This week I appeared on Newsnight with Gillian Tett of the FT and Louise Cooper of BGC Partners. We discussed our graphs of 2011 (see mine below) and wider questions around the global financial crisis this year – and how ecnomists and policy makers need to respond.

Watch the show on iPlayer for the next 5 days here. Our discussion begins at 33 mins.

15th January, 2009.

Patient readers this blog is triggered by Jeff Randall’s column in the Daily Telegraph today.

In it he inadvertently discloses the identity of the puppet-masters dictating the Tory political agenda around public spending cuts.

In a somewhat histrionic column in which he describes the public deficit as a ‘disaster’ ( he should mind his language: Haiti’s earthquake is a disaster) Randall quotes a piece of ‘research’ by the French bank, Société Générale.  The paper is titled “Popular Delusions” and its authors explain some simple facts about government spending cuts to Telegraph readers:

“Removing the stimulus will involve pain; lower growth, higher unemployment and political unpopularity.”

Not for bankers it won’t.

The Société Générale authors continue:  “But policy-makers don’t like lower growth, higher unemployment and political unpopularity.”

Forgive me for interrupting dear bankers, but a little more ‘research’ might reveal that it’s not ‘policy-makers’ that don’t like pain and higher unemployment.  Its the people. The victims. Known in a democracy as the voters.

The bankers drone on:  “They (the politicians) enacted the stimulus in the first place to avoid it!”

Such blinding insight.  They, the elected, democratic politicians, rightly fear that ‘pain and unemployment’ will incur the wrath of the voters – especially if this pain and unemployment is a direct result of the greed and irresponsible behaviour of a small elite of financiers.

Then our bankers pose a rhetorical question: “At what point will they (the politicians) decide they do want lower growth, higher unemployment and political unpopularity?”

Bravely, they volunteer an answer:  “Given the choice, they won’t, ever.”  (And if the choice is put to the people, does that mean that, given a choice, they won’t ever vote for George Osborne and his friends?)

It is at this point that our bankers at  Société Générale turn nasty and spell out the threat:

“So it will be imposed on them …….. by a suddenly less generous bond market via a government funding crisis.”

This is nothing short of blackmail. Blackmail of democratically-elected and accountable politicians.

Furthermore this is blackmail from bankers at Société Générale whose recent history is one of fraud, incompetence, scandal and a taxpayer-backed bail-out.

Let me remind you dear readers, of that recent history.

In January, 2008, according to the Wall St. Journal (30 April, 2009) “Société Générale – a French bank – disclosed it had lost €4.9 billion ($6.44 billion) – the biggest net trading loss by one person in banking history – at the hands of a low-level employee who the bank alleged had engaged in unauthorized and unhedged trading for nearly two years.”

When news broke of this massive fraud and of the incompetence of those managing traders at the bank, President Sarkozy of France stung by growing public anger,  lashed out at the bank and particularly its chairman, Mr. Bouton (pictured above):

“We have to put a stop to this financial system which is out of its mind and which has lost sight of its purpose” Reuters quoted him as saying on 26th January, 2008.

The President placed public pressure on the chairman of the bank to resign, but Daniel Bouton “would not bow to political pressure”.

Why should a banker bow to mere democratic pressure?  After all, bankers live in an ‘offshore’  world – beyond the reach of democratic institutions – the world of ‘offshore capitalism. ‘

“As the credit crisis spread in October (2008), the French government announced it would provide €10.5 billion to the country’s banks to help them continue lending to individuals;

“Société Générale received €1.7 billion of those funds.”

“Then, as French workers took to the streets this year to demand that the government introduce measures to boost their spending power, the bank announced a plan to reward bosses, including Mr. Bouton (the chairman), with stock options. It was only after President Nicolas Sarkozy called the move “a scandal,” that Mr. Bouton and others agreed to renounce the options.”

These are the bankers that act as trusty ‘researchers’ to Jeff Randall, and as puppet-masters to those politicians – the Tories – that ruthlessly disregard the interests of their voters.

The question is this: will Telegraph readers vote for these puppets?  Call me naive, but I don’t believe they will.

31st December, 2009

Dear Readers.

First, thank you for the support you have given this blog, and for your helpful and insightful comments over this eventful year. I have much appreciated our conversations, and your loyalty. May 2010 bring you all peace of mind and economic stability. And may we together begin to grow a new political climate and a new political class, that will finally detach itself from the financial elite, and respond to democratically-determined priorities for peace, stability and social justice.

