10 October 2008

The nuclear option?

No, I don't mean dropping a bomb on Iceland - although the UK government rapidly seems to be moving towards tougher measures where those pesky Icelanders are concerned. "What do you mean, the country's bankrupt? We need £20 billion of British money now!

I mean what the f*** to do about the paralysis of financial markets. It's obviously very early days since the UK bailout package was announced; slightly longer since the US package was announced. But so far the signs are not good. According to the Telegraph,

yesterday there were few signs that Mr Brown's bail-out gamble was paying off... there was little evidence that banks were prepared to lend to each other and no British bank has requested any of the £50 billion available.

If this statis persists into next week, there may be only one option left to the UK government: complete nationalisation of the UK banking system. Following the principle "if you want something done... do it yourself."

The logic is obvious. Capitalism can't function without bank lending. So if the banks won't lend, the government has to do the lending for them. The Bank of England could - theoretically - do this directly, but it doesn't have the infrastructure or the personnel to do that. Private sector banks do. Therefore, private sector banks should - for a period of time - become public sector banks, under direct control of HM Treasury.

Once the crisis has been averted and stock market and housing prices start to rise, the government can sell them off again (properly regulated, of course, to prevent another crazy bubble happening like we've had for the past decade). And the taxpayer will make a big profit.

It seems to me that unless banks start lending in the next few days, this is the only way to go - unless some kind of huge international bail-out is organised, like Paul Krugman suggests. But can that happen? Europe can't even organise its own collective bailout. It's every country for herself out there.

So maybe it's time to stop pissing about and carry out that 1983 Labour Manifesto in full. Michael Foot was right all along... and future generations will thank us for it.

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