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What caused the economic crises?

"Greedy bankers" says some people.

There is certainly a lot of greed about. For example, the people who trampled a part time Security Guard to death at a Walmart on Long Island (as he shielded a fallen pregnant women from them) were certainly greedy. Even after it was announced they had killed a man they still did not want to give up shopping for bargains in the sale and were very angry at being removed from the store. But I doubt there were any bankers in the Walmart sale crowd - although I am open to being proved wrong.

And the lawyers who are talking about "going after Walmart" over the death are greedy also - they are targeting Walmart, rather than the mob of shoppers, because Walmart has "deep pockets". But these lawyers are not bankers.

In fact I rather doubt that bankers are either more greedy than other people or more greedy than they used to be. Someone does not tend to go into banking as a vocation - it has always been a "for the money" job. Although (and this may shock people) I suspect a lot of bankers are rather more innocent minded than bankers, at least in Britain, were in the past. Many (although far from all) British bankers in past decades were very aware that banking (as practised in the modern world) was based on very "dodgy" foundations and limited themselves with some care - not out of lack of greed, but because they did not have a university education in progressive ideas of "economics" telling them there was nothing dangerous (for example) in lending out money that was not 100% from real savings - indeed modern bankers are taught, as students, that "savings" and "lending" (or "investment" - as all lending is considered "investment") are automatically the same whatever they do.

A certain Scotsman (an historian who does not thinks that fractional reserve banking in England came from copying Holland - even though the main bank in Holland, the Bank of Amsterdam, was famous at that time for not being a fractional reserve bank) blames the present crises on "Enron style practices" even though Enron was not a bank, and most of the bankers in trouble have not committed fraud in the way the Enron management did - whether fractional reserve banking is itself fraud is something the Scotsman does not consider.

No doubt some bankers were corrupt. Indeed on the board of Citigroup sat (indeed still sits) the disgusting Robert Rubin - one of the very people who was paid to help Enron cover up its debts, and who was listened to because of his high place in the Clinton Administration. Mr Rubin advised Citigroup to "invest" in securities based, credit bubble pyramid style, on home loans granted to people of whom Citigroup knew nothing - and by this advice and other advice Mr Rubin has helped Citigroup build up two trillion Dollars of "toxic assets".

Mr Rubin has now secured Citigroup a vast government bailout which will support politically connected shareholders and managers and which has so far allowed Citigroup to go on doing things like paying about half a billion Dollars to name the Mets new baseball field "Citifield" and to pay ten billion Dollars (as of Monday) to buy a road building company in Spain - a country where the construction boom went bust some time ago.

One could then talk about the corruption in the (Democrat dominated) Fannie Mae and Freddie Mac and their political cooperation with people in Congress (such as Senator Chris Countrywide Dodd and Congressman Barney I-was-just-helping-the-young-boys-out Frank) and the work on the ground of such organizations as ACORN (an alliance of groups specializing in extortion and election fraud, whose most powerful section appears to be in Chicago) and how it used the Communities Reinvestment Act to get banks and other such to make loans to people who could not pay them back - when these people really existed at all.

However, all the above could not have produced the present level of crises...

The size of the crises is vast - so vast that the human mind falls over trying to fully grasp the size of it. Already in the United States alone over seven trillion Dollars have been promised to aid various enterprises. Only some of this has been spent by the Treasury and by the Federal Reserve system - but the debt support pledges and other such are there if enterprises "really need them". For example, General Electric had been pledged 138 billion Dollars in debt support - no wonder the top managers there have long acted as if their unfocused conglomerate had a divine right to exist, and have treated the shareholders with utter contempt. Not only were the managers, like so many corporate managers, protected from the shareholders by the various regulations and statutes government has passed over the decades - but they were also certain in the knowledge that their political connections would declare them "too big to fail" a "risk to the whole financial system if they failed" and therefore bail them out.

Even fractional reserve banking, on its own, can not be held responsible for a crises of this size. Lending out money that is not from real savings (i.e. money that does not really exist) is self limiting in the end - although not in the way the early 19th century "Banking School" said it was. It is self limiting in the way that the credit boom quickly turns to bust, and the castles-in-the-air wealth of mal-investments is liquidated, a long with a lot of people's fortunes which depend upon the bubble.

A credit boom can only carry on if it is supported by a Central Bank - whatever this Central Bank is called.

This is why the credit-money bubble of the late 1920's was bigger than previous credit-money bubbles of American history. Because the Federal Reserve system, specifically New York Federal Reserve Bank Governor Ben Strong, had pushed it up and up.

Do people remember the newspaper headlines every so often between 1987 and 2007?

Specially the "Alan Greenspan saves the world" stories?

Ever wondered what the great Alan Greenspan, Chairman of the Federal Reserve, had actually done?

What he had done is as follows:

Every time the credit-money bubble looked like it was finally going to burst Alan Greenspan jumped in and increased the money supply to "save" things. And he did prevent the credit bubble bursting - but at the price of making it bigger and bigger. Without this increase in the money supply, ACORN and Chris Dodd and Barney Frank and Freddie Mac and Fannie Mae, and the private banks, insurance companies (like A.I.G.) and other such would have no funny money to work with. They could not have wreaked everything without the ammunition (the money) Alan Greenspan was indirectly giving them. Of course he did not work alone, for example the present head of the New York Fed (who will be Treasury Secretary soon) has been involved in almost every bailout since Mexico in 1995.

And nor was it confined just to United States - for example the Bank of England has been supporting the wild expansion of the credit money supply for years, and even if one is just talking about notes and coins (not bank credit) the money supply in Britain is still going up at a about 6% a year (last time I checked).

The Fed in the United States is desperate to prevent the "deflation" of the credit money balloon it has created, but the Bank of England is no less desperate - indeed the Governor of the Bank of England has talked about nationalizing banks (those who have not already been nationalized) that does not "resume normal lending" - i.e. keep up the All Fools Festival with the bailout money they have been given rather than using the money to try and bring some sanity to their balance sheets. We live in a country where everyone is connected to the credit bubble and it is considered normal and respectable (rather than a sign of desperation) for a business to borrow money even to cover normal expenses - such as payroll.

This is not a serious credit money bubble in an otherwise sound economic system (as were the credit-money banking boom-busts that occurred in the United States before the creation of the Federal Reserve System in 1913) this, in both United States and Britain, is a system that is rotten to the core.

However, of course, that can not be admitted. Already there is a search for scapegoats as I mentioned at the start of this bit of writing - greedy and corrupt bankers are top of the list, but there are others. Already former Senator Phil Gramm is under fire - because he led the charge to "deregulate banking".

