I thought Gordon Brown was great in his press conference yesterday morning.
Two caveats before I proceed. Firstly, I am a fan of Gordon Brown, so admit to not being impartial. Secondly, this whole credit crunch/squeeze/armageddon malarky is rather beyond my basic grasp of economics (which essentially amounts to knowing that 100p=£1) - he therefore could have been talking complete cobblers but it sounded good to me.
Actually, my second caveat contains two crucial observations about the credit crisis (amazing how these things randomly occur!). Firstly, public understanding of the whole situation borders on the non-existent I believe. We, Joe Public, are aware that there is something going on that is 'not good' and that we are likely to be forced to bear the brunt of any mistakes that other people have made. We see the sackings of banking staff (and if we are honest don't cry ourselves to sleep over it) and the collapse of 'financial institutions' (what does that mean - are they banks or not?) which we are lucky if we've ever heard the name of, let alone have money in. So we worry about what the post-apocalyptic future will look like until we are then told that commodity prices will fall due to the crunch...that's a good thing isn't it? It's very confusing.
The second point is that the key issue of Gordon Brown's dramatic intervention wasn't really the actions he took or the money he invested, although they have a vital role to play in freeing up credit and lending. No, what was key was restoring confidence in the markets, making the financial experts feel that it was safe for them to keep doing whatever it is that they do.
The rescue of the global economy from this mess is psychological in nature. What is needed, and what the global bounce in stockmarkets is indicating worked (at least for just now), is a collective feel good factor, which helps everyone be confident enough about spending and lending. I found it hard to believe how much human psychological fraility comes into play in the global economic market - I had believed the free market rhetoric about the 'invisible hand' and the dog-eat-dog nature of economics, accepting that markets were run according to strict principles of profit and loss, supply and demand with no space for human considerations (hence the problems with exploitation etc).
But this is wrong. Economics is rooted in human confidence and fear, panic and herd mentality. I'm not quite sure whether this reassures me or terrifies me.
Certainly changes need to be made. GB reassured the financial sector that bonuses wouldn't be outlawed - this was probably the root of the immediate bounce in the FTSE. Fine, I don't have a problem with bonuses rewarding hard work and success. But bonuses for when you muck up? The head of Lehman Brothers got millions of $ for destroying his company - I would have done that for a fraction of the price! If I fail in my job, I get sacked and get nothing. Should be the same rules for the Execs I'm afraid - not much of a free market if there are not punishments for failure alongside the numerous rewards for success. The current situation with failure not being a problem mean that the incentives for risk taking are overwhelming - you wouldn't think twice about taking said risks - and I think we are seeing where that kinda behaviour gets us.
So we the taxpayers of the UK are major stakeholders in RBS, HBOS and Lloyds - lets make sure that we are now the ones who get 'value' for our money. This has been a brave and bold intervention by GB, one which if successful may be a root back from the abyss in which he and the Party have been living in. We just need to make sure that the rock of stability doesn't turn out to be a 'Northern' one...
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