The British government has abandoned proposals for non-voting preference shares and is moving towards full-scale nationalisation of the banking sector. According to the London Times(h/t Felix Salmon) the latest proposals would leave the government owning 70 per cent of Royal Bank of Scotland and 50 per cent of Halifax. The London stockmarket is likely to be closed, and it seems unlikely that many banks will remain private by the time it reopens. Presumably, with Morgan Stanley and Goldman Sachs in deep strife, the US can’t be far behind, though Paulson is still talking nonsense about non-voting shares. Still, it’s only three weeks ago that he was opposing any kind of public equity, and only six weeks ago that he was claiming that there were no real problems.

As the Times says, no-one knows how much toxic sludge will turn up when the government finally gets access to the books, but it seems unlikely that most governments will be overwhelmed in the way that Iceland has been. The capacity of developed-country governments to raise additional revenue is huge, easily enough to cover trillions in bad debt over a few years. So, once the sector is nationalised it should be possible to get lending flowing again. And, the prospects for an orderly shutdown of the massively overgrown markets for derivatives like credit default swaps suddenly seem a lot better.

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“I have yet to meet someone who does not want a naked picture of their loved ones with text about themselves.”

“Says the wife of the President of Iceland”:http://entertainment.timesonline.co.uk/tol/arts_and_entertainment/visual_arts/article4926407.ece . The next time I’m in Reykjavík, I’ll introduce myself as a counterexample.

I was talking to my Dad last week and he reminded me that it was seven years ago that day that my Mom had been diagnosed with breast cancer. Until then, I’d never made the connection between that event and the fact that October is breast cancer awareness month. As if there hadn’t been enough going on three weeks after 9/11, I now certainly had plenty to keep me up at night. Fast forward seven years and things are going well with my Mom. Although she’s never fully regained all of her energy since the treatments, overall she is back to being herself and has been for years now.

When all this came about, I was very grateful for having spent so many years in the US and how illness (or at least some types by now) is treated here versus many other countries, like Hungary, where my Mom’s diagnosis occurred. In too many cultures and communities, illness of all kinds remains a taboo. Not only is it not okay to tell people about it, often doctors won’t even tell patients their diagnosis. While awareness programs may seem superfluous to some*, it is important to remember that in many communities it is not only not the standard to talk and think about illnesses (and thus, for example, take preventive measures when possible), but it is a topic to be avoided outright due to associated embarrassment.

What struck me as I was talking to friends about my mother’s situation was how many among them had a close family member or friend who’d also had breast cancer. It was very helpful to hear about related experiences. But were it a taboo to discuss issues of this sort, I would have been left on my own to deal with the difficult news. Point being, there is value in talking about things of this sort at various levels: from contributing to prevention efforts to the emotional support that can come of it.

Recently, I received some notices about interesting pink-themed undertakings going on right now. One is a Pink group on the photo-sharing site Flickr that seems to be raising money for breast cancer awareness in various European countries. Another is an innovative idea by sociologist Dan Myers who has decided to wear pink every day for the month of October to raise awareness and collect donations. Support him if you can.

Of course, there are serious critical ways of looking at the pink ribbon campaign. For a couple of years now, I’ve had the book Pink Ribbons, Inc. on my book shelf, but haven’t gotten around to it yet. Has anyone read it?

I’ve been thinking about a way to contribute to these efforts myself this year and I have an idea. I’m putting some finishing touches on it. I’ll post about it in a bit.

[*] A few months after my Mom’s diagnosis, I still remember that there was an article in The Daily Princetonian making fun of the ribbon campaign. Like I have done above, a response to that piece tried to explain why these do serve a purpose.

So I hear (via a prominent member of the sane Republican faction) that the word on the right side of the street is that the Republican National Committee is about to pull the plug on its joint ads with the McCain campaign, and devote its resources instead to trying to save a couple of the senators who are at serious risk of losing their seats. Now this is gossip, albeit of the high class variety; take it with the requisite pinch of salt. But it points to some real vulnerabilities in the McCain campaign’s finances. McCain’s decision to opt for public funding has meant that he’s had enormous difficulty competing with the Obama money raising machine. He’s been able to partly compensate by co-financing ads with the RNC (this “skirts the limits of the legislation that he himself co-wrote”:http://www.democracy21.org/index.asp?Type=B_PR&SEC=%7BAC81D4FF-0476-4E28-B9B1-7619D271A334%7D&DE=%7B349C2D62-1860-4F9A-8FDB-B6F8F1BB864B%7D but is just about legal). This has kept him competitive in TV advertising, albeit still significantly outgunned. But if the Republicans are as worried as they should be about the impending elections, there will be a _lot_ of calls on that money, and the RNC is going to have to make some tough choices. Should it keep spending money on the presidential campaign in the hope that McCain will win despite the polls, or should it instead try to minimize the damage of a McCain defeat by doing its best to stop the Democrats from making big gains in the Senate? Decisions, decisions …

I suggested a couple of days ago that the partial nationalizations of national banking systems that we’re seeing ¹ was likely to be a temporary phenomenon, albeit one with long lasting implications for market actors’ expectations. I’m beginning to have second thoughts; I now suspect for two reasons that bank nationalization may be a lot harder to reverse than I thought.

