Steve Richards: Darling took his time – but he has ushered a new age

An era has ended. The orthodoxy originating in the 1980s is broken

Thursday, 9 October 2008

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Help! What do we do next? The exclamation and the panic-stricken question are posed not only by fearful depositors, mortgage holders, pensioners and small-business owners. Political leaders around the world exclaim and ask, too. Everywhere they are caught by surprise, responding to epoch-changing events rather than shaping them, changing their tunes on a daily basis and in some cases scrapping a lifetime's worship at the altar of the free market. None of them are sure what will happen next.

On Monday in the Commons, Chancellor Alistair Darling repeated calmly the Government's familiar mantra that he would do whatever it takes to address the financial crisis. It was obvious that by making such a sweeping statement Mr Darling would not let a single bank go bust. How could he have done so having declared that he would act to prevent such a traumatic event from occurring? He did not state or imply with his understated humour: "We will do everything it takes, but will stand by if a bank goes bankrupt."

The banks knew that Mr Darling and others were drawing up a detailed rescue plan along the lines rushed forward in the announcement yesterday. They were involved in the negotiations. But the Chancellor's words on Monday were not enough. The banks panicked. They are not behaving rationally. So yesterday Mr Darling was back with a package, the precise details of which were hammered out in the middle of the night.

Should he and Gordon Brown have anticipated the irrational panic? Arguably they should have done and announced the measures on Monday. But the package was not ready then. Would it have been better to have rushed it through? In the light of the collapse in confidence that followed it might have been, but the sums were huge, other governments around the world had to be squared, taxpayers needed a deal in which they had a say over how the banks spent their cash, but not so much that all innovation was stifled. There was a case for getting the right package rather than delivering it with more manic speed.

But in taking their time, ministers were making a rational assessment. There is nothing rational now in the crisis. Political leaders are seeking to anticipate hysterical behaviour in a financial market paralysed by fear. They are doing so in a crisis of such magnitude that most of them are out of their depths. Out of the blue Angela Merkel announces that all depositors in Germany would be protected. Or does she make such a firm policy commitment? It is not clear. Hank Paulson funds a package to save the banking and mortgage industry in the US from a near total collapse, but the package is a mess, a massive subsidy without enough conditions attached. He chose speed over detail. Iceland nationalises its banks and discovers it does not have the money to fund the move. Evidently Iceland is in such difficulty that it has gone almost incommunicado. Mr Darling revealed that British officials are having difficulty getting through to find out what is going on, one of the reasons why the Government has moved to protect the savings of those with accounts in Iceland, a highly significant move that conveys the message it will protect savers in the UK under any circumstances.

As in the US, Germany, Iceland and elsewhere political leaders here are feeling their way. Not so long ago Mr Brown could only mumble softly and nervously the words "temporary public ownership" in relation to Northern Rock. Now he speaks confidently about the partial nationalisation of the entire banking system. The Conservatives have been muddled, opposing the Northern Rock nationalisation and coming up with incoherent proposals that would have led to an even earlier collapse in the banking system, seeking to be responsibly bi-partisan while keeping their distance in case things go wrong. With considerable chutzpah they now pose as the opponents of the greedy bankers, having a moment or two ago been evangelists of a lightly regulated market that could not and should not be bucked under any circumstances.

And yet the volcanic events propel the political leaders to the front line. They are the ones that we turn to. They are accountable, we elected them and they alone have the power to make a difference. The untrammelled free markets got us into this mess. They cannot get us out of it. Only the state can do so. Many small-business owners and big bankers who have spent their working lives cursing any government intervention now wonder whether even after yesterday's multibillion pound package the Government has intervened enough. The world has turned and nothing will be the same again.

Watching Prime Minister's Question Time yesterday was a strange experience. Exactly a year ago, Mr Brown was white as a sheet answering questions ineptly on his non-election fiasco. David Cameron taunted him with an insightful wit. The exchanges symbolised a transformed political situation. Yesterday it had changed again. Mr Brown was in command, taking a tour around the details of the package daring even to hope that it will be followed by other countries. In a bigger crisis than cocking-up the timing of an election he looked prime ministerial instead of the frightened figure of a year ago, unable to disguise his horror at being caught playing dirty counter-productive political games.

The long term political fall-out, like the future twists in the economic drama, are impossible to predict. Mr Brown performed confidently yesterday, but a lot of money is tied up in this rescue plan. Maybe the Government will get it back over time, but not in the 18 months leading up to the next election.

While the future is still hazy it is clear that an era has ended. The orthodoxy originating from the 1980s that hailed home ownership, financial deregulation, an uncritical faith in the market and an indiscriminate hostility to the state is broken. The reckless risk-takers were allowed to get away with it because fearful, self-deprecating elected leaders believed in the magic of the marketplace and were too scared to rule, frightened that if they did so the likes of Britain would return to the dark days of the 1970s. Now government intervention and regulation becomes acceptable – desirable, even.

If we can get through the current crisis in one piece the new era will be fairer, more efficient and more balanced than the wild one that preceded it. As taxpayers we will have a say in the way the banks behave instead of being powerless victims. It might not feel like it as we take shelter behind a mind boggling multibillion pound package, but the big change is a shift in power away from unaccountable bankers to taxpayers and their elected leaders who have made a big investment in the future of the financial industry. We are the masters now.

s.richards@independent.co.uk