The Norlonto Review

ALLISTER HEATH ON THE CRISIS. (The one affecting the world economy, not the Libertarian Alliance’s.)

I’d like to simply cut and paste the whole article, but that would be unfair to CityAM.

What I like is he details the harm done by each of the guilty parties, including:

“…central banks that kept stepping in whenever growth slowed or the stock market fell. Interest rates were kept too low; the belief was that as long as consumer prices didn’t surge, the economy would be stable. The money supply and credit exploded, and investors became complacent, fuelling bubbles.”

“Asia did all the saving and financed budget and trade deficits in the West, which spent too much and didn’t produce enough.” [No, he doesn't blame Asians for saving too much.]

“Unlike every other private businesses, big banks knew they would never be allowed to go bust.” [I especially recommend Allister's contrast with how the bankrupcy of airports and nuclear power stations is managed, I never knew that.]

“Depositors knew they would be bailed out by the state so didn’t monitor banks’ soundness. Property investors convinced themselves prices would never fall. Financially illiterate consumers borrowed recklessly.” [This is one that politicians will have trouble telling voters]

Allister also covers: intellectual errors in current fashionable economic theory, bad modeling of risk, inadequate accountancy rules (I never liked the switch from “profit and loss statement” to “income statement”), the US housing subsidies of Fannie Mae and Freddie Mac, the credit ratings agencies. The latter seems to me the most serious issue: they should work as alarm systems, for various regulatory and public choice theory reasons, it seems to me, they failed.

In any event, read the whole thing.

One fallout of the Libertarian Alliance crisis is that I’m no longer sure if Allister is booked to deliver the Chris R Tme Memorial Lecture, despite my unanswered offer to cover its cost. Which is the LA’s loss (or negative entry on the income statement, I think we’re supposed to call it).