Friday 26 September 2008

Cameron and the hedge funds

I’ve just listened to Chris Huhne’s slightly intemperate demolition of Chris Grayling on Any Questions. It was good to listen to, and I hope the Lib Dems have grasped that the Conservative vulnerability on the issue of the global financial meltdown is something that needs to be exploited.

But not just exploited. We need to build a philosophy on it which embraces the other issues as well. That’s what you might call a narrative.

David Cameron’s embrace of the hedge funds is a major Achilles Heel. Not just because they have been his funders but because, overwhelmingly, they are his friends. That’s what the Notting Hill Set is all about.

But Liberals are still some way from forging this into the political weapon we need. We have yet to go beyond the ‘bright ideas’ stage of critique of the abuse of the financial markets. Wouldn’t it be good if there was help to prevent home repossessions, or regulations about mortgage lending. Well, yes, it would – but we need a good deal more than that, and we need it quickly. To be absolutely precise, we need three things:

1. A philosophical underpinning which distinguishes between the free market of productive finance and small business, and the greed and abuse of global finance which has ended up threatening and corroding both.

2. A clear set of proposals that goes beyond the dismal, deeply old-fashioned and disabling idea of ‘sound money’ which has deadened Liberal thinking in this country since Keynes. Global finance has become the tail wagging the real economy: it is the precise opposite of sound money.

3. A New Deal that is capable of rescuing us from financial meltdown, but which can make a parallel contribution to tackling the climate and food crunches too, aware that major investment in the green collar economy will also keep its wheels in motion, just as a commitment to tackling monopoly power and rebuilding local economies will keep us all alive.

The key political debate of the 20th century is over. It isn’t public versus private any more, free market versus state control. It is big versus small, and Liberals need to be clear which side they are on – centralisation or life.


Liberal Polemic said...

"regulations about mortgage lending"

You mean, like the regulations about US mortgage lending that obliged US banks to lend to customers who were obviously unable to meet their mortage payments?

I'm not sure that additional regulation is going to solve a problem created by poor regulation.

The only way we are going to (philosophically or practically) create a system whereby "free market of productive finance" is obliged to temper "greed" with caution is to allow investors to experience the cost of careless investment.

Rather than restrict the excess of investors, we need to give them free reign and then let them get their fingers burnt. The alternative (regulated ivestment and bail-outs when it goes sour) is how we got in this mess in the first place.

I'm not clear what you mean by "2" but am very interested.

I'll skip "3".

As for "The key political debate", I think it is still "Freedom verses state control".

Tristan said...

New Deal - that sounds very centralising.
The New Deal in the US was the most centralising project in the history of that country, seeking to bring all business under the purview of the state (and its corporate backers).

Anonymous said...

I think it means regulations regarding self-certification and x income. I'm all for that given the fact that a whole raft of our society are locked out of the property market even now due to the high prices.

The problem with your analysis of the US `obliged US banks to lend to customers` is that these so called regulations came in in 1999 - yet it's only 2008 when these so-called chickens have come home to roost. I suspect that after this mess is sorted that lending institutions will not be doing the sub-prime lending with no legal comeback at all.

The problem with NOT restricting the excess of investors is that taxpayers have to bail them out for fear of an economy going over a cliff.

If it was just `fat cats` and the feckless that were affected there would be some merits but it's not.

I agree the debate HAS moved on - between those that want to make capitalism as `people-sized` as possible and those that don't care.

Anonymous said...

Hedge Funds and SPECULATORS are not = 'Banks'.

If you want to form a Hedge Fund and gamble, you can go ahead, but you cannot co-mingle this with traditional banking that involves the deposits of citizens into traditional secure bank accounts, or using state tax dollars.

You split the gamblers from the community bankers, and then WHEN the Hedge Fund eventually gets too greedy, and loses all its cash, the only entity that goes out of business is the Hedge Fund (i.e.-MF Global.

Cameron does not want this, since his party has gotten 20+ Million in 'donations' from speculators/hedge funds, specifically to ensure that he does not cast them off the pay their own losses.

They want to be on the public teat, so that when they lose, they can demand a govt bailout, or threaten to crash the entire global financial system as each level of speculator, creditor, bond-issuer and investor all go broke.

Instead of letting the gambler be segregated into the casino, where only the gambler pays the price for his losses,
Cameron is ensuring that the Gambler can tap the purse of the state and threaten the assets of average depositors in the event of a huge loss in their gambling,
thus allowing the speculators/gamblers to pass their losses onto the public while keeping all winnings only for themselves.