Monday, 19 January 2009

Who says no one saw it coming?

At a time when many commentators and politicians say that no one predicted the global economic crisis, Dr B. is grateful to John Harris in the Guardian for pulling out this gem from former Labour chancellor Denis Healey´s autobiograhical memoir, The Time of my Life, written two decades ago:

Back then, wrote Denis Healey, "most western governments followed the lead set by President Reagan and Mrs Thatcher in removing the restrictions which had hitherto prevented the various financial institutions... from competing with one another for the same type of business." This, he said, "led to cut-throat competition" between the big financial corporations, who "lent money on paper-thin margins, often in areas they did not understand ... As if this was not enough, the desire to hedge against unpredictable changes in exchange rates and interest rates led to a feverish rash of new financial instruments, starting with swaps, futures, options, and options on futures ... Most of the new activities spawned by the financial revolution... assume that all trees grow up to the sky - that there will never be another recession. If the United States does have a recession, even one as modest as in the Carter years, its whole financial system could collapse like a pack of cards."
Harris notes, ¨ Sitting in the drawing room of his Sussex home, Healey listens to it all, then turns to me with the happily fatalistic look of someone who has lived through no end of economic and political turnabouts. ´Well, isn't it true?´ he says. ´There you are.´For an ex-chancellor, the irony must be sweet indeed: here, for once, is an economic forecast that turned out to be right on the money.¨