Second, apologies for this period of hibernation over the holiday season. I blame Andrew Ross Sorkin (of the New York Times) whose 540 page blow-by-blow account of the events leading up to the failure of Lehman Brothers and the massive TARP bail-out of October, 2008 is a must-read. “Too Big to Fail” was a constant companion over the holidays, interrupted only by my periodic, but lame attempts to prove that I too can bake mince pies, stuff chickens and light log fires.

Finally, a gift from the Financial Times, which yesterday published a poem illustrated here – The bankers who wouldn’t say sorry: a cautionary tale”.   Martin Dickson, the paper’s deputy editor speaks for all of us through this light-hearted ditty, but does more: he warns in the last verse of what is to come as a result of financial greed and political ennui. Sadly, I, and many others, share his gloomy forecast.

It would be good to end this story
In a nice blaze of moral glory,
Like Hilaire Belloc’s clever tales
Where evil-doing always fails.
Alas, the only moral here
Is bankers just themselves hold dear.
But there’s a price we all will pay
If politicians won’t display
A little courage and crack down
Upon these unsafe, grasping clowns:
Another bomb is being built,
By bankers with no sense of guilt.
It’s ticking now, will louder tick
Unless we stop it, fast and quick.
For mark my words, believe this rhyme,
It will go off in five years’ time.
You’ll hear no end of sturm and drang.
When it explodes with a loud BANG.

Motley Fool blogger TMF Sinchiruna spotlights the Times interview, describing me as “once ridiculed, later vindicated…” TMF Sinchiruna goes on to say: “Peter Schiff, Jim Rogers, Niall Fergusson, Ann Pettifor … these are the voices that I believe investors need to hear. Turn off the tv and look deep into the events of last year and consider for yourselves whether anything more than a hail-mary reflationary maelstrom has been heaped upon the fire that started it all.”

Read the Motley Fool article >

Also just did an interview for You and Yours on Radio 4 which was broadcast Wednesday. You can listen to it here.

‘Financial writers’ and establishment economists seem to live in a different world.  They often bring to mind bats, hanging upside down in the cavernous, soaring rafters of a barn, analysing the world from a great distance, and upside-down. Take one Diana Henriques – described as a ‘senior financial writer for the New York Times‘.  She was on the Rachel Maddow Show on US TV last night, reviewing the gargantuan $700 billion bail-out of US banks.  In defence of the opaque and unaccountable activities of the Treasury team dishing out taxpayer largesse she said this: “No-one could lay out a war-game for this (crisis) in advance”. (Ehem, correction: some were well prepared, and could have.)  But it was the next remark that took my breath away:

“We have not had any additional financial Leviathans collapse on us lately…that is a good sign…as another situation like that would terrify the market at this time…. I don’t think the financial markets are braced for a big insitution failing, and that certainly is a gain….”

Lets break this down slowly and quietly. There have been no ‘additional Leviathans collapse…..It is certainly a gain….that financial markets’ do not expect a big institution to fail.  And another such failure, would ‘terrify the market’.

Forgive me, but from where I stand, on the ground, things look very different from this frankly batty, finance-centred perspective.  From here I can see the biggest Leviathan of them all failing.

Its called the United States.

The idea that the NY Times and stock markets are cruising along, relaxed because no financial institution looks likely to fail, while the United States economy has shed more than 1.2 million jobs this year, is frankly, astonishing.  Today the US Labor department announced that 4.09 million – I repeat 4.09 million people – claimed unemployment benefit in the month up to 22nd November, 2008 – the highest in 26 years.  On this same day, tens of thousands of jobs in the auto industry hang in the balance, with workers, their families and communities threatened by the shock of unemployment, the loss of pensions and healthcare – not to mention marital and mental breakdown and social disorder.  On this day, thousands of dealerships and suppliers to the Detroit auto industry face bankruptcy. The idea that while this is happening, the absence of a bank failure ‘is certainly a gain’  – says a lot about dysfunctional ‘financial writers’ and stock markets.

That one is reassured because the poor darlings in the finance sector sleep more soundly thanks to the $700 billion bail-out,  while US consumption (70% of US GDP) is in free fall, demand collapses both at home and internationally, home sales and prices continue to spiral downwards, and orders for durable goods implode, shows a real blind-side for the real Leviathan – the US economy.  That one can comment airily from the lofty rafters of the New York Times while the US builds up what Prof. Roubini calls a tsunami of debt to finance domestic bank bail-outs (TARP, Fannie and Freddie Mac, Bear Stearns, AIG, Citigroup) and magnifies these with a massive trade deficit and rising external  liabilities, which in turn will weaken the dollar and raise real interest rates….shows that the world seen from those draughty New York Times rafters looks a whole lot different.

Batty, in fact.