26 September 2008

I wonder what you’ve made of the political shenanigans in Washington over the past week.

There are two ways of looking at it, aren’t there? You might take the view that members of Congress have been fulfilling their duties as elected representatives and carrying out the wishes of their constituents in trying to amend the proposed bank bail-out deal on offer from the US Treasury.

Or you might see it all as sordid electioneering, with each side seeking maximum party advantage in the closing stages of a close-fought Presidential campaign, even as the financial markets teeter on the brink of melt-down in the continuing uncertainty.

If you take the first view, you will find supporting evidence in the New York Times, which reports: “It has become abundantly clear that members of Congress are hearing from their constituents, many of whom are furious about the proposed rescue.”

If you take the second view, you’ll find support from Senate Majority Leader Harry Reid, who told reporters that John McCain's suspension of his campaign was unnecessary and he was "standing in the way" by returning to Washington from the campaign trail. “If we lose progress, it's only because of one man, and that's John McCain."

The focus for much of the public anger seems to be the income levels of some of the biggest banks’ bosses. (And of course it hasn’t exactly gone unnoticed that the US Treasury secretary Henry Poulson, in his previous life as head of Goldman Sachs, managed to squirrel away something in the region of $65 million in bonuses alone over a seven-year period.)

If I were a US tax-payer, I suspect I may wonder why my contribution to the Treasury might be used to keep some of these chaps in the manner to which they have plainly become happily accustomed. Especially as it would appear to be their mistakes, misjudgments and bad calls that got us into this mess in the first place.

So why not let them all go the way of Lehman Brothers? Well, like ‘em or not, we need the banks. They provide our mortgages, they invest our pension plans, and they offer credit to the companies on whom we rely for goods and services. And there seems to be general agreement that however unpalatable the deal currently under discussion, doing nothing would almost certainly be a lot worse.

(Incidentally, one small anecdote: a local shopkeeper of my acquaintance was telling me recently that he had just acquired two more properties as his business expanded. The bank had approved his business plan, but at the last moment, withdrew its offer of a loan. That’s the credit crunch in action.)

And there’s still the thorny issue of how much the US Treasury’s “septic bank” might be prepared to pay for the toxic debt currently poisoning the system. As my colleague, the BBC’s superb business editor Robert Peston, points out: “If the bail-out is used to punish the banks, it probably won't save the global financial system; but if the banks aren't punished, then US tax-payers may well feel that their pockets have been picked.”