First is the move towards more or less complete deposit guarantees that many Western states are offering (most explicitly Ireland, less explicitly the UK, Germany and others). This is a move that is going to be hard to undo any time soon without risking a further grave crisis of confidence. But it is also one that exposes taxpayers to risks that are far greater and difficult to quantify than the previous system (where many or most advanced industrialized states guaranteed deposits up to a set figure). The moral hazard problems are obvious, and states will want to have as many tools of control to make sure that they don’t get taken for a ride. Large stakes in the relevant firms are one such means of control.

Second – historical institutionalists in political science (Paul Pierson, Jacob Hacker, Kathleen Thelen etc) talk a lot about the importance of sequencing and timing in explaining institutional change. Their arguments might lead one to break up the responses to the crisis into two phases, one of which is likely to build on the other. The first phase is the current one – trying desperately to stop the entire system from breaking down through a variety of measures including injections of liquidity, interest rate cuts, and, most prominently, taking stakes in banks and other financial institutions. The second phase hasn’t really started yet, but will involve trying to build longer term institutions at the domestic level, and (to the extent that agreement is possible), the international level too to prevent this kind of thing from happening again.

The key point here is that the second phase isn’t going to begin _ex nihilo_; instead, it’s going to begin in a world that has been reshaped by the emergency measures that are being taken at the moment. And these measures will offer a set of possible tools and means of influence for government that will prominently include use of governments’ ownership stakes in large chunks of the financial system. It will be very tempting indeed for governments that want to secure financial stability to take up these tools and make them part of their permanent apparatus. Nor do the free marketeers seem in a very good position to win the ideological fight against this kind of initiative given their current disarray. Although the _Economist_ and other stalwarts are bravely battling on, “as Dani Rodrik notes”:http://rodrik.typepad.com/dani_rodriks_weblog/2008/10/will-globalization-be-reversed.html, Samuel Brittan of all people has “declared himself today”:http://www.ft.com/cms/s/0/a0b384ea-9612-11dd-9dce-000077b07658.html to be a closet Keynesian and is pushing the case for an expansionary fiscal policy.

¹ Or, in Iceland’s case, full nationalization; see also “Paul de Grauwe”:http://www.ft.com/cms/s/0/3c29a40a-9617-11dd-9dce-000077b07658.html) in the FT this morning for a more general full nationalization proposal.

In political philosophy you should play the ball rather than kicking the player, right? Well I agree. But then it gets hard to find a legitimate role for the Mandy Rice-Davies argument. And such arguments sometimes seem appropriate. It seems ok to notice that Hegel might have erred in finding that the local socio-political framework was what _Geist_ was aiming at all along, and that this might represent a kind of dull parochialism on his part. And when Kant isn’t willing to admit barbers to citizenship, but has fewer qualms about wig-makers, and thinks that reason supports him, we suspect something has gone wrong. It isn’t hard to multiply the examples …. Aristotle on slavery anyone?

Generally, I think, one should expect the comparatively liberal people in a society to articulate a kind of weaselly compromise between an impartial perspective and whatever the local chauvinisms and prejudices are. Partly this is psychological: it is hard to believe that uncles, aunts, cousins and neighbours are bad people, so one gives some weight to their attachments and beliefs as legitimate. Partly the pressure is political: in a democratic society winning means building a coalition and that means including the median voter. It is hard to build a coalition in bad faith, to secretly believe that your nation is a rapacious imperial power whilst reaching out to others who believe that it is a great country which (despite mistakes) basically does good in the world. And then there’s the fact that intellectuals who do try to detach themselves from local prejudice, from what the person on the bus thinks and cares about, often seem to lack a necessary reality check and end up saying a lot of crazy stuff that then earns them hostility and ridicule, some of it deserved. You don’t want to be like those guys.

So, for example, liberal Serbs kind of acknowledge that Milosevic did some bad stuff, but urge you to see the context, the other side of the picture. Liberal Israelis loathe the settlers and all their works and feel kind of bad about the Nakba and the occupation, but think of the Zionist project as basically legitimate and good. Liberal Russians might bemoan some of Putin’s excesses, but think that something had to be done about Chechnya. Etc. And, again, you can multiply the examples. Moreover (and it complicates the picture) some of these people might actually be right. In their case, the truth really might lie in the middle.