I have no time for Phil Gramm as a monetary economist, he is a Chicago School man and I am a student of the Austrian School. And the two schools do not get on when the questions are about monetary policy. However, to say that allowing merchant banks to engage in retail banking and retail banks to engage in merchant banking is the primary cause of the present crises is, to use technical language, a load of dingos kidneys. But attacking "deregulation" like attacking "tax cuts" is always popular with such things as the mainstream media. And, at the margin, there is even a grain of truth in the charge against Gramm - as the deregulation made it more straightforward for the banks to play with the tidal wave of funny money that Alan Greenspan let lose on the world. But it is the tidal wave of new money (the increase in the money supply) that is the key.

Will the bailouts continue? Will the Federal Reserve Board continue to push the money supply up (according to some measures - I do not have any M3 statistics) 7.5% a year and direct it at the banks?

Will the official bailout number grow from 7 trillion to 9 (already the number of 700 billion is regarded as small) - are we really going to talk about tens or (perhaps) even hundreds of thousands of Dollars for every man women and child in the United States?

Actually it hardly matters any more, because the "financial system" is already broken. All the demented attempts to "save it" will achieve is to prolong and deepen the agony. However, as I hope I have made clear, if this system has anything to do with free enterprise "Capitalism" then I am a Communist.

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Iain Martin is rapidly becoming one of my favourite columnists. This article explains why.

A recent book which looks at tensions between free markets and the short-term interests of incumbent businessmen, this book is great. It was written shortly before the credit crisis went into overdrive and its warnings about a stampede into regulatory overkill are very apt.

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The Lakota Sioux have a number of long time libertarian supporters amongst them so I was not totally surprised to hear about the Free Lakota Bank. This new institution is issuing 100% backed currency and supplies many normal banking services.

Unlike the Liberty Dollar effort, the Lakota will not be a pushover for the Statists. As you may remember, the Liberty Dollar facility was invaded and assets stolen by the Feds. The Lakota, on the other hand, have armed warriors for local security and if Statists invade sovereign Indian lands, it would not be the first time they got their arses sent back across the reservation line with tails stuffed up their bungholes.

It is my understanding this effort has the full support of the Free State Project. I hope we will hear more from them in the comments section. I also extend a hearty welcome to anyone associated with the Lakota bank and an invitation to drop in and give us a sales pitch. I would particularly be interested in their privacy practices.

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Reason TV has used a brilliantly educational Donald Duck cartoon as a starting point in a video on current monetary problems.

I think it is pitched at just about the right level to educate our politicians about economics. They may be able to print money but they have not yet figured out how to print value.

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Andrew Sullivan, commenting on a remark about the enormous bailouts being put into place by Western governments, has this to say:

"The debt was so reckless and so immense that it now threatens to destroy the entire financial system. That's what electing George W Bush twice has done for us. But then we are told that this threat requires us to do even more of the borrowing and spending before we can begin to get ourselves back in balance again. The unchallenged doctrine of the day is that: doing nothing would provoke a worse collapse than necessary and so we have to make our fiscal situation much worse now in order to make it much better later. Why am I not convinced?"

Well, Sullivan is obviously right that the way to solve our debt addiction is not to go on the equivalent of yet another binge in the hope of relieving the hangover. Although his glib remark that re-electing Bush twice has added to the debt addiction does rather ignore, for example, the role of the Democrats, for example, in opposing Bush's attempts to constrain the US federal home mortgage agencies, Freddie Mac and Fannie Mae. He is right though to chide the Republicans for letting spendng soar, but then I fear that Sullivan has become such a victim of Bush Derangement Syndrome that even a good point now becomes distorted through his worship of Mr Obama. And if it is debt addiction Sullivan is worried about, I somehow do not expect the Community Organiser to be the one to decisively take us back to the days of small government.

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I see the UK Chancellor, Alistair Darling, is making the point in the House of Commons that the financial crisis will not deflect the government from bringing about a low-carbon economy, despite the fact that such a change, by definition, will be costly. I am watching his statement in the House right now. He has also referred to the current economic climate as if it were an outbreak of a virus or a meteorite impact from outer space.

There is a risk that these people are sincere about all this. That, in fact, is the danger: not that such folk are liars and charlatans, but that they actually mean it.

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The biographer of JM Keynes, Robert Skidelsky, writing in the Independent newspaper over the weekend, ponders what his economics hero might have done in the current environment. Not surprisingly, perhaps, Skidelsky argues that the economist would have advocated stimulating aggregate demand in some way, either through tax cuts, interest rate reductions or a combination of the two.

In the course of the article, he has a swipe at the "Austrian" school of free market economists who argued that Keynesian economics was - and is - quackery:

"However, his clinching argument in his 1930s debates with free market economists such as Friedrich Hayek was political. It was much too risky to allow economies to slide into deep depression. The example of Hitler was vivid in the minds of all democratic politicians. In 1928, at the height of Weimar Germany's prosperity, the Nazis got 2 per cent of the vote. By 1930 they were up to 18 per cent. In 1933 Hitler was in power."

The trouble with this argument is that when supposedly Keynesian stimulii were applied to economies in say, 1930s America, they did not work. Fact. As I pointed out here with reference to US official statistics, unemployment never fell much below the average levels for that decade until the outbreak of the Second World War. Paul Marks has also pointed out how FDR's achievements were largely mythical, if not in fact the opposite. This woman has argued in a recent book that FDR's policies made the situation worse. In the UK, the supposedly more fuddy-duddy governments of Baldwin and Chamberlain arguably presided over a less serious outcome by not adopting such "New Deal" policies. Meanwhile, in Japan during the 1990s and part of the 'Noughties, a number of stimulus packages failed to revive the world's second largest economy.

Now Mr Skidelsky presumably must be familiar with these statistics, and yet he argues that the reflationary policies of his hero, even though they have not been borne out by historical evidence, were somehow capitalism's best defence against political fanaticism. He may be making the case that governments have to be seen to be "doing something", even if it does not work much, to avoid the charge of callous neglect. But if policies don't work, how is this supposed to calm political agitation? The German example is instructive: I would at the very least have thought that the destruction of the German middle class via the hyper-inflation of the 1920s was a major part of why Germany was so easily tipped over into extremism when economic problems hit home. And that reflation was caused by government, not the private sector. I also think that Skidelsky underestimates the extent to which people do, at a gut level, understand that the governments in power in the West bear some, if not all, responsibility for the present mess.

Meanwhile, I see the UK Labour government is going to take Britain down the wrong side of the Laffer curve by making tax hikes on "the rich" - including entrepreneurs and other wealth creators - a campaign pledge. And this despite evidence, which the government must surely realise, that higher marginal tax rates are destructive of revenues. Update: Fraser Nelson has a splendid, bullet-point take-down of Gordon Brown's bare-faced lies on the economy and his supposed role in leading us to sunnier climes. It cannot be said too often what a complete shit the UK premier is.

