A crisis of democracy – do we need a referendum?

The Irish banks are hopelessly bust along with the property bubble they enabled.  That is bad enough, but what happens next could be worse for the financial crisis has morphed into a crisis of democracy because of the Irish government’s committment to bail out the banks.   The difficulty is that the banks are so irredeemably bust that even the Irish state probably can’t save them, not even with the European ‘help’ being thrust down their throats.   However, the attempt to do so will leave Ireland much worse off that it needs to be.

It is perfectly true that the vast majority of people were right behind the “Celtic Tiger” economy as the bubble inflated and the good times rolled so some blame attaches.   The politicians should have stepped in sooner but evidently didn’t have the courage and/or insight necessary.   The advisors should have understood what was going on before it was too late and advised accordingly, but they were too blinded by the nonsense that is neo-liberal thinking to imagine that anything could possibly be wrong in an unregulated free market.   (In the USA, Alan Greenspan as Chairman of the Federal Reserve, believed that financial fraud simply could not happen because the market would detect and eliminate it.  Strangely, the same reasoning was never applied to blue-collar crime!)  

So, the banks were navigating in waters full of uncharted reefs.  Yet that is not a problem unique to banks; every business operates to some extent in a world of uncharted dangers and the skill of business management lies partly in understanding and avoiding those dangers with the sanction that those who are unskillful or unlucky hit the rocks and go under – falling into bankruptcy and leaving the wreckage for salvage crews to rescue and sell on.

Why should this normal outcome of business failure not be what the Irish and other governments want?  The answer, I suggest is in the overlapping circles of elites involved with unhealthily close connections between bankers and politicians in every country terrified of their comfortable world unravelling.  They can’t imagine any alternative to the system of crony capitalism they have created over many years.

For if the Irish banks fail they will likely take down – or at least hole below the waterline – banks in other countries.  Estimates vary but their failure might represent a $200 billion hit to UK banks and the same again to German ones.   What price then the FSA’s ridiculous conclusion, reported today, that the many bad decisions made by RBS were not the result of “a failure of governance on the part of the board“?  (Just how bad does it have to be to become a “failure of the board”?)   How could the Coalition possibly justify cuts to the electorate if several years’ worth of ‘savings’ are swallowed by saving RBS et al all over again?

To date the failures have been small and containable – just!  Whether Ireland will prove to be the first uncontainable domino to fall or not probably doesn’t change the fact that the game is up, the bubble-inflating debt is unpayable and defaults – big ones – are inevitable.  So the questions become, “How should defaults happen?  How should the pain be allocated?  

These are intensely and inescapably political questions and it behoves our political leaders to lead the debate and not just kick the can down the road and try to frighten people into accepting the elite’s favoured option (which is that they should bear no loss at all and that taxpayers should be on the hook for the full amount).

What we need both here and in Ireland is a referendum; we need a debate about who should bear the losses because the consequences are so huge they will dominate the economic landscape one way or the other for a generation.  In general, I am not a fan of referenda but in this case the issues are surprisingly simple once you strip away the overburden of obfuscation and lies and they are too important to leave to politicians.   At root it is an issue dear to liberals’ hearts.  Who comes first – people or elites?

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