Once again, the British government is doing too little, too late, to head off the impact of the global financial tornado on Britain's increasingly vulnerable economy. As official unemployment yesterday nudged two million, sterling took another battering and Barclays shares sank yet further, in spite of Gordon Brown's second banking bail-out on Monday. The latest intervention at least corrected some of the most damaging failings of last autumn's rescue: by imposing lending targets in return for insuring the banks' toxic assets, reversing the instruction to Northern Rock to wind down its operations, and turning high interest bank preference shares into ordinary equity.
The result has been to raise the government stake in RBS to nearly 70% - just as it declared the biggest corporate loss in British history and its share price collapsed. But the bad loan insurance scheme is hedged with uncertainty, and no part of this latest package offers anything like the prospect of ending the credit squeeze that now risks turning recession into slump. True, the British government wasn't quite as unstintingly generous to the banks that created this crisis as the Bush administration, which simply handed over hundreds of billions of dollars with no questions asked. But with a bloated finance sector and without the cushion of a reserve currency, the dangers facing the British economy are proportionately even greater.
Instead of propping up private banks with ever more complicated incentives to maintain credit flows, the obvious answer is to nationalise them. Indeed, it is so obvious that all manner of unlikely champions of public ownership are now emerging to demand the government does just that: from Jon Moulton, boss of the private equity firm Alchemy, to Jim O'Neill, chief economist of Goldman Sachs, and former Monetary Policy Committee member professor Willem Buiter - not to mention the Liberal Democrats and a growing army of Labour MPs and trade unionists.
By clinging to a halfway house of hands-off part-nationalisation, the government is getting the worst of both worlds. Billions have been pumped into banks to support economic recovery - and lost as their shares have tanked - but lending has actually fallen, while the cash has been used to shore up their profitability. The banks have incompatible obligations - to maximise profits for shareholders and meet ministers' lending demands - while the government is already effectively shouldering their risks and liabilities (one reason why nationalising the banks should not have the impact on national debt some fear).
It's a recipe for failure. Full nationalisation would instead allow the government to get lending flowing again without further delay. It would also overcome some of the problems of valuing bad loans and reserve requirements that apply even in the case of majority-owned RBS. Other radical moves would also be needed to underpin public ownership of the banks, including the full "quantitative easing" that fills the Daily Mail with fantasies about Zimbabwean hyperinflation but - as the analyst Graham Turner, among others, argues - is now essential to bring down interest rates across the credit spectrum.
But despite the overwhelming arguments in favour of more decisive action, ministers remain paralysed by the political baggage of Labour's past. Governments shouldn't be in the business of running banks, they intone, as if the private sector hadn't brought the economy to its knees with its catastrophic stewardship of the financial sector across the western world. In any case, public ownership doesn't imply political control of individual loans, though it does offer the chance of steering finance into more productive and socially valuable parts of the economy.
If nationalisation is treated as some kind of last-resort sin bin, however, it will inevitably be regarded as a political failure when it comes - as seems increasingly likely in the case of Britain's high street banks. It's the same ideologically backward-looking mentality which saw short-selling reinstated last week and had Alistair Darling demand that G20 finance ministers "build on the benefits that open financial markets bring to the global economy".
But even those now pressing for nationalisation of the banks mostly assume they should be returned to the private sector, as the natural order of things, as soon as the credit crisis has been overcome - even if they rarely feel the need to explain why. And as the scale of devastation wreaked by the banks on the global economy becomes clearer, the case for a socially owned finance sector grows stronger by the day. If, after all, the banking system is so vital to a modern economy that it cannot be allowed to go bust - and the dangers of socialised risk and privatised profit are so evidently great - then it is too important to be left in the hands of private companies dedicated to maximising profits for their shareholders.
The kind of unrestrained competition and innovation that might be regarded as beneficial in, say, the computer games industry has in finance generated the very speculative meltdown now gripping the world economy. Just as industrial sectors like coal and rail were nationalised after the war because the private sector couldn't make them work for the economy as a whole, a largely publicly owned banking system (taking in a diversity of credit providers, including a renewed mutual and cooperative sector) could provide the commanding heights of the economy of the future, shaping its development in a democratically accountable way.
The alternative is of course regulation. But, as has become obvious during the current crisis, regulators have signally failed to keep a grip on globalised finance. And both regulators and politicians have shown themselves again and again to be ripe for capture by the Wall Street and City interests determined to keep the highest profits flowing.
Naturally, there is a powerful public sentiment in the US, Britain and elsewhere, acknowledged by Barack Obama in his inauguration speech, in favour of at least jailing a few greedy bankers to pay for the havoc they have wreaked on people's lives. But this is first and foremost a systemic crisis, which demands a new model of economic management for the future. Right now it needs the public takeover of banks to fill the lending gap. If Brown and Darling continue to resist the inevitable, they will be simply holding the country to ransom for the sake of private ownership.
Copyright Speakers Corner 2017