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There is a good article by Bloomberg columnist Mark Gilbert on why just transferring billions of taxpayers' money to America's embattled automakers is a bad idea, and he has thoughts who might be better equipped to run these firms.

As he says, long before the credit crisis hit, some, if not all of the carmakers were suffering from problems. There is a glut of cars on the world market and the spike in oil prices - admittedly now in reverse - has made a number of such vehicles uneconomic.

Talking of oil, the black stuff is now below $50 a barrel, down by about $100 from its peak. Wow.

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Last night I was lucky enough to get invited to a smart awards ceremony in London marking achievements in the world of luxury goods and services. There were folk from various brands and companies such as Chanel, Aston Martin, and the like. Lots of nice expensive champagne, dishy women and impeccably dressed chaps. At the end of the event, an award was given to a certain Vivienne Westwood, one of Britain's most famous fashion designers. She started her career back in the 1970s in the world of punk, associating with Malcolm McClaren, who went on to manage the Sex Pistols, before moving on to other fields. To describe Ms Westwood as a gloriously bohemian figure is an understatement: she wore this amazing red dress, had bright orange hair and her face was painted a sort of white to create the impression of an eccentric 18th Century party-goer in the court of Versailles.

I was struck by two things. On the one hand, Ms Westwood is a great entrepreneur. She has a fashion business empire that stretches around the world, employing loads of people, creating jobs and income, not to mention fashions, for thousands of people. My wife adores some of her stuff. She has been heaped with honours and is the toast of Milan, Paris, London and New York.

And yet as soon as she opened her mouth in the ceremony last night, we were treated to meandering monologue about how how "Britain has far less culture than France"; how cheap labour is the evil that causes wars, how mankind is threatened with extinction in a few year's time; how the French were great because they had central planning back in the 17th Century to create a fashion industry, how she was soooooo glad that Obama was in the White House.....on and on it went, bringing together in one speech an amazingly concentrated collection of fatuity.

It keeps amazing me how people in business, even tremendously successful businesspeople, can hold views that would make any sixth-form pupil cringe with embarrassment. But part of me loves the free market precisely because even an eccentric like Ms Westwood, while decrying global capitalism, can make a mint out of it by selling people stuff that they want. Just don't ever take her views on world affairs seriously.

Oh well, at least she is more fun to watch that Polly Toynbee and like I said, she has created a great business.

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Guido Fawkes, in a break from his usual occupation of digging up scandals on our political class, instead focuses a bit more on the underlying policies of the UK government and the opposition. He rightly notes that sterling's falls against the dollar undermine Gordon Brown's attempt to frame the crisis as something that has hit Britain from afar, like the impact of a meteorite or SARS virus. Many of Britain's problems are home-grown. Guido also reminds us of that little-noticed adjustment to the Bank of England's inflation target back in the early 'Noughties. Brown removed housing prices from the index of inflation that the BoE targets. Result: house prices no longer figured as a reason for setting interest rates. Brown, in a word, helped make the property price bubble worse than it might otherwise have been.

Now, I know some of us hardline defenders of free market banking will say that this is a quibble about how to run state monopoly money, and they have a strong point about that. But clearly, even the supposed wondrous Brownite creation of an independent central bank turned out to be an illusion. No wonder sterling is falling against the dollar and the euro. As I work for an export business, I guess I should be grateful.

Brown, in his current efforts to create a narrative as "Gordon the statesman who fixed the crisis" reminds me rather of the late Lord Louis Mountbatten, the UK Royal Family member and disastrous military commander and Indian Viceroy who managed, at least for many years, to create the idea of him being some kind of hero. Sooner or later, Brown is going to get, and deserve, the Andrew Roberts treatment. (Roberts helped to annihilate Mountbatten's reputation).

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A lot of people are noticing the parallels between what happened in Japan when and since their bubble burst, and what Britain, and if our Prime Minister gets his way the entire world, is now doing to itself. About a month ago, I did a podcast, with Antoine Clarke and Michael Jennings, in which Michael J in particular gave Japan a big mention, as an illustration of what not to do.

This headline, which I snapped yesterday, reminded me of that conversation:

A zero percent interest rate has been a feature of Japanese life in recent years, as has almost total economic stagnation. In an October 29th article in the Independent, Hamish McRae noted this parallel. I got back to that piece thanks an ASI email, which flagged up this blog posting by Tom Clougherty. Said Clougherty:

The result is that average Japanese living standards have barely risen for 20 years, while inequality has risen sharply. And this is despite them adopting the policies our government are now touting: low interest rates, increased government borrowing, and higher public spending to "prime the pump". If it didn't work for Japan, are we really to believe it will work for us?

Indeed. McRae actually went on to say that we are not in as bad a pickle as Japan. Which is some comfort, but not very much.

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Matt Welch - author of a recent fine study of John McCain - has this to say about the recent cave-in by so-called conservatives to calls for a massive bailout of failed businesses and banks:

In June I read what I thought I'd never see again: a mainstream column, by a mainstream columnist (The Washington Post's David Ignatius), arguing against the effects of airline deregulation, one of the most liberating government acts of the last four decades (see "40 Years of Free Minds and Free Markets," page 28). When reregulation is suddenly on the table even for an industry where market forces have cut prices in half while doubling the customer base, it's time to get back to first principles and fight like hell to secure victories we'd long thought won.

Indeed. Like a few other Samizdata contributors - such as carbon-footprint monster Michael Jennings - I am a big fan of the deregulated airline business. This business has been a huge boon in places like Europe. Thanks to the lower cost of flying around, I can see friends in Europe, see my family (and they, ahem, can visit me). The development of the cheap airline business model, notwithstanding some of its flaws, has done more to bring Europeans together than all the EU directives ever passed. Arguably, such directives have in fact been a hindrance, rather than a help, to such closeness.

On Matt's broader point, he is right that we are going to have to make the case for free markets, dispersed property rights, entrepreneurship and trade all over again. It is extraordinary to think that barely over a year ago, Conservative Party leader David Cameron was attacking cheap flights. He has allowed a Big Government, environmentalist message to overshadow what must always be a staunch support of freedom and property rights. He reminded me of the comment attributed to the Duke of Wellington in the 1820s about the railway train: he disapproved of them as they would encourage the common people to move around.

Thankfully, such nonsense has disappeared But just you wait: as and when the good times reappear, the inhabitants of Notting Hill, the Upper East Side and central Paris will be arguing for shackling the unwashed masses to living and holidaying within a few miles of where they live. It is vital, therefore, that the defence of the market order, and resistance to bailing out politically well connected firms like GM or RBS, be given a strong, populist image. Defending deregulated airlines strikes me as a good sort of issue to use in this respect. Keep your stinking, socialist hands off my Ryanairs, my Easyjets and my Southwests! Unleash the spirit of Richard Cobden!

