I am yet to hear an interpretation of the latest charade in the Northern Rock saga that fails to utterly decry the government for incomprehensibly stupid behaviour.  Having decided against nationalisation - indeed, having publicly condemned such a move - they rejected initial advances from Lloyds TSB, then created a bidding system that yielded two competitors, both of whom were eventually rejected in favour of nationalisation.  Five months (and another £50bn) later, the government’s economic policy is in free-fall.  Their reputation finally met ground level with a terrible thud yesterday.

I am not an economist, and my interest in that area stretch no further than a reasonable reaction to the jaw-dropping figure of £100bn.  I am, however, interested in the political ramifications.  It is perfectly possible that yesterday signalled the tipping point: that Labour is now in inevitable decline.  Time will tell.

In the meantime, throw the words “nationalisation” and “humiliation” about as much as possible, and enjoy the squirming.

The backlash over Northern Rock has begun already. The Tory blogosphere has already begun to wail intolerably over the fact that it’s (gasp!) nationalisation. It’s, “total humilation” says Iain Dale, representatively. I note that there’s little actual rational debate of nationalisation in the post and much whinging about, “my money.” Apparently, the government couldn’t, “run a whelk stall,” and should be trusted with nothing.

Because, of course, the (private-sector) bankers who shat up Northern Rock so badly could.

Thankfully, the Tory blogosphere still has about as much influence as a whelk, whatever its delusions. The BBC has provided a list of quotations from areas that are a little more listened to. Forgive me if I lapse into snarling sarcasm while translating these, but they’re too predictable:

“We have tried our best to save the Northern Rock and the jobs of the staff. We put all the resources of Virgin’s senior management team on this for five months and we believe had a very strong proposal, an experienced team and one of Britain’s best brands. We believe nationalisation is not the right answer and that a commercial solution would have been the best way forward.” - Richard Branson

Translation:

“We couldn’t have recovered the Rock if we tried.  If we’d actually been given the Rock, we’d have failed.  If we’d weren’t given it, then we’d have lost face.  So, thanks Gordon for getting me out of this, and giving me someone to blame.  Love, Richard.”

Actually, I’m not sure how accurate that one is.  Branson was probably convinced he could have done something with Northern Rock, or he wouldn’t have bid for it.  But, we’ll see.  The next one is easy.

“After months of dither and delay we have ended up with this catastrophic decision. We now have the situation where the government will be making decisions on whether or not to foreclose on people’s loans in a falling housing market.”  - George Osborne

Translation:

“Oh thank God!  Plenty of petty party point scoring to be done here.  We were beginning to run out of opportunities for it - we’d have had to reveal some more policies soon!  That really would have been a catastrophic decision.

Now, do excuse me.  I’m off to don my Punch costume.”

That, and if nationalisation works here, everything the Tories have done since 1979 would look oh-so-questionable.  The next one is even easier, though.

“Belatedly the government has made the right decision. The first priority must be to work out the seriousness of the problems at the bank with an independent audit of its loan book. This must be conducted under the auspices of the Bank of England, not the FSA. Secondly, the bank must stop irresponsible lending at more than the value of property, and aggressive deposit-taking. Thirdly, there will be difficult times ahead, especially for the employees, as the bank is downsized. However, there is now hope for the long-term future of the bank when it is eventually sold in more satisfactory conditions.” - Vince Cable

Translation:

“I told you so!”

Notice, while you’re here, the glaring difference between Cable’s statement and Osborne’s.  Cable’s contains actual policy.  Osborne’s does not.  Nor does it actually contain a proposed alternative.  I feel vindicated in my appraisal of his statement.

“I’m shocked and appalled. Nationalised industries do not run very well at all. I thought that there was a good offer made by the management of Northern Rock as recently as late on Friday night and that seems to have been brushed to one side with this rush into macho politics. We’ve had far too much of that throughout the Northern Rock saga. Originally the burning embers were inflamed by the petrol of government publicity poured on it, and we’ve gone right the way through to this disastrous announcement today which I think is going to do irreparable damage to Britain’s reputation as a financial services sector.” - Robin Ashby, Northern Rock Small Shareholder’s Group

Translation:

“Oh fuck, our shares.  Time for a knee-jerk at the wrong people to make us feel better.”

Their reaction is understandable - but really, how many people will give it heed?  They’re about the least disinterested party of all in this.  What they mean when they say, “nationalised industries do not run very well at all,” is that nationalised industries do not run well for them.

“This is a debt that no one in the private sector wanted, even when the Government offered it in a heads you win tails we lose deal. The government has left the taxpayer saddled with billions of risky debt that no one else would touch. Taxpayers could now end up paying a very high price for the government’s incompetence.” - Matthew Sinclair, Taxpayer’s Alliance

Translation:

“To the barricades!  Damn rational consideration of whether this will work or not!  Money is being spent!”

Well, what did you expect them to say?  They were never going to give nationalisation a fair hearing, especially not in questionable circumstances such as these.  Although, even they seem to be aware of the dilemma in play here.  “No one in the private sector wanted,” Northern Rock, they say.  In which case, I’m forced to ask, what else would they do with it?  Let it sink?  Risk even more economic damage?

And, finally:

“What I would like to see now, and the industry would like to see now, is that this ceases to become something of quite such general interest, important though it is, and we can move forward into a more stable and calmer environment than that which we’ve had for the last few weeks or months.” - Angela Knight, British Bankers’ Association

Translation:

“Can someone please get the spotlight of banking?  Please?  Something embarrassing will turn up soon if there’s much more of that.”

Depressingly, of all these statements, only Cable’s makes any sense.  He called for nationalisation from the start, has been consistent, but knows it’s probably too late now.  He is the only one to present a proper plan in his statement.  All the others whinge vacuously - and propose nothing else.

