The scale of the financial and economic crisis that we now face, across the globe, is exceptional. It not just the absolute numbers- which, in a growing economy increase anyway- but the relative numbers which now look eye-popping. The scale of capital destruction is now even beyond the levels of the 1930s. There is no measure that we can grasp that means anything.
Many assets- like your house- are unsaleable at any reasonable price, possibly at any price at all. Meanwhile, Britain is choosing to take on the unlimited liabilities of the banking sector, and thus nearly doubling long term government debt and massively increasing state control over the economy. The idea of bank nationalisation- rejected by socialists in the past as too radical- is now embraced across much of the political spectrum. Government investment and even control is regarded as vital.
Er... hang on a minute.
It is not freedom or the free market that got us into this mess.
It was the fervent belief by bankers that they could predict the future and thus accurately price any given risk that got us into this mess. It was the epistemological arrogance of those who wrote endless reports predicting quarterly earnings or economics and continued to do so despite the fact that they were always inaccurate- I mean their inaccuracy was so total that they never got it right even by accident. It was those who chose closed models to represent open ended reality who have made the mistake.
Now we have had the longest boom in history, so sure enough it seems reasonable that we could have the longest bust in history simply to bring the imbalances back to normal.
Of course one of the reasons for this unexpectedly long boom was the repeated bubbles inflated by the policy makers. Therefore it does not make me comfortable that we are now handing over our entire finance system to precisely these same policy makers.
In the end letting banks fail -while protecting deposit holders- may well prove to have been a better option than keeping alive zombie banks. However the "decisive action" of Brown and Darling in "saving the world" now means we are committed to an open ended funding of all of the liabilities of the banks- not just their deposit holders. The state is over riding the creative destruction of the free market. The state is second guessing what market outcomes could, or rather should be.
I believe that the current policies of the Brown government will, in time, be regarded as a major mistake. The bankers will continue to function as if their sacred cow- the "bell curve" was not an intellectual fallacy, and will delay the implementation of open ended risk control systems.
By which time the British economy will be worth precious little and our financial services sector, which historically employed millions and was the engine room of innovation and wealth in our country, will be dead.