Change we can believe in – if only!

A funny thing has happened almost by stealth sometime in the last two weeks or so.  Progressives, who might be excused for thinking that Obama’s election would indeed lead to “change we can believe in”, have had to admit that he’s getting it wrong, badly wrong as far as the financial crisis is concerned.

Now an excellent interview with William Black on Bill Moyers Journal provides much of the context and moreover shed an uncomfortable light on developments on this side of the pond.  (The video is about 30 minute long but well worth it.  A transcript is provided if you prefer).

William K Black is now professor of Economics and Law at the University of Missouri, Kansas City and was formerly a regulator during the savings and loan crisis of the late 80s. 

Black’s thesis is simple; the financial crisis is driven by fraud on an epic scale.   He explains to Moyers how it works:

WILLIAM K. BLACK: Well, the way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you’re a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there’s going to be a disaster down the road.

BILL MOYERS: So you’re suggesting, saying that CEOs of some of these banks and mortgage firms in order to increase their own personal income, deliberately set out to make bad loans?

WILLIAM K. BLACK: Yes.

He goes on to explain that the big banks knoew perfectly well that the liar loans and the like were fraudulent, but that complex financial instruments were deliberately created so that swindlers could exploit them.  The fraud became widespread.

BILL MOYERS: And was this happening exclusively in this sub-prime mortgage business?

WILLIAM K. BLACK: No, and that’s a big part of the story as well. Even prime loans began to have non-verification. Even Ronald Reagan, you know, said, “Trust, but verify.” They just gutted the verification process. We know that will produce enormous fraud, under economic theory, criminology theory, and two thousand years of life experience.

And now there’s a cover up.

BILL MOYERS: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?

WILLIAM K. BLACK: Absolutely.

But the whole thing tracks back to a small number of individuals.

BILL MOYERS: This wound that you say has been inflicted on American life. The loss of worker’s income. And security and pensions and future happened, because of the misconduct of a relatively few, very well-heeled people, in very well-decorated corporate suites, right?

WILLIAM K. BLACK: Right.

BILL MOYERS: It was relatively a handful of people.

WILLIAM K. BLACK: And their ideologies, which swept away regulation. So, in the example, regulation means that cheaters don’t prosper. So, instead of being bad for capitalism, it’s what saves capitalism. “Honest purveyors prosper” is what we want. And you need regulation and law enforcement to be able to do this. The tragedy of this crisis is it didn’t need to happen at all.

Which brings us back to the beginning.  How is a highly intelligent man like Obama getting it so badly wrong?   Ditto Gordon Brown?

The ostrich strategy (European edition)

The European elections will be on us before we know it so it was pleasing to find a well produced leaflet from my MEP on the mat with the strap-line “reporting back to you in 2009″.  While not strictly a campaign leaflet, it’s timing cannot be accidental!

Unfortunately, the early promise is not sustained; the stories covered are:

• Saving post offices – MEP working with local campaigners and councillors to save them.
• Campaigning for investment – MEP again with a councillor and blaming the local Labour council for false starts on regeneration.
• Renewable energy and recycling – the new three-bin recycling is proving popular with residents in the flagship Lib Dem council in the area and is endorsed by MEP.
• Fighting a local landfill site – MEP represented residents after the site operator breached four of its operating conditions.
• Home heating – MEP says cavity and loft insulation should be a government priority to save energy and prevent climate change.
• Green jobs – our MEP has negotiated a Directive which will ensure that 20% of all EU energy comes from renewable sources by 2020.
• Standing up for consumers – MEP has reported EasyJet to the CAA after passengers complained the airline has not been complying with EU rules when flights are delayed or cancelled.

All good stuff no doubt but mainly relevant for a local council election.   The European dimension – where it exists at all - is extremely weak and confined to low level complaint handling or legislating that specified outcomes MUST happen by a safely remote future date.

Now I’ve no beef with the MEP concerned who is a thoroughly decent and hardworking individual and who recently circulated a newsletter to members in the region which actually mentions some European issues.   

What I DO have a beef with is a Party and a campaign that is afraid to speak its name; that succeeds in almost entirely avoiding Europe and which, when it does tangentially mention Europe, has no narrative whatsoever – no concept of how Europe fits into the scheme of things.   There not even a basic awareness that different tiers of government have different responsibilities – and that this matters.   Just how stupid do we think the voters are?

We have gone from the uncritical enthusiasm for all things Euro of a few years ago to a kind of embarrassed silence while hoping that no-one will notice.  Yes, it’s the ostrich strategy.

We do not support Labour simply because they are the government and we support democracy.  So why do we support everything EU however bad, however abusive of power and position, simply because we support the idea of a pan-European government to handle pan-European issues? 

I passionately support the concept of a European Union that is constitutionally mandated to take responsibility for those things (and only those things) that national or local government cannot effectively handle.   I reject the notion that the (socialist-inspired) gravy train version of the EU we now have is the only option.  What nonsense!

It’s not even as if there were any shortage of EU-relevant themes (some of which might even prove electorally popular) that we might usefully adopt, for instance:

• Democracy in Europe - bullying small nations to vote again until they get the ‘right’ answer is no way to behave.  Whatever its rights and wrongs the Lisbon Treaty is dead by the Irish vote.  Had Britain and France been allowed to vote, both countries would have massively rejected it.  This makes a mockery of any claim to legitimacy.
• Reforming the CAP – it should be ‘repatriated’ leaving each country to make its own arrangements.  I know this would cause apoplexy in Paris and be vetoed, but so what?  Silence can only be construed as tacit support for a scheme that taxes ordinary people to subsidise (mainly) large landowners.  From Antony Hook I learn that Labour has vetoed a limit on payments to rural oligarchs.   Brown should be made to pay for this at the polls.
•  Reforming fisheries – the EU regime was not actually intended to cause massive damage to both fish and fisheries – it just happens to work like that with (at times) simultaneous subsidies for new boats and restrictions to preserve fish stocks.  Clever stuff!
• Reforming Brussels – the nonsense of EU accounting (or lack of!) and its profligate ways is a target the size of a barn and Lib Dems actually have a good story to tell following good work to expose abuses.   So why keep quiet about it?

All this would be bad enough if it began and ended with Europe but it doesn’t;  there is obviously ‘cross talk’ between themes in Europe and themes in domestic politics.  How can anyone take Liberal Democrats seriously when democracy in Europe is not central to their agenda?  What are we to make of a Party that proclaims its commitment to fairness but in practice has nothing to say about oligarchs?

Others are not so confused.  UKIP have a perfectly clear, if entirely detestably, narrative.   Now Libertas has entered the fray as a pro-Europe Party committed to “creating a new democratic and open European Union. … A Europe for and of the people” – a far more liberal vision of European possibilities than any articulated by Cowley Street.

Europe should be a positive for us but we need some coherent leadership to get to that point.