prices
Asset Protection Scheme
Atkinson, Dan
Australia
Austria
Austrian school of economics
Bagehot, Walter
Bangladesh
Bank for International Settlements
Bank of America
Bank of England
and house prices
and interest rates
and Northern Rock
banking system
bank lending
bank shares and dividends
capital reserves
depositor protection
Icelandic banks
Irish banks
Japanese banks
lending practices
nationalization
recapitalization
reform and regulation
remuneration and incentives
‘shadow banking system’
Spanish banks
state-controlled banking
Swedish banks
US banks
see also
central banks; investment banks
bankruptcy
laws on
Barclays
Barings Bank
Barker, Kate
Basle rules
BBC
Bear Stearns
Becker, Gary
Belarus
Belgium
benefits system
Bengal
Berlusconi, Silvio
Bernanke, Ben
Bernstein, William
Bihar
billionaires
biofuels
BNP–Paribas
boom and bust cycles
Bradford & Bingley
Branson, Richard
Brazil
and oil
and trade
Bretton Woods institutions
British Empire
British Union of Fascists
Brown, Gordon
Buffet, Warren
building societies, demutualization of
Bush, George W.
Bush administration
calico
California
Canada
and oil
capital gains
capitalism
‘state capitalism’
car industry
car loans
car tyres
cars
central banks
Channel Islands
China
cars in
and climate change
currency
economic growth
fiscal policy
and food
foreign exchange reserves
and oil
population and GDP
power generation
state-ownership
and trade
and ‘vendor finance’
Chinese Communist Party
Chomsky, Noam
Citicorp
Citigroup
City of London
climate change (global warming)
Club of Rome
coal
coffee
Cold War
collateralized debt obligations (CDOs)
Commerzbank
Conservative Party
and building society demutualization
construction industry
see also
house building
Continental Illinois Bank
Copenhagen climate change conference
Council of Mortgage Lenders
Cramer, Jim
credit cards
credit default swaps
Credit Suisse
Crimean War
Czechoslovakia, former
Daily Express
Data Monitor
debt
personal and household
public
deflation
Deng Xiaoping
derivatives
development agenda
Diamond, Bob
Dillon Read
dot.com shares
Dunfermline Building Society
Dutch East India company
‘dynamic provisioning’
education
Egypt
Elliott, Larry
energy
conservation
security
environmentalism
Equatorial Guinea
European Central Bank
European Common Market
European ‘identity’
European Monetary Union
European Union
Common Agricultural Policy
and trade
eurozone
exchange rates
export credits
Federal Deposit Insurance Corporation
Federal Home Loan Mortgage Corporation (Freddie Mac)
Federal National Mortgage Corporation (Fannie Mae)
financial services sector
deregulation
regulation
financial ‘recycling’
Financial Services Authority (FSA)
First Republic Bank of Dallas
First World War
fiscal policy
fish stocks
Fisher, Irving
food
prices
security
Fool’s Gold
(Tett)
France
and bank bonuses
gas imports
house prices
and ‘state capitalism’
Friedman, Milton
G20 countries
G7 countries
G8 countries
Gabon
Gaddafi, Muammar al
gas
Gates, Bill
Gazprom
General Agreement of Tariffs and Trade (GATT),
see
WTO
General Motors
General Theory of Employment, Interest and Money
(Keynes)
Georgia
Germany
and bank bonuses
and fiscal policy
gas imports
and housing
Kipper- und Wipperzeit
speculation
and oil
pre-war
Ghawar oil field
Glass–Steagall legislation
Global Attitudes Survey
global warming,
see
climate change
globalization
Goldman Sachs
Goldsmith, Sir James
Goodhart, Charles
Goodwin, Sir Fred
Gray, John
Great Crash
Great Depression
Greece
Green, Stephen
Greenspan, Alan
Grewal, David Singh
Gulf of Mexico
Gulf States
Gulf War
Haiti
Halifax building society
Halifax–Bank of Scotland (HBOS)
Harrison, Fred
healthcare
Heathrow Airport
hedge funds
Hindutva
Hitler, Adolf
Holland
homelessness
Hoover, Herbert
Horn of Africa
house building
housing
buy-to-let
first-time buyers
negative equity
repossessions
‘right to buy’ policy
second homes
social housing
housing markets