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"Unlike those excitable countries where the peasants overrun the presidential palace, settled democratic societies rarely vote to "go left." Yet oddly enough that's where they've all gone. In its assumptions about the size of the state and the role of government, almost every advanced nation is more left than it was, and getting lefter."

Mark Steyn. As he points out, the upcoming US government bailout of General Motors and god-knows-what-else should nail the idea that the US is the land of "unregulated capitalism".

Update: PJ O'Rourke writes in similar vein.

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Tim Worstall, whom I read daily, has a good post dealing with the idea that it is somehow wicked for banks to charge a higher interest rate for a mortgage than the official base rate as set by the Bank of England (or any other central bank, come to that). It is, as he says, a matter of pricing for risk. Lending money to a person with a relatively small deposit - or collateral - relative to the total value of a loan is risky. I am going to have to renegotiate my mortgage in the next few weeks, and because the pricing of risk has risen dramatically, I can expect to pay more even though my loan-to-value ratio is quite low and I have a decent amount of equity, while both my wife and I earn a reasonable amount of money. It is not a great situation to be in, but it could be worse. For many years I chose to rent and stash up enough money to put down a good deposit, as did my wife. That, by the way, is one reason why there is a basic injustice when relatively prudent folk get taxed to bail out the imprudent, such as a person on a 100 per cent mortgage.

To be honest, had the price of risk not been artificially reduced by recklessly loose monetary policy over the past few years, we would not be in this pickle in the first place, but that's another story.

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Politics trundles on and the more you pay attention to it the more depressed you are going to get, so what I like to do instead is look at gadgets. Gadgets aren't everything. An affordable mobile phone is scant consolation if your ludicrously unaffordable house has just been repossessed. Flat screen televisions are only as good as the stuff that's on them. Cool cars only provide escape from the cares of city life in car commercials, not in cities.

Nevertheless, gadgets are still being done well, and every now and again I like to pick out a new one and praise it on Samizdata, both for its own beautiful sake, and because doing this makes the point that life would be so much better if everything (not just gadgets) was done like that, by grasping capitalists in competition with one another instead of by tyrannically pompous bunglers who are clever only at winning elections or at sucking up to such people. The last such gadget that I got excited about here was the Asus Eee-PC, which I now happily possess, and am gradually finding more uses for. And now, I offer you the Panasonic Lumix DMC-G1, which is a digital camera, which looks like this:

It doesn't look anything very special, or very different, does it? And for many people it won't be. For all those Real Photographers squinting into their optical viewfinders to get the perfect shot with their brick-like Canon or Nikon DSLRs, the G1 would be a severe come-down, because the G1 doesn't have an optical viewfinder. But for that vast tribe of cheaper and more cheerful digital snappers who prefer cameras that don't weigh so much, the fact that the G1 has no optical viewfinder is exactly the point. We Billion Monkeys, as I like to call us, look at all those Real Photographers with their clunky black contraptions and we say to ourselves, yes, I'd love my pictures to be as good as theirs are, and it would certainly be nice to be able to use lots of different lenses the way they do, but really, does a camera have to be that big to be that good?

The thing is - from where we Billion Monkeys stand, sit or crouch - DSLRs look like a relic of the analog age, like those weird early steam ships that also had sails on them. DSLR stands for Digital Single Lens Reflex, and this refers to the fact - commenters will doubtless correct me to the degree to which I am, I am sure, somewhat-to-completely wrong – that in order for the optical viewfinder to be an accurate foretaste of the picture being attempted, the light that enters a DSLR has to be divided up and sent off to two different places, one of them being the optical viewfinder and the other being the magical electronic surface that turns the light into a digital picture. This process involves ... well, it involves a lot of space and a lot of complication.

So, the G1 does away with the the optical viewfinder. You can still squint through an eyepiece if you really want to, but what you see is a digital picture, not a merely optical one. More conveniently, you can see the digital picture beforehand on a small screen, which, as with the best little digital cameras, twiddles, and hence lets you take pictures that you can still see even when you are holding the camera way above your head or way down in front of your private parts. Most DSLRs still only show you the picture on their screens afterwards, but the latest ones also have these see-the-picture-beforehand screens, but this combining of optical and digital previewing all adds to the size and the expense. What the G1 does is put all its pre-viewing and post-viewing eggs in the one digital basket.

If the G1's screen were only as good as the kind of screen you already get on most small digital cameras now, such as the one on my current camera, that would not be a good decision. These small screens are now notorious for telling you that that is a fine picture while you are taking it and just after you took it, only for you later to discover, when you get home and see it on a real screen, that the picture is a blurry failure. Much effort has gone into making the image on the G1's screen, and the image you see through the G1's digital viewfinder, a lot better than such images have ever looked before. And the even better news is that the improvements already achieved in this department, being electronic rather than merely optical, are bound to be surpassed in the near future and surpassed again and again in the years to come.

Meanwhile, the G1 offers us digital amateurs all the things we really do want that only the SLR fraternity can do now. The picture quality will be far better, both because it just will be, involving as it does the exact same kind of picture making technology as happens in DSLRs now (only rather smaller), and because we will be able to use a growing choice of lenses instead of the one lens we are stuck with now. But, we won't have to lug a thing like a brick around with us to get all these delights.

All this is hearsay and conjecture, based on the reports of the lucky few who have already been allowed to actually see and play with this new camera. But the buzz that it has already stirred up around itself definitely reminds me of the buzz that buzzed around the first of those micro-laptops, of the Asus Eee-PC variety, a market that is now galloping ahead exuberantly. What this buzz already tells us is not that the G1 is definitely the wonder that its paid puffers and earliest reviewers are now claiming it to be. No, it tells us something more important than that. It tells us that this is what the market really really wants. I am most emphatically not the only cheap snapper who wants to trade up to something definitely better, without trading up to a big black brick that leaves little space in my life or bag for anything besides photography. If the G1 is what it promises to be, it will be a runaway hit. If its reach turns out to exceed its grasp, never mind. Rival capitalists will soon be delivering for real on the same clutch of promises that the G1 has merely advertised.

So I'm going to wait to see if the G1 really is this good, and I will also be waiting for the price of the G1, or of satisfactory rival facsimiles, to fall from the currently announced level of about £550. That's too rich for me. I'll also be waiting - although I don't think I'll have to wait long - to see if the G1, and the new market that it points towards, is the huge market that I think it will be, because only then will the lens-makers respond, in the way that they already have responded to the recent explosion of the DSLR market, which happened as it did because of already existing cameras that were merely SLR, without the D for digital bit. Not the least significant of the responses will be in the form of adapters, to make the small new G1 able to make use of the big old SLR lenses that lots have already invested in. Panasonic have already made such an adapter to allow the G1 to use their big old lenses.

