Right. So RBS has lost a sum greater than the entirety of the government's Autumn capital injection. And that's before we even get into the recession proper and the mass defaulting there is going to be then. As results are announced, it will become ever more clear that the money the taxpayer is providing is good money thrown after bad. All it is achieving is the putting off until tomorrow of the point at which the banks will have to engage in the really radical restructuring necessary to restore them to profitability - a process that may well involve them in default on past loans taken out (and hence, since they have been nationalised without going into administration, in technical sovereign default for the UK - vide the CDS sovereign spreads for the UK). The longer this waits, the greater the accumulated losses will be and the larger the final scale of default.
I am deeply, deeply disappointed in the Conservative Front Bench reaction to all this. I said as much last October when we began down this path of consensus on the foolhardy bailout programme, but until today I had thought I had seen encouraging signs over the past few weeks. We said we were opposed to further capital injections for the banks, but today's scheme appears to be one we think we must accept. Why?? What happened to us as a party? Has our thirst for positive headlines robbed us of all ability to apply theory (i.e. what "theory-free" people - those in thrall to some out-of-date half-baked theory they consider "common sense" - term, as if it were an insult, "ideology" or "dogma") to a practical situation?
John Redwood - almost uniquely amongst MPs - gets it. I don't agree with all of his analysis or all his recommendations or all of his ways of expressing things, and I don't think we even necessarily share exactly the same underlying theoretical framework. But he gets it. And the reason he gets it is that he has an ideological compass that guides him through unfamiliar waters. If all we have is pragmatism, if our only guide is what the smart person's consensus is today, then radically new situations are bound to be a mystery to us. We will have no sense of what to have faith in and what to be sceptical about, about where to stand when data is no guide and what apparent "statistics" to ignore.
That's our leadership's problem. It isn't that they aren't smart themselves. It isn't that they aren't advised by very clever economically-savvy people (they are). It isn't that they aren't true blue Conservatives. It isn't that they have some sinister scheme for compromising with the Lib Dems. It isn't that they don't want to do with Right Thing. It's just that they are defeated by a lack of an ideological compass.
We might debate whether that's a result of the strategy of economic disarmament, or the ambition to be "socio-centric". Be that as it may, we are where we are, and our team just feels totally unable to go against the consensus on this point. I cannot over-state how much of a disaster that is for Conservatism (the ideology). Perhaps the Conservative Party will, as I have argued before, gain power by this carnage for Conservatism, but I don't believe that this is a trade-off our Front Bench would welcome.
I believe, now, that by the time we have assumed power (which we will) there is a very real risk that Gordon Brown's madcap schemes will have driven the UK to the point (or the fact) of nationalising its entire (or almost its entire) banking system, and thereby something not much less than an evens chance of technical sovereign default. Given the unimaginable sums we need to raise in budget deficits over the next few years, technical sovereign default would take us to a dark dark place. For it would mean that we could not run these budget deficits, even in the face of already-terrible recession, and would instead need to dramatically tighten fiscal policy at the worst possible time. If we are forced to do that, forget the early eighties or early thirties recessions (which were broadly comparable). The GDP loss would be well into double figures - something the UK has probably never witnessed (my guess is that we'd have to go back into English history and find some grim internal war to find a worse period). It really would be that bad.
It didn't have to be like this. We could have made more aggresive use of the lender-of-last resort from mid-2007, but restricted lender-of-last-resort facilities to banks that we considered reliably solvent, stating that this would be the policy throughout the crisis. Even by the point we had reached last September, we could have avoided nationalising the banks, instead suspending formulaic regulatory capital adequacy requirements but allowing those banks that needed significant restructuring to go into administration, whilst providing a depost access fund to give savers cash-flow. In the meantime, the hundred billion-odd (and the rest) that the government is going to have lost before this is done could have been used for tax cuts to keep the real economy moving whilst the banks restructured. There would have been a bad recession - perhaps a five or six percent drop in GDP. But the UK has got through such recessions before. The really grim scenarios could certainly, in my view, have been avoided, and it is even possible that the recession would have been less than five percent. There would definitely have been no need to run any material risk of sovereign default, for example, and the Private Capitalist system would have been retained instead of the economy being doomed to decades of State Capitalism and the slower average growth rate that will entail.
As it is, our Front Bench has cheered the government on whilst it ended Private Capitalism and engaged in an initially futile exercise of ordering back the sea that has rapidly turned into a material danger of drowning. We're up to our chests in water now, and the tide is rising rapidly despite all the government's hubristic urging. We need to find the path back to dry land quickly, or we shall, alas!, discover the answer to the question "What happens then?" Does our Front Bench know the way?
