Crise da Democracia

Our leaders are impotent to tame the beast: this crisis is one of democracyPoliticians' limitations have been laid bare during these tumultuous weeks. If ever they can assert strength, it is now

Jonathan FreedlandWednesday October 8 2008The Guardian

Is it time to stash the tinned soup and bottled water in the cellar, along with a shortwave radio and a dagger, just in case? Just where, exactly, is this financial crisis going to end - with the collapse of the entire banking system, plunging London into a Mad Max purgatory of burnt-out cars and howling dogs, as survivors of the disaster stab each other for a last hunk of bread?
You won't hear Robert Peston predicting that on the Today programme. But when the air is filled with talk of meltdowns and crashes, when 40% is wiped off the value of two of Britain's largest banking groups in a single day, as it was yesterday, you find yourself wondering. Not least because no one can offer certain reassurance of anything. In the past few weeks, actions once considered unimaginable have happened. There was a time when to suggest that a British government would nationalise not one but two high-street banks would have had you certified as a hopeless leftist fantasist. Now public ownership has become the norm, with the City itself and a former Conservative chancellor demanding more of it and fast.
"Everyone knows they're going to have to do it," Ken Clarke said yesterday of the proposed recapitalisation plan, expected to be part of the government package announced this morning and which would see the taxpayer buy a stake in the Royal Bank of Scotland, Barclays and Lloyds TSB: "Get on with it."
Now nothing seems impossible. Those rapidly emptying out their accounts are doing so because they can imagine the banks crashing to the ground, taking their life-savings with them. I spoke with one financial adviser whose phone has grown hot with clients wondering whether they should move their money to Ireland. "But what if the Irish banks collapse?" he tells them. "Would Ireland really have enough money to reimburse all those depositors?" Once it seemed ridiculous to suggest a national banking system going bust. Now it's possible that an entire country could go bankrupt: look at Iceland, forced yesterday to phone Moscow begging for a loan. It's enough to make you want to shove your cash in a piggy bank, hide it under the mattress - then pull the duvet over your head and hope it all goes away.
The instinctive response to such a situation - not that anyone under 80 has lived through anything comparable - is to look for someone to fix it. And that someone means the government.
And yet, up till last night at least, the politicians had been floundering. Alistair Darling addressed the House of Commons on Monday in order to calm the markets and reassure the nation. Yet, as yesterday's Guardian front-page graphic cruelly illustrated, his words had precisely the opposite effect. In the 11 minutes it took him to promise that he would do "whatever it takes" to keep the financial ship afloat, the markets plunged. The day saw the biggest loss on the FTSE 100 since 1987.
Ah, say the experts, but that was only because Darling had failed to say what the money men needed to hear. He came up with no specifics and, what's more is deemed weak, still in Gordon Brown's shadow and too uninspiring a communicator to persuade the neurotic men of the markets of anything.
But there is a flaw in this conventional wisdom. Look at what happened across the Atlantic. There Hank Paulson, admired as a muscular treasury secretary, fully the master of his brief, took the most decisive action possible. No half-measures, but a $700bn bail-out aimed at mopping up the bad debts of every lender in the land. This was not the pale, pink socialism of Northern Rock or Bradford & Bingley: this was red-blooded Bolshevism, seizing the commanding heights of the financial system. You gotta love the Americans: if they do something, they do it big.
Sure, it fell at the first hurdle, defeated in the House of Representatives, but it passed eventually. And yet, did it pacify the markets? Did it persuade them that this problem was at last under control, thereby replenishing the supply of the only commodity that has actually run out during this crisis - given that there is no sudden shortage of oil or food - namely, confidence? It did not. The Dow Jones responded to the passage of the US rescue plan not by sighing with relief and declaring the trouble nearly over, but by shrugging its shoulders - and falling. That is a grim warning to Brown and Darling: whatever drastic action comes this morning might not end the turmoil.
It's as if nothing the politicians can do is good enough. If they plug one hole in the dyke, water springs out of another. Guarantees are offered to savers in one bank or even in one country, immediately spooking those who aren't similarly covered. Even if the government in Britain did move to guarantee all bank savings, might not the panic simply move to the building societies? And once they had been dealt with at enormous cost, what's to say the insurance companies would not be next to feel the contagion of collapsed confidence?
The result is that politicians seem dwarfed by the scale of the current crisis, either unable to act decisively at all - witness the statement of European finance ministers yesterday, agreeing on not much more than a "coordinated framework" for consideration of the problem - or to act decisively enough.
It's tempting to think this is a function of the quality of our leaders. If only an FDR was around, we say to ourselves, he would surely know what to do just as he knew how to steer America through the Great Depression. And yet that might be unfair on the current generation of politicians.
The reality is that in the balance of politics and the market, the scales tipped towards the moneymen a long time ago. The acclaimed historian of the postwar period, David Kynaston, describes as a "fundamental revolution" the breakdown of the old Bretton Woods system in the 1970s, ending the fixed exchange rates that had held since 1945. Once those rates could float, we entered the era of "footloose markets": finance could go anywhere and national governments could only look on helplessly. "The politicians had their confidence battered," says Kynaston.
In Britain, Black Wednesday in 1992 added to the politicians' timidity. New Labour, then in embryo, watched as the Major government tried and failed to control financial events, pouring money into the system, raising interest rates twice in one day - and all to no avail. Gordon Brown learned the lesson all too well: there were limits to what politicians can do.
Now that impotence is on clear display and it is spreading alarm around the world. For people desperately want someone to get a grip. The left has been warning for years that corporations now enjoy more power than nation states, but never has it been clearer than it is now. The realisation is dawning that this is not just a financial or economic crisis, but a democratic crisis - the people and their representatives have little or no control over what affects them directly.
The solution is surely for governments to realise that if they are weak, the high priests of high finance are even weaker. The politicians should provide the help the banks need, but with the tightest of strings attached, regulating finance so closely that it can never again gorge itself the way it has these past few years.
Democracy has to assert itself once more - and tame this beast.