You think that postings like this are frivolous, in these scary and portentous times? If so, I see what you mean, but I think you are wrong. Thank goodness that there are these frivolous things like little laptop computers and like small digital cameras, so frivolous that most politicians feel that it is beneath their dignity to take charge of them. That way we all get a chance to see how much better the world, all of it, would be, if the politicians could be persuaded to regard everything as too insignificant for them worry about. Think what a great world that would be, and think how rapidly it would, even now, be improving.

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I must say that one of the few gratifying aspects of the current financial turmoil has been the way in which one of the UK's biggest banks, Barclays, has decided to spurn any offers of help from the UK government - ie, the UK taxpayer - and raise funds from mostly private investors. In its recent raising of about $12 billion of funds to improve its capital position, Barclays made it clear that it wanted to stick with funding via the commercial market because, if it had drawn on the UK state moneys that have been provided for the likes of Lloyds TSB and Royal Bank of Scotland, it would lose its freedom to set pay, among other things.

Now, free market purists may object that the Middle Eastern funds that have pumped cash into Barclays are not entirely private sector organisation and of course they have a point. But the fact is that as a taxpayer, I haven't been asked to write a checque to Barclays, in contrast to other UK banks. Barclays has also kept its affairs away from the hands of such characters as Alistair Darling, the UK finance minister. Those banks which have taken state aid face the risk that the confidentiality of their clients, especially in the wealth management area, could be compromised. Of course, even before 9/11, banks have been required to compromise on secrecy due to things like money laundering laws and the like. But there is no doubt that once a bank becomes an arm of the state, such erosions of client confidentiality that have already occurred will increase.

And the reaction of certain parts of the media has been interesting. On Friday evening, the BBC economics correspondent, Robert Peston, told us in that extraordinary voice of his how Barclays shareholders would be penalised by having to pay a higher amount to obtain funding than if they had, like good little corporatists, gone along to the UK Treasury. Peston, as a corporatist himself and creature of New Labour, cannot fathom why a bank wants to stay out of the public sector. Barclays' executive bonuses may be "obscene" as far as Peston is concerned, but at least Barclays avoided some of the worst excesses of the credit boom. It is, as a result, relatively strong as a bank. Barclays must be thankful that it lost a merger battle to buy ABN Amro last year. If its refusal to eat from the state table annoys BBC journalists - who of course are paid out of a tax - then the bank must have done something very right. One cannot exactly say that of a lot of banks these days.

(10)

During the recent LA/LI Conference, Sean Gabb, half of the two-man team that now runs the Libertarian Alliance (Tim Evans being the other half) sat himself down next to me and asked me to suggest good speakers for next year. My best two suggestions were two Michaels.

Michael Jennings will be well-known to regular readers here as an expert on technological trends and much else besides. He would be exactly the kind of second-tier speaker, and I mean this in no disrespectful way, who maybe isn't a superstar name who would cause dozens more attendees to sign up in the first place, but who would add greatly to the enjoyment and enlightenment of the event for all who did attend. Technology, I am sure you will agree, can be relied upon to keep on supplying interesting trends for someone like Michael to talk about.

And the other Michael I suggested was Michael O'Leary, the boss of Ryanair. Okay, definitely a first-tier speaker, but equally definitely a long shot. But what's the worst he can say? No, too busy running Britain's largest low fares airline, you can afford my air fares but not me but the best of luck anway being what he probably would say, if anything, if asked.

Ryanair press releases are actually fun to read (like some of Sean Gabb's, come to think of it). Here is a typically populist and opportunistic snippet from the latest one:

Ryanair, Britain's largest low fares airline, today (31st Oct) offered to rescue Jonathan Ross after he was 'Sent to Coventry' by the bigwigs at the BBC. Ryanair will help Ross jet off to much more exotic surrounds as it sent him free tickets to escape the media spotlight and sample how those who don’t earn £18million a year live.

Ryanair, called on the black sheep of the BBC, who will lose £1.5million over the next 12 weeks, to make his money go further by escaping the high cost of living in Mayfair and fly on one of Ryanair's over 350 UK routes where he can live cheaper, get a tan and gear himself up for his return to the beeb next year.

Does Coventry have an airport, I wonder?

O'Leary's open contempt for state monopolies of all kinds, but especially in the airline business (on the ground and in the air), is most pleasing. A growing trend in public opinion, especially since this latest wall-of-taxpayer-money bailout of dodgy banks, is the alignment of enthusiasm for free markets with populism, while statist solutions to problems are becoming regarded more and more as elitist manipulations, the rich helping themselves to public money on scale that the poor could never dream of. O'Leary feeds into that current, I think, especially in the way he bangs on about how much more you often have to pay the government, when you fly Ryanair, than you have to pay him.

Michael Jennings, constant globetrotter that he is, could doubtless tell libertarians about the impact of low fare airlines on the world, even if Michael O'Leary is otherwise engaged.

(1)

There's a rather comical culture clash now being played out in the West Indies, between new money and cricket:

Senior ECB officials, who almost bent over backwards to welcome Stanford and his millions at Lord's last summer, were also under fire with calls for them to stand down after failing to undertake adequate checks on Stanford. Rod Bransgrove, Hampshire's chairman, told the Daily Telegraph that the position of Giles Clarke, the ECB chairman, was in doubt. "I asked the ECB to do a lot more checking on Stanford and this competition. We made it very clear we that we should not enter into this agreement without proper checks but he [Clarke] had already done the deal. The board should resign collectively".

The ECB and Stanford agreed on an unprecedented US$100 million deal in the summer, spread over five years, but the inaugural competition this week in Antigua has attracted mounting criticism in England.

The flack really started to fly on Monday when Stanford was pictured with Matt Prior's wife on his knee and with his arms around two other girlfriends of members of the England team during a match the night before. It provoked a strong reaction from parts of the media, and in addition, one England player reportedly said: "If that was my wife he'd put on his lap I would have wanted to punch him".

Last night's planned cocktail party with the teams was cancelled at short notice, with officials rather unconvincingly claiming there were "logistical problems over a venue". One journalist was unconvinced. "As if Stanford would ever have trouble in securing a venue for anything in Antigua," he noted. "He owns most of them."

I recall boasting here a while ago that my grandfather was the captain of his local cricket team by virtue of the fact that he owned the pitch. This was in Dingestow, which is a small village in Monmouthshire. My cousin still lives there, in the biggest house there, which is called Dingestow Court. But that's old money. Old money pitch owners would make irrational bowling and field placing decisions, but they wouldn't mess with other cricketer's wives or 'girl friends', i.e. ladies whom other cricketers were courting.

