The sums involved are staggering. The banks were more reckless than even the most pessimistic minister had feared. The previous much-hailed rescue package has failed. Now Gordon Brown steps in again.
Not surprisingly voters are alarmed as the Government navigates in near darkness armed only with billions of pounds of their money. They are not the only ones who are worried. Brown is bound to be fearful too, far from certain whether this latest throw of the dice will work and much more aware than he was about the frightening scale of the banks' toxic debt. Once more perceptions of him change and he "bounces" no longer in the polls. Currently the Prime Minister is the equivalent of a doctor who is asked to save the same person's life several times. Originally the relatives are grateful but then start to wonder why his services are required so often.
Yet in such epoch-changing times the long-term political consequences are as unpredictable as the economic ones. There is still an extraordinary mismatch between the sudden ideological confidence of younger ministers and the growing Conservative lead in the opinion polls. At a weekend conference organised by the Fabians, ministers spoke like liberated prisoners emerging from the darkness. They do not underestimate how bad things are and how much worse they might become, but for them the near-collapse of the banks is a form of ideological vindication. The mismatch became most vivid late on Saturday afternoon. As they delivered speeches about a new progressive era news seeped through of the last poll giving the Conservatives a 14-point advantage.
The huge gap between their new found confidence and deepening unpopularity is both easily explained and without obvious resolution. Anxious, angry voters turn against the Government as they pose questions which no minister can answer with complete confidence. Will the latest proposals persuade the banks to start lending again? Who is responsible in the end for the banks' toxic debt – the taxpayers or the banks that acted with such deranged irresponsibility? Will they get back the hundreds of billions of pounds that appear to be thrown at the crisis?
At the same time the latest outburst of hyperactivity in No 10 and the Treasury explains the newly-discovered ministerial self-confidence. As the cabinet minister Ed Miliband declared at conference, no one can claim that the current crisis was brought about by too much government action. Government was not active enough. Miliband argued that 2008 will be seen as a watershed year, like 1945 and 1979: "This is a moment of profound crisis for the idea that in economics as far as possible we should leave markets to their own devices." From the Blairite wing, James Purnell suggested that the idea of achieving a fairer society through state action had been damaged by the Winter of Discontent in 1979. Now he saw the chance for more "balance".
Another cabinet minister, Douglas Alexander, suggested "we ultimately witnessed the demise of an ideology that says the only role for government is always to get out of the way".
All three are happy to make speeches every day of the week outlining the transformed ideological landscape. In contrast, while miles ahead in the polls, David Cameron has yet to make a single equivalent speech which addresses the ideological shift. Cameron is capable of delivering classy speeches so the reason for the gap can only be that he has nothing yet to say about the closing of the Thatcher/Reagan era, a period in which he formed his views about the state and markets. He has accepted there was a failure of regulation, but he has not explained when and how he wished the state had intervened in the past or in what form it will do so in the future.
The new shadow Business Secretary, Ken Clarke, has well-known views on the centrality of the European Union and the limits of tax cuts in the global economy, but he will not be allowed to take on his party over these issues. Clarke has returned to the Shadow Cabinet in a limited form rather than as a triumphant demonstration that the Conservative Party has changed.
Perhaps Cameron does not have to do anything more than blame Brown as the Prime Minister who was Chancellor during the age of irresponsibility, the great irony of the current political situation. Privately Brown's entourage spoke during the years of free market frenzy about the role of the state as they are now doing in public. But some of Brown's allies suggest that he was so frightened by the claim that he was to the left of Tony Blair he would not have even contemplated the idea of intervening in the markets unilaterally. Once more the explosive politics of the Blair/Brown relationship made their mark, leaving Brown trying to out-Blair Blair as the champion of free markets. In the new context he cannot point to a single quote that shows he was determined to get a grip on British banks.
The fact that he is getting a grip on them now, at least in terms of pumping in money and taking a limited and ambiguous form of control, shows how much politics has changed. On a more epic scale we are witnessing the same sequence that arose over Northern Rock. Although the Government has a majority stake in some banks and is propping up virtually all of them, it is still reluctant to be too assertive. Only now has it devised a scheme which guarantees that banks will start lending as a condition for acquiring more protection from the taxpayer.
Brown and Darling know that full-scale, formalised public ownership of some banks is possible. In my view it is probable and less messy than the current situation where ministers protect banks from the consequences of their recklessness and urge them to lend from a distance.
What will happen if Cameron retains or increases his lead over the next year or so? The Conservatives might inherit an economy where the Government owns the banks, other private companies are pleading for state aid and economists are screaming for a sinking pound to join the euro. Such a mismatch between governing philosophy and external circumstances would make the current disparity between ministerial confidence and the commanding Tory lead seem like a neat, logical pairing.Reuse content