Actually, this could - tenuously - be an opportunity for the Lib Dems.  They have been the only party to present a constant, coherent line over Northern Rock.  Today was a massive U-Turn for the government.  The Tories have only been consistent in their opportunism.  Both the Tories and Labour are suffering in polls over who might be trusted with the economy.  If the Lib Dems got a bit more vocal, they could make something of this.

But, we’ll see.

I predict a bad week for the government.  This would be a U-Turn, if the whole thing hadn’t been a fudge in the first place.  The opposition will have a field day.

I don’t object to the principle of the move.  If Northern Rock needs to be saved to prevent a further run on the banks and general economic woe, then the state isn’t a bad answer.  It has deep enough pockets, and would at least be stabilising the bank for the sake of stabilising the bank, rather than making a profit out of it.

What I do object to is the way this has been handled.  The government will claim that this comes after exploring all the options available.  Actually, it looks like the government dithered, chose an approach, cocked that up because their delay had made the bank even more unattractive to bidders, and finally chose this.  That’s what the media, the opposition and finally, the voter will pick up on anyway.  The government made nationalisation a grudging last resort, rather than the firm, decisive step it could have been.  It looked like they didn’t want to do this - but they’ve done it anyway.  So now they look incompetent.

In short, strategic error of the month…

PMQs will, I fear, be uncomfortable.

The market selling of Northern Rock is getting interesting.  The Treasury has two possible buyers to choose from.  This is the very definition of a poisoned chalice, but I will trust Branson’s business sense beyond my own.

The Treasury is left in a difficult position.  Either they sell out to Branson (who, let’s not forget, was recently jetting around the world with Brown) or they return the running of Northern Rock to the very management group that sent it up the spout to begin with.  (The urge to make a Rock/Hard Place pun is overwhelming…)

I wonder where the economic viability of any buy-out is.  The name is poisoned.  It would be naive to pretend that people who were irrationally drawing money from Northern Rock will wish to reinvest as soon as the name changes to Virgin Money.  I cannot see how any money can be made from any deal if the government’s handouts are to be returned to the Treasury’s coffers.  Again, I bow to Branson’s superior knowledge of bank management.  I just hope he knows what he is doing: a second run on the bank would surely cause a domino effect that would be far worse than this mess.

I can’t claim to be an expert on economics.  However, the news on all fronts tells me that the economy is quite rapidly heading towards a recession.  Of course, R.E Vamp has already highlighted the best way to avoid this - to ignore it.

What happens if people do panic their way into a recession, though?  To anyone but the most jaded misanthrope (and possibly the New Right…), the consequences will be hideous.  Unemployment will rise,  more people will be less wealthy, and the world won’t be a happy place.  Beyond very general suppositions drawn from past recessions, though, I can’t predict anything reliably.

Except, perhaps, one or two small matters obvious to anyone.  An economic slump this year will affect the US elections this year.  That seems inevitable.

What I worry is that, if there is a recession, it’ll play straight into the hands of the Republicans, and give them a chance they currently don’t have.  For some reason, it strikes me that parts of the US electorate don’t really trust the Democrats on the economy.  Clinton had to draw policies straight from the neoliberal copybook.  Carter is routinely lambasted.  In fact, the only twentieth century Democrat I can remember being regularly lauded for his economic policies is FDR, and that was 70 years ago…

The Republicans, meanwhile, have a bizarre reputation for being good for the economy, at least recently.  Reagan bought prosperity back after the recession in the early 80s, in the eyes of many.  Employment rose, the GDP rose, the national economy grew.  That many of those jobs were as poorly paid as ever, that much of that GDP remained with a tiny proportion of the population, and that the national economy trickled down - straight into a few, very wealthy, pockets - is besides the point.  The Republicans are perceived to have fixed the economy.

American voters may therefore be slightly more inclined to look again at the Republicans if there is a recession.  And this at a time when the unemployment relief, universal healthcare and education reform by the Democrats would be needed more than ever…

Of course, I could be moving from a position of partial ignorance to talking out of my arse.  I hope so.

Back to thinking happy thoughts…

Right chaps, as we all know there are two ways to avoid a recession:

1) A war.

Now, we’ve already had one of them this decade and it didn’t seem to work out in terms of helping the economy. Best if we avoid another one, I reckon.

Instead I would suggest:

2) The power of positive thought.

Yes, sounds very New Age nonsense, doesen’t it? Well not quite, here it is entirely appropriate as the stock markets are effectively a post-modernists playground, where perception is reality and the views of people can make the mobilisation of astounding resources possible or leave people hungry and fired

There really is no distinction between expectation and consequence: if there is no confidence things will crumble and collapse, if hopes are high even poppies can become the cornerstone of an economy. Perceived worth becomes true value without transition, fears can cause the entire artificial edifice to tumble.

It was the genius of Roosevelt to realise this and acknowledge that his own power, no matter what his policies were restricted by the extent to which they were accepted by the American public. Effectively he relied upon their minds over all else, without their consent, without capturing their collective consciousness, he would not have stood a chance.

That, and the World War helped. But I’ve said we aren’t having one of them. It is untested but I suspect that a Nuclear Winter would be less than beneficial.

So what can we do? Smile. Email this around, tell people to look up, to buy stocks, to invest, to hope. It’s not the sort of thing that the foul cynic’s consensus that has come to dominate our national debate will accept but if you allow the jaded control over anything, especially something as delicate as this, the results are invariably disastrous. Just witness the horror inflicted upon the world by the weary ex-Trotskyite neo-conservatives.

So the path is clear and bright. Skip down it and don’t look back, whatever you do.