I may as well start with an admission: whenever I talk to an economist, or a banker, or a financial analyst, I’m left wondering if I really understand anything that they’ve told me.
So I’ve spent the past couple of weeks trying really hard to concentrate on the intricacies of banking liquidity, cash cushions and regulatory oversight (No, sorry, I’m not sure what any of that means either.)
I have two guiding principles which have helped me through this whole Northern Rock farrago. One, courtesy of the late great economist J.K. Galbraith. I have his words taped to the window beside my desk in The World Tonight production office: “The only function of economic forecasting is to make astrology look respectable.”
Two, courtesy of the former governor of the Bank of England, Eddie George: “There are three types of economist – those who can count, and those who can’t.”
All right, I exaggerate. But only slightly. The more I talk to people who ought to know about all this stuff, the less convinced I am. There are, after all, some very clever, very rich people working in the City of London, so how come they got themselves into such a mess?
Maybe Polonius in Hamlet was just a naïve simpleton who had no idea how a global economy functions. But I still reckon “Neither a borrower nor a lender be” has a lot to be said for it. As does “Don’t buy a pig in a poke”, defined as making a risky purchase without inspecting an item beforehand (thank you, Wikipedia).
Isn’t that exactly what all those clever investment banker chaps did when they snapped up a few million pounds of neatly packaged dodgy debts without looking to see what was inside the packaging? I mean, how clever do you need to be to work out that you could be heading for trouble?
A couple of serious points, though: perhaps the past two weeks have been a salutary lesson – perhaps we have learned to pay more attention to where we put our money and what our bank of choice is doing with it. Although I confess that I have no idea how we’re meant to come to a rational judgment when (in my case, at least) we don’t even understand the language the bankers speak.
And perhaps the regulators have learned that they need to keep an even beadier eye on what’s going on. A full-blown run on a bank is not meant to happen in a well-ordered capitalist society, because the whole structure is built on the notion that we have confidence in the currency and the banking system. Once that confidence goes, we stop trusting the banks, we stop lending them our cash, and the whole machine comes grinding to a halt.
I will continue to try hard to make sense of it all, both for your sake and for mine. But as I renew the cold compress around my head, I am also packing my toothbrush for my annual autumn jaunts to the seaside. Next week I’ll be in Bournemouth with Labour; the week after it’s Blackpool with the Conservatives. I’ll be in touch …