Giles Fraser: When do bankers believe in socialism?

10 September 2008

Whose name would you associate with the philosophy of public ownership of the vital organs of the economy? Perhaps Karl Marx, or Arthur Scargill, but how about George Bush? I am not kidding. The dull-sounding bail-out of the US mortgage giants Fannie Mae and Freddie Mac is, in effect, one of the largest nationalisations ever seen.

These two companies underwrite three-quarters of all new mortgages in the United States, and currently have about $5400 billion in outstanding liabilities. Were these two to go under, the US would be in meltdown — and thus the govern­ment has stepped in and seized control. They are just too important to be allowed to fail.

In a sign that this is just the medicine that the world economy is looking for, last year’s most successful hedge fund, Paulson & Co (a company that made $10 billion betting that the US economy was going down), has indicated that the time is now ripe to bet that the economy will go up.

Of course, if the US government’s nationalisation of its mortgage-providers brings the world out of recession, all well and good. But what bothers me is that we are often told by those whose pay-cheques look like telephone numbers that they operate in a very risky environment, and that, while they can make huge profits, they can also make huge losses, too. They are gamblers, and take the rough with the smooth.

Yet, when things go belly up — as they did with Northern Rock, for instance — the Government steps in to bail them out. These days, nationalisation is not a strategy to protect the jobs of miners and car-workers: it is a way of protecting the jobs of the bankers and the better-off.

Of course, I know that many who work in financial services are facing uncertain times. My brother runs global-equities trading for a large investment bank, which was recently taken over by an even larger one, amid much speculation that it intends to lay off staff. But what count as uncertain times for bankers are a different thing from uncertain times for the rest of us.

A couple of years ago, I finally gave up describing myself as a socialist. I no longer believed that the public ownership of the means of pro­duc­tion was the way to run an economy. I bought into the idea that the discipline of markets — underpinned by the fact that things can fail and go under — was essential for eradicating waste from the economy. But now I see that even bankers believe in socialism when it is their jobs that are on the line.

The Revd Dr Giles Fraser is Team Rector of Putney, in south London.

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