Gordon Brown and Quantitative Easing: A Missed Opportunity To Bridge The Inequality Gap.

A great mistake which has consigned the Labour party to the political wilderness for a generation and led to the Brexit vote.

Gordon Brown’s official portrait via Wikimedia commons

he world in September 2008 was on the brink of cataclysm, with the banks having woken up to the reality that it was perilously close to having zero liquidity. This problem was brought on by the irresponsible gambling of the hedge fund managers, arbitrageurs, speculators and above all, the audit agencies and the big insurance companies, who knew fully well, that the numbers did not add up.

The CEOs of the investment banks, who had for a very long time disdained politicians, government oversight and regulation of any form, were forced to go to the very people they loathed for money, to keep the system afloat.

The solution recommended by the Bank of England, which was sanctioned by the government of the day, came to be known as quantitative easing (QE).

So what exactly is quantitative easing?

According to Wikipedia, Quantitative Easing is the monetary policy, which entails the scale purchase of bonds and financial assets in order to inject money to expand economic activity. In practical terms in 2008, QE entailed the printing of money, in order to fuel liquidity, which these banks desperately needed to stay afloat.

Quantitative Easing did also allow the United Kingdom government to purchase the likes of the royal bank of Scotland, which had been left fighting for its life, when it inherited the toxicity of the Dutch bank — ABN Amro, that it purchased, in 2007.

From March 2009 until 2012, the government had spent a grand total of £375 billion in printing money to nationalize the banks, pay mortgages and keep SMEs functioning.

But QE failed abysmally in its objectives, further entrenching inequality in Britain. why this was the case and how it came about, we will see.

What Was The Missed Trick of Quantitative Easing?

Based on a number of accounts, ranging from Charles Ferguson’s “ Inside Job” documentary to Michael Lewis, the author of “ The Big Short” and Jacques Peretti’s “Done”, we learn that Ninety-Five percent of the QE, went to the investment banks and the likes of AIG, in funding the debts generated by betting against the system.

In order words, those who created the mess, were the main recipients of government’s handout.

The money pocketed by the 1% back in 2009 helped them in no small way to re-consolidate their position and further widen the gap between them and the rest of us. This was largely achieved through short selling and other underhand practices, which caused the problems in the very first place.

At that time, there were economists, such as Anatole Kaletsky, an erstwhile writer for The Times newspaper, who wrote a book titled: “ Capitalism 4.0. Mr. Kaletsky worked out that, had the bail out money gone to every citizen as a one-off payment, every household in Britain would have been entitled to £25,000. For every American, the equivalent, would have been $30,600.

Imagine what £25,000 would have meant to every household in the United Kingdom, at a time of major economic distress in 2009? This Single act would have lifted Britain out of a recession, far sooner than expected.

Gordon Brown, who was chancellor of the exchequer from 1997–2007 and prime minister from 2007 to 2010 had an opportunity of a lifetime to address the great inequalities of the British society. After all he, more than anyone else, had helped create the climate for Britain to become a tax haven, business friendly place, which allowed the Russian and Middle Eastern oligarchs to come in droves to buy expensive real estate and football clubs in the heady days of the early to mid noughties.

But he chose not to do so.

The great depression, which led to the shrinking of the national median income, the ballooning of household debts and people losing their mortgages, started something that would have profound ramifications not only for the Labour party, but also for the wider world.

Gordon brown, just like every front line Labour politician, had no idea, of the politically harmful consequences that his party’s open door immigration policy had on the electorate.

Gillian Duffy footage courtesy of Sky News and YouTube

He was made to confront this brutal reality during the 2010 general election campaign when a Labour party supporter called Gillian Duffy complained about the numbers of foreigners in her village. Mr. Brown listened attentively and politely to Mrs. Duffy, but lashed out to his handlers in the car, calling the old lady a bigot. Unbeknownst to the prime minister, his microphone was still on and word got out to the press.

Needless to say that this exchange did untold damage to Labour’s prospects at the voting booth and it has lost every election held ever since.

For the Conservatives, who got into power in 2010, as part of a coalition with the Liberal Democrats, went on to implement a severe austerity policy, as a result of the bailing out of the big banks, on a hugely disenchanted electorate, culminating in the 2011 riots in Britain’s inner cities.

The Brexit vote, wasn’t driven by the cosmopolitan Londoners, but by those in the former industrial cities, whose lives have never been the same, since jobs were shipped out to the emerging economies, in the 80s and 90s.

All this, would not have happened, had Gordon Brown charted a much more radical course in 2009.

This same accusation should also be leveled at Barack Obama in 2009, when he fell seriously short in reforming the banks, when the democrats had control of the house and senate. His failure to act ultimately led to the shellacking of November 2010 and Trump’s rise to power in 2016.

Even though a much milder form of QE for every American took place when a stimulus plan was passed with a $2,000 check being given, during the Covid season, you are on left wondering how the political landscape would have been had Brown and Obama had the testicular fortitude to act, when the world needed them to.

Thanks very much for reading.

Reference:

Done by Jacques Peretti.

A lifelong bibliophile, who seeks to unleash his energy on as many subjects as possible

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