King Canute takes a step back
Just a fortnight ago I wrote “Losing money and glad of it“, following the Lehmans collapse. Bizarrely, my holdings survived the next couple of days big falls intact. That’s now corrected itself firmly downwards, despite the fact I was able to sell my banking shares at a small profit on Sept 19th (and a very substantial profit compared to their value this morning)!
In the intervening time, my optimism over the powers-that-be’s stomach for doing the right thing has taken about as much of a battering as dodgy banks around the world, including the four(?) that collapsed in a single day yesterday. More scapegoating (short-sellers are parasites but they didn’t cause this mess), and more throwing money, King Canute style, into the system on a breathtaking scale. Our own government and most of the chattering classes are still wedded to the principle of keep on trying the same failed policies and hope the problem goes away.
Hint: the original problem was too much money. Throwing ever more money at it will do us as much good as the same policy in Zimbabwe does for its economic collapse. The Northern Rock bailout bought our surviving banks a year or so before reality crept up on them again, at a terrible price (the tangible market distortion is probably more damaging than the taxpayer losses). Bear Stearns bought the ‘merkins a few months. Fannie and Freddie were even bigger, but bought only a few days.
But some of the ‘merkin legislators appear to be quicker on the uptake than ours. They’re still throwing money at it, but in formulating the Paulson bailout, they’ve started talking about something other than blind, reactive panic. And in rejecting that, they’ve taken another step forwards from “we must do something – never mind what – at any price“. Perhaps it’s an admission from those who have an economic clue (Ron Paul keeps getting mentioned) that the bailout now would’ve been lucky to buy good news for long enough even to get through the US presidential election.
The Lehman non-bailout may have been the first step from King Canute denial to facing the storm so we can come through to the other side. The Paulson plan and its rejection are further positive steps. Eventually – one might venture to hope – it’ll pick up a firm direction, and sweep up our own spineless legislators in its wake. The [Obama|McCain] presidency will be interesting times.
 Unlike the ecological destruction we’re causing, there is another side of economic recession to come through to. Unless we really do succeed in driving the entire productive economy abroad, by taxing them ever more to prop up house prices (and now banks too).