All of this trouble in the West Indies now has arisen because of the rather sudden eruption of Twenty20 cricket. It turns out that, unlike so much of old school test cricket, people will pay large amounts of money to go and watch Twenty20, even between relatively moderate players. Suddenly cricket has become a very, very big, very twenty-first century business. And the cricket world is finding it tricky to adjust. It hit me the other day what a huge impact Twenty20 cricket is having when I half noticed (as you do when watching the telly) a TV advert for some kind of computerised or perhaps gambling-related version of soccer, which they were also calling "Twenty20". Cricket is now featured in the sports pages of the popular press in Britain in a way that it hasn't been for years, except during an Ashes series.

Here is some more Stanford grumbling. English cricket, says former England captain Mike Atherton, has become Stanford's WAG.

(12)

William Rees-Mogg has a nice, rather wistful account of the days of when bank managers actually knew their clients, knew their economic circumstances and were not in the business of lending money to folk with little or no credit history. Mr Rees-Mogg is a devotee of the gold standard. However, in talking about the changing nature of banks and the quality of their staff, he does not touch on an issue which struck me the other day: limited liability.

Under limited liability laws and with central bankers acting as lenders of last resort, there is an element of moral hazard. Some free marketeers like Sean Gabb - whom I mention below - think limited liability laws are a statist curse on the capitalist system, since they would not arise without active state adjustments of corporate law. I am not sure about whether limited liability would exist in a world of pure laissez faire. It might, I guess. Also, not everyone buys the idea that LL is a distortion of the market or would not exist without state action.

However, there are still some nooks and crannies of the banking world where unlimited liability still exists and works successfully. The Swiss private bank Pictet, founded in 1805 in that memorable Napoleonic battle year of Austerlitz and Trafalgar, operates a partnership system where the bank partners face unlimited liability. As a result, Pictet operates a very conservative lending and investment policy. During the fat years of the 'Noughties, Pictet may have seen some of its more aggressive competitors steal a march, but now the bank is attracting inflows from investors who appreciate the structure of the firm. At a time when Swiss banks have sometimes attracted bad headlines due to massive losses undertaken by over-confident people, the example of Pictet is an interesting contrast.

(6)

The IEA now has a blog, which is good. Good that it has one, and good in that it looks to be good.

Here are two characteristic quotes, from the two most recent posting at this blog. First, here is a recycled little something that John Meadowcroft contrived to get published by the Times yesterday, about Marx:

Sir - Marx's theory of the crises of capitalism is little more than a melodramatic description of the business cycle - standard fare in economic analysis. Every original contribution that Marx made to our understanding of capitalism is demonstrably false: the working class does not become increasingly immiserated; the class structure does not become increasingly polarised; no society has evolved from feudalism through capitalism to communism; the iron law of wages is fallacious; the State does not wither away when capitalism is abolished. Marx will continue to be neglected by serious scholars because he was wrong in every important respect.

And here is a the final paragraph of a summary of this publication:

Given the complex causes of the gender pay gap, it is clear that complete equality of pay is unlikely to be achieved without draconian measures that would restrict freedom of choice and damage the economic prospects of both men and women. Calls for new legislation on equal pay should therefore be resisted.

The IEA has always seemed to me to be the kind of organisation which should have a blog, but also as the kind of organisation which has been mindlessly prejudiced against having a blog on account of having nothing to say about kittens and sunsets and the personal dietary habits of its inmates, and on account of not liking the bark-at-the-moon style of current affairs commentary, as if that were all you were allowed to do, blogwise. This is like denouncing the whole idea of telephones merely because other people often chatter pointlessly to each other with them. Why should that bother you? Happily, the IEA has now overcome any such prejudices.

(3)

The Bailout Reader over on the Ludwig Von Mises Institute site is an essential reality based antidote to the crapulous ignorance on offer in the mainstream media on the current economic crisis. When it comes to economics at least, the Ludwig Von Mises Institute is hard to better.

If ever there was a 'Crisis of Regulatory Statism', look around you... this is it.

Read every word of it.

(13)

Spectator politics correspondent Fraser Nelson spots that Gordon "off balance sheet" Brown, as I will now continue to call this shit of a national leader, has devised an accounting wheeze to remove the tens of billions of public debt involved in the Northern Rock bailout from the public accounts. As a result, Brown can claim that the UK public finances are fine, nothing to look at here, please move along.

As Mr Nelson points out, Brown engages in practices that politicians are only too keen to condemn when applied by banks. But at least banks, if they try to remove certain default risks off their balance sheets, use forms of tradable insurance policies known as credit default swaps. I'd be interested to know how exactly Brown & Co. intend to hedge out the risk that Northern Rock does not return to any form of profit. This disconnect between the talk of prudence on the one hand and financial trickery on the other will, I hope, be the undoing of this overrated bullshitter from north of the border. Brown is damaging the age-old Scottish reputation for plain dealing. No wonder so many Scots want to cut loose from the UK. I don't blame them.

(3)

Now that banks are being forced back to their traditional model of being dull institutions, those chasers after excitement who have been shown the door might like to consider some career options. I rather like Matthew Lynn's list of suggested new ideas.

On a serious note, it is one thing to embrace risk-taking as a virtue of entrepreneurship, so long as the persons taking the risks carry responsibility for the bust. The problem with the investment banks, such as now-defunct Lehman Brothers and Bear Stearns, is that seldom happens. If the "Masters of the Universe" really do crave the high-wire, much better that they do so with money not given to them by the taxpayer.

On a separate but related point about state ownership of banks, one issue that has not yet been much discussed is that of political and business corruption. Under "public" ownership, what will count will be what Ayn Rand called "the politics of pull": the ability of governments to put their toadies onto bank boards to ensure that favoured groups get their loans and other benefits, while enriching those with the right connections. We saw that in countries like France, state-controlled banks such as Credit Lyonnais became engines of corruption on a huge scale. If ever there was an issue for enterprising journalists to go after, it is this one. They may probably do so once they have become bored describing Gordon "off balance sheet" Brown as some sort of economic superman.

(6)

The only other thing I would add is that I am in the advertising industry and most of the ads for sub-prime loans had dried up before the recent bail-out bill. As soon as that went through the volume for these ads went up 10 times. Whatever the government did to "fix" the problem ain't working because all they did was just give everyone who didn't make money the first time around another shot at the craps table.

- from a comment by "Ben Franklin" on this Belmont Club posting spotted by David Farrer

(12)

Poor naive George W. Bush! For all his shambolic presidency, his dreadful mistakes, and the horrors of aggressive imperialism, his last couple of months in office could end up being the most disastrous for the world.

