Bank transparency needed, not "confidence"

Liam Halligan is in the main section of the Sunday Telegraph this week, after arguing very sensibly for weeks in the Business pages that banks need to reveal their debt. Only when the scale of the debt is known will banks start lending again. Some may go to the wall, but the survivors will start doing what banks give much-needed support to businesses and individuals. Yet Governments have been so in thrall to the financiers for so long that they don't dare challenge them.

Halligan appears to be a voice in the wilderness however, because when I read the Financial Times or listen to the Today programme, they only talk of stimulus and “confidence”. Restoring confidence seems to be part of the justification for throwing billions of pounds at the banks: but confidence, while it is a psychological factor, ultimately depends on conditions in the real world. Would you feel more confident walking on solid ground or on thin ice? Would you have as much confidence lending to someone whom you know to be solvent as to someone whose financial status you don't know?

The bailouts achieved a certain political consensus and were rushed through with scant debate, something which the braver conservatives in the US vehemently complained about the first time. So necessary did these measures appear to the Bush and Brown administrations that a proper debate would have been positively dangerous - it might have led to doubt; hence they were rushed through. But the architects of the bailout look increasingly like a plumber who tries to fix a leaking pipe by throwing his toolbox in the general direction rather than locating where the leak is and stopping it. That toolbox represented a lot of money - our money. Still the toxic debt persists and the recession deepens. Confidence has not been restored. Surely the best way to restore confidence is to know just how bad the debts are ... unless, the debts are so bad, that they can't be paid of course.

Instead, we have fiscal stimulus; but as Halligan says in today's business section, the stimulus relies simultaneously on borrowing from Asian economies while allowing the debts to lose value through currency depreciation and inflation. The Asians aren't fools; but our policies seem to assume they are. Also would you rather have banks fail that aren't lending anyway, and are happy to foreclose on business loans and mortgages?; or would you rather avoid tens of thousands of pounds of debt for every person in this country, to be paid for by you and your children?

Like so many issues – climate change, abortion and embryonic research, immigration, globalism – there seems to be an enforced consensus in the media (except from diehard conservatives on websites read only by conservatives) that we must save the old globalised economy no matter what the cost. The media christened republicans who supported the bailout as moderates, anti-bailout conservatives as ideology-driven. You would expect there to be a debate on governments spending this much money but most debates you hear on Radio take place between two people agreeeing that bailout is good. The economic virtues of debt-fuelled consumption, now called neo-Keynesianism, trump fiscal conservativism. The BBC is meant to be the national broadcaster, but its main News channel, Radio 4, consists for the most part of a conversation amongst the Left. The Financial Times is meant to be a prestigious business paper; but again it is dominated by liberal groupthink, its bias noted yesterday by Oborne in the Mail (towards the end, under "Cameron kicks wretched pub boss into touch"). Mainstream "conservatives" share this thinking. Far from being fiscally conservative, the Bush administration was as spendthrift as Blair-Brown, having cut taxes without decreasing spending, and just as indifferent to the decline in its manufacturing capacity; the republicans accommodated themselves to debt; neo-conservatism was merely a logical extension of the liberal humanitarianism of Blair and Clinton. However, it turns out that the Warfare-Welfare state and the Iraqi disaster is being paid for by Chinese credit!

New Labour, mainstream Republicans, the Obamessiah, the BBC and Financial Times: united by belief in inter-governmental "action" and "confidence", if only it can be restored, a new version of the politics of hope over fear. Their faith is in progress through untrammelled free markets and its corollary, world governance, their hope is the stimulus, their charity is mostly for the banks. Ultimately the collapse occurred because the debt caught up with us; the West couldn't support its spending. There was an unsustainable imbalance between consumer and producer nations, too much cheap credit funded via the banks by exporting countries, who were making more money than they could spend. The stimulus programmes are the last desperate throw of the dice for western governments hooked on big-spending and the need to keep the good times rolling - but Hope is audacious indeed if it thinks it can make so much debt disappear. They risk crippling the West financially for a generation with yet more debt, when it would be more prudent to cut their (i.e., our) losses. Even if our Asian creditors tolerate our devaluing of the money they lend us, how can the Western world in future pursue an independent foreign or even domestic policy if the Chinese government is ultimately funding our excesses?