If we really want to find a way out of the financial crisis, we need a lot more crunchinessby Jonathan Ford / May 4, 2009 / Leave a comment
A continuing absence of crunchiness
The stock market seems to have decided that the worst is over. Share prices have rocketed since their lows in early March. The bears are puzzled and discouraged. Whisper it softly, say the bulls, but the odd green shoot is to be seen. It’s a nice thought. But does it really reflect much more than the need to end the psychologically crushing barrage of bad news?
Of course, amid the welter of economic indicators, it is hard to tell exactly where we are in this crisis. But by one important measure we are not at the end of the beginning, let alone the beginning of the end. And that measure is crunchiness. The concept was coined over two decades ago by the journalist Nico Colchester to describe systems “in which small changes have big effects leaving those affected by them in no doubt whether they are up or down, rich or broke, winning or losing, dead or alive.”
Crunchiness, he observed, brought wealth. But it was not a permanent state. It came in cycles as “wealth leads to sogginess. Sogginess brings poverty. Poverty creates crunchiness.”
There have been few truly crunchy moments in this crisis. The biggie was, of course, the collapse of Lehman Brothers last September. This is now widely decried as a misstep. But everything else about the official response has been—well—distinctly soggy.
In Britain, money has been chucked willy-nilly at banks, without clear conditions being set as to its acceptance. Inadequate returns have been sought for the risks the taxpayer is running. The government shamefacedly admits that its largesse will cost the taxpayer £50bn. The true total is almost certainly higher.
In the US, for all the sound and fury on Capitol Hill, the picture is scarcely more encouraging. There, the administration is offering to lend financial institutions up to 93 per cent of the money to buy up bad banking assets. Yet while the state is shouldering almost all of the risk, it keeps only 50 per cent of the profits if the bet pays off. Wasn’t this sort of excessive leverage and asymmetric risk-taking responsible for the mess in the first place?
If sogginess got us into trouble, it is hard to see how it can dig us out too. The evidence suggests that our soggy responses will beggar us further rather than creating the platform for future…