Bloomberg reports:

The leaders of the U.S., France and the European Commission will ask other world leaders to join in a series of summits on the global financial crisis beginning in the U.S. soon after the Nov. 4 presidential election.

President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement after meeting yesterday that they will continue pressing for coordination to address "the challenges facing the global economy.''

The initial summit will seek "agreement on principles of reform needed to avoid a repetition and assure global prosperity in the future,'' and later meetings "would be designed to implement agreement on specific steps to be taken to meet those principles,'' the statement said.

Just how bad this could be is already showing. The report continues:

Sarkozy and Barraso are pressing Bush for a G8 agenda that includes stiffer regulation and supervision for cross-border banks, a global "early warning'' system and an overhaul of the International Monetary Fund. Talks may also encompass tougher regulations on hedge funds, new rules for credit-rating companies, limits on executive pay and changing the treatment of tax havens such as the Cayman Islands and Monaco.

Just what has the continuation of the OECD nations' campaign to plunder smaller states and institute globally uniform (high) taxation got to do with the market crash? Nothing. Executive pay? Irrelevant, too, save in the politics of envy. Mainstream banks, not hedgies, were the ones that crashed after playing iffy games with CDOs, and governments helped pump-up house prices - with enthusiasm. Where this agenda comes in is as an opportunity to kick the resented "Anglo-Saxon" model of capitalism while it is down - even, and especially, in those places where it is not down yet. (Are we missing Commissioner Mandelson yet?)

Mr Bush has lost the thread entirely if he really thinks a transnational "reform" of the financial system can do other than damage "free markets, free enterprise and free trade". He may have a patchy record on liberty, and a bad record on limited government. His guests in November will have no interest in either. They will tempt him (have tempted him) with the mantle of world saviour, and will try to get him to bind his successors. We shall have to hope that his successor, either one of whom would be well to the economic right of the self-selected 'international community', depressingly enough, is more wily and far-sighted.

Meanwhile, where is there left to run?

(5)

...They would make Guido Fawkes an advisor on how to fight the next election. Of course Guido (aka Paul Staines), whom I know and like, prefers, as I and many other bloggers do, to give party politics a wide berth in professional terms. He is far more effective doing what he is doing now and obviously has a great time doing it. But as his example shows, the guy has more sense on how the Tories should go after the absurd notion of Gordon 'off-balance-sheet' Brown than any number of folk working in Tory HQ.

Think about it: the Tories should put up posters with the Brown comment on "no return to boom and bust" over, and over, and over. That this man, who has presided over deteriorating public finances during a relatively strong period of growth, sold our gold reserves at a fraction of their current value, raided pension funds and shafted taxpayers should be able to pose as some sort of economic Winston Churchill is a joke.

(23)

Jesse Walker at Reason magazine points out something very inconvenient for Naomi Klein, whom I discussed recently at this blog:

Let's just zero in on the contrast Klein draws between utopian theories and real-world practice. It's a fair argument if you apply it properly: that is, if you look at the consequences of Friedman's policy prescriptions where they are put in place. It makes sense, for example, to look at how Friedman's ideas about denationalization and free trade fared in Chile after they were put into effect. It doesn't make much sense to look at Blackwater's contracts in occupied Iraq, because -- try as Klein might to pretend otherwise -- they don't have anything to do with Friedman. (And of course, it's important to examine the ways Pinochet's Chile deviated from Friedman's economic ideas as well as the ways it embraced them.)

Exactly.

At the same time, you have to consider how Friedmanism fared everywhere some portion of it was applied, not just cherry-pick the most unappealing regimes that experimented with it. If the only place that adopted any of Friedman's economic ideas was Chile, then Klein might be onto something when she suggests there's a connection between libertarian economic policies and deeply un-libertarian ideas about torture, censorship, surveillance, and state-sanctioned murder. But the most sweeping free-market reforms of the last 40 years were not adopted in Pinochet's Chile, Thatcher's UK, or anyplace else addressed in Klein's book. They were enacted by the New Zealand Labour Party in the 1980s. Far from fusing economic liberalization with political repression, the Labour government expanded civil liberties: It adopted a bill of rights, decriminalized homosexuality, improved the treatment of the native Maori. And while Pinochet signed on to the CIA's war against the Latin American left, New Zealand strained its relations with Washington by making itself a nuclear-free zone, a policy that effectively barred the U.S. Navy from New Zealand ports. By Klein's logic, these are all effects of Friedmanomics.

One would not expect Ms Klein to respond to this other than with smears. It turns out that she more or less ignored the devastating review of her book by Johan Norberg at CATO recently, did not address his very serious accusations of widespread inaccuracy or misrepesentation. To repeat: it is not just her views that are a problem - I am sure some leftists argue in good faith - but her actual, repeated lying, fabrications and errors that are so easily corrected and yet she cannot be bothered to do so. That is one reason why I loathe so much of this sort of writer. It is a sort of contemptuous attitude towards simple fact-checking that I cannot abide. So Friedman did not support the Iraq war after all? Well, whatever, he might as well have done, seems to be her attitude.

The point that Jesse Walker makes about the varied effects of free market ideas is important. Yes, some repressive regimes around the world may have found it convenient, for whatever reason, to claim they had signed on to the package, as Chile did. But then remember that even former London mayor Ken "friend of Hugo Chavez" Livingstone once argued that he had borrowed the idea of road-charging from the great Chicago professor. In different times, very different types of political leader, such as Richard Nixon, claimed to be Keynesians, just as, right now, a lot of people are scurrying to claim to be in favour of tougher regulations (see Guy Herbert's comment immediately below this one).

Klein tries to draw an equivalence, in a muddied way, between those leftists who deny that Marx can be blamed for the horrors done in his name and those of us who point out it is absurd to try to blame free market thinkers from what is happening now. Well the reason, Ms Klein, why Friedman et al cannot be so blamed is that what is happening now is not an example of laissez faire capitalism. Re-read that slowly, Ms Klein: what is happening now is not a case of laissez faire. Just to spell it out for those who have not been following this debate: the central banks responsible for setting interest rates are state bodies; the US home loan agencies such as Freddie Mac that underwrote risky mortages are ultimately state bodies; the legislation forcing banks to lend to risky groups is state activity; the Basel and other bank capital rules that have arguably encouraged the irresponsible use of credit derivatives are state rules, and so on. With the exception of Lehman Brothers and some of the Icelandic banks, not a single large financial institution has been allowed to go bust, as a private company would in a free market. Not one.

(6)

Corporate industrialists are frequently not keen on free markets. They are fond of order, safety, and "fairness" or "a level playing-field" - which means everybody doing things the same way they do. They like a managed world, because management is what they do. So no good comes of appointing them as regulators. Technocracy joins with bureaucracy.

