Politicians who now criticise the bailout forget there was no alternativeby George Magnus / October 2, 2018 / Leave a comment
Systemic banking crises are not pretty. They have dire economic, and often political, consequences. We have seen a few in the last 25 years, including in Japan (1990s) Mexico (1994/95), Asia and Russia (1997/98), and Argentina (2001), but none as systemically serious as the one that rumbled through the western world in 2007/08. So why did aspiring prime minister Jeremy Corbyn use his keynote speech to the Labour Party conference last week to attack the UK political and economic establishment, which, he said, “instead of making essential changes to the broken economic system, strained every sinew to bail out and prop up the system that lead to the crash in the first place”?
This not-so-veiled attack on the last Labour government and others in positions of authority at the time is as perplexing as it is alarming. It’s perplexing because in 2008/09, there was no space or time for long parliamentary inquiries, or commissions to “make essential changes.” It was a case of act or go under. The then-Chancellor, Alistair Darling, has recalled that the head of the Royal Bank of Scotland warned him at height of the crisis that the bank might run out of cash. Upon asking when, Darling was stunned to be told “this afternoon.” It was about firefighting,nothing more, nothing less.
It’s alarming, because Corbyn gave the impression that he might either have let the banks fail, or introduced a siege economy behind capital and other controls.
In any event, the time for essential changes was before or after the crisis, but not during it. As it unravelled, the Brown government took Northern Rock into public ownersh…