Here is Adair Turner interviewed by The Guardian (perhaps in itself a significant choice of forum):

There will be more people asking more questions and getting more information than we were getting before... . There is no doubt the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are.

Translation: "We have to destroy The City in order to save it." This is 'risk' as understood by a safety fanatic - one-sided, and totally unrelated to choice or to return.

We will have more people than before looking at the high-impact, systemically important firms with major knock-on effects than we did before. We will pay more than necessary to attract the correct quality of people from outside.

More than necessary? And who will pay for such artificial premiums? Whoever the FSA decides to tax or fine. It is a predatory organisation: a Self-Financing Regulatory Agency. So it wil have to find more occasions to punish and to license in order to fund more intervention, licensing and punishment.

There is no chance of a 1929-33 Depression. We know the lessons and we know how to stop it happening again.

A prime lesson of the Great Depression for most commentators has been that shutting down free trade in goods in order to protect industrial markets made the depression deeper and longer than anyone could have imagined. It stopped trade and industry recovering from the shock. That our Government is looking to blame foreign investors for our problems and is taking measures to frighten them off, and that Lord Adair is advocating, as the cure for a financial market crash, tight supervision of the surviving free markets in finance and commercial instruments, suggests the lessons have been rather badly understood. They risk stopping the financial markets recovering from the shock.

(27)

Thanks to the eagle-eyed Samizdata commentariat (Ian B), I read this article by Dominic Lawson, son of the former Chancellor of the Exchequer, Nigel Lawson. Lawson Jnr argues that the much-mocked notion of gold-backed currencies, which finally fell out of favour in the early 1970s during the Presidency of that economic ignoramus, Richard Nixon, is due for a comeback. He gives a rather quaint example of what is happening in Lewes, Sussex.

As an admirer of the writings of the Austrian economics school, I have a great deal of sympathy with this argument, although I do not think that gold per se needs to be the anchor of a currency. Given the vast gyrations in the price of gold in recent years, I do not see it as a very practical option for many, if not some, countries. What I do think, however, is that the idea that we can go on regarding money as a sort of metaphysical abstraction to be manipulated at will by Godlike central bankers needs serious reappraisal.

But remember that in times of massive stress - and inflation - gold, like silver and other relatively scarce substances of universally-recognised value, can win new friends. I will be keeping an eye out for stories of such "parallel currencies" in the next few weeks and months. If readers have examples, let me know. Surely this is an area for an enterprising economics PhD student to work on. Why not?

In the meantime, I see that Gordon Brown is now regarded as "statesmanlike" by spending gigantic sums of other folks' money. I'd be more impressed if he came out and urged a big reduction in UK public spending. He's also probably got some beachfront property in Arizona he wants to sell...........

(18)

The 'Paul Marks Plan' to save the world economy is inspired by President Bush and Tim Congdon. I can save the world economy on my own, all I need is the cooperation of the public authorities!

First interest rates must be reduced to a negative level (quite a moderate level, say -0.5% although I would settle for -0.1%) then I will borrow huge sums of money and use some of it to "buy cars" as President Bush has suggested. I will also "buy up every decent security in sight" every time the banks get into trouble - as Tim Congdon has pointed out must be done. But it is the "buy cars" suggestion that has really inspired me, and for a special reason. You see I can not drive - and so I would smash up the cars I bought in car crashes, thus meaning not only would I buy more cars, but the drivers of the cars I smashed into would buy more as well.

It would be a wonderful example of stimulating the economy via consumption. A point that the school of thought led by the late Lord Keynes and the school of thought led by the "monetarist" Tim Congdon are in full agreement upon. And whilst such Chicago School people as the late Milton Friedman might not be wildly happy with the direction of ever greater subsidies for the banks that Tim Congdon has taken "monetarism", the great Tim would be quick to point out that Milton Friedman would not be able to present clear economic principles showing any error in his conception of money and banking - so it must be okay then.

In case anyone think the above is, er, insane... I would point out that it is more moderate than what the British government has already announced, such as one third of the entire British economy (not the government budget - the entire economy) being pledged to back up the banks.

This goes beyond even what President Bush and Congress have done in the United States. Surely we are moving towards the glorious day, worked for so hard by Tim Congdon, when the entire economy (not just the government budget, but everything) is devoted to subsidising the financial services industry. Let us reject such reactionary nonsense as the principle that every Pound of lending must be from a Pound of real savings. And let us also reject the reactionary principle that if a business goes bust it goes bust - and that a bank is no more entitled to protection from "bankruptcy" than a coal mine is. And, most important of all, let us reject the rigid dogma that once money is lent out the lender does not have it any more - till when, and if, it is paid back.

With 'advanced banking methods', backed by government of course, one hundred Pounds of physical savings can be multiplied to vastly more than that in loans. One plus one need not equal two - it can equal any number clever people want it to. And with credit money expansion by the public authorities any problem can be overcome. Credit money expansion, under the control of wise and well paid 'experts' of course, can achieve anything and no petty thing like either logic or physical reality can stand in its way.

We can achieve a perpetual motion machine - accept that it will speed up.

Of course scientists might claim both that such a thing was 'impossible', and that even if it was not that it would destroy the universe. But so what? If we destroy the universe we can create other universes - by an act of will. After all the physical distance between Chicago and Cambridge already seems to have collapsed.

As President Bush and Tim Congdon have explained - prosperity will return, as long as we pump out enough credit money!

(4)

"In addition, one should not minimize the great economic achievements of the past 25 years in the form of rapid growth in world GDP, low world inflation, and low unemployment in most countries. Perhaps these achievements will be overshadowed by a deep world recession, but that remains to be seen. If the impact of this financial crisis on the real economy is not both very severe and very prolonged, and time will answer that question, the combination of the past 21/2 decades of remarkable achievement, and the economic turbulence that followed, may still look good when placed in full historical perspective."

- Gary Becker.

Like Professor Becker, I think fears of a repeat of a 1930s-style depression are unwarranted. What is a serious concern in my mind is the likely explosion of poorly thought-out regulation by politicians who seem to have forgotten how it was often such regulations, as well as lax monetary policy, that is at the crux of the current turmoil.

(4)

This, by Charles Spencer in the latest Spectator, made me smile:

"This is a time for making the most of small mercies. One of the greatest of these, as the financial system collapses around us, is the splendid joke that is Robert Peston of the BBC. His extraordinarily camp, over-emphatic delivery would be perfect for reporting glitzy Broadway first nights but seems hilariously at odds with worldwide economic catastrophe. Peston has all the glee of the callow cub reporter rejoicing in the size of his scoop while lacking the imagination to un