So, leaving the supporting arguments to one side, for a moment, what sort of conclusions about the world would you expect well-paid American liberal intellectuals to reach when they came to think about global justice? I guess I’d expect the following. I’d expect a good deal of hand-wringing about the relationship between patriotism and universal morality, and I’d expect them to discover a legitimate role for patriotism. They’d find out that it is perfectly permissible to have a limited preference for one’s fellow citizens (especially poor and minority ones) over outsiders. They’d therefore agonize about issues such as immigration but accept the right of states to control their borders, reject the notion that justice requires any kind of global redistributive principle but favour some limited doctrine of “assistance” to those suffering desperate poverty overseas. And I’d expect them, being smart people, to come up with some varied and ingenious arguments to support such conclusions. John Rawls, Michael Blake, Samuel Freeman, Richard Miller, Thomas Nagel, Elizabeth Anderson … even (or especially?) Michael Walzer, end up in the same place. Kind of a coincidence huh? What would Mandy say about that?

A couple of days ago, I thought my call for full-scale nationalisation of the banking sector would remain beyond the pale of political acceptability for at least a week. I badly underestimated the pace at which events are moving. In today’s paper I read the following assessment:

Inevitably, the US, Britain and Europe are going to end up with nationalised banking systems in one form or another, and with governments guaranteeing not only their deposits but probably all their liabilities. The nationalisation will be a temporary emergency measure. But for some time at least the systemically important banks effectively are going to be public utilities and must be regulated accordingly.

This taxpayer rescue of banking systems opens up a new and potentially very important avenue for unfreezing bank lending and restoring the flow of credit. If governments effectively control the banks, what is to stop them from demanding that they start lending again?

The source is Alan Wood, probably Australia’s most consistently hardline free-market economics commentator, writing in the Murdoch-owned Australian.

To amplify Wood’s point, the time when the situation might have been salvaged by passive capital injections like the acquisition of preferred shares has passed. Only direct public control, combined with a commitment to salvage the financial system as a whole has any chance of success.

The Times tells the story of the failed efforts of one Brooksley E. Born, the chair of the Commodities Futures Trading Association in 1997, to attempt to impose greater regulation on derivatives. “She called for greater disclosure of trades and reserves to cushion against losses.” She was fiercely opposed in this by Alan Greenspan and Robert Rubin. [ed:spelling corrected]
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Man, if I were Al Franken, I’d put this up as a commercial straight with no commentary. (Okay, maybe cut down to 1:00 or :30.) (via Ezra).

Like Kevin Drum, I have been sorely tempted to take a poke at the poor Cornerites in their misery – especially Andy McCarthy – but Hilzoy got there first. You can follow her links. it’s all-Ayers, all-the-time, if you’ve been missing the show. Here’s my analytic contribution on top of the straight mockery: this lot have been reduced to arguing that the problem with Obama is that he doesn’t believe the stuff he’s saying, won’t do anything like the things he’s proposing. Or, in the 10% less crazy Frum version, he’s just got to be an incredibly corrupt Chicago pol. Because he’s from Chicago.

This is funny, first, because it converts Obama’s rather pedestrian characteristic of not seeming to be something radically different than what he seems to be into a maddening sort of rope-a-dope achievement. (How does he do it? That ‘appearing to be the sort of person that he probably is’ thing.) Lowry glowers: “he’s a kind of genius at appearing plausible. If the Nobel committee had a prize for appearing plausible, he’d win it every time.” But Lowry isn’t talking about the power of making implausible ideas sound plausible. He’s talking about the power of making it seem plausible that you believe basically plausible things. [click to continue…]

My wife commented the other day that Sarah Palin has the rare talent of being able to make complete gibberish sound like it means something (a combination of that odd wink, and the modulation of her voice). As usual, my national chauvinism got the better of me: we, the British, have the finest exemplars of that skill, and Palin seems like an amateur to me. Two words: Idle; Unwin.

When my 11-year old tires of the young adult novels she is forced to read (is it really necessary to give pre-teens a diet of child-abuse, divorce, gore, death, and suicide?) she skips to Alan Coren’s Arthur books, long out of print, but marvelously funny. Coren’s been gone for nearly a year, now, and here’s rather sad but loving tribute. Hearing Sandi Toksvig talk about him made me look around for old obits; and I found this lovely account of the funeral by Simon Hoggart.

That bit was hard to miss, but I hadn’t noticed the refusal of the handshake. Ouch. [UPDATE: See some links in comments about how this wasn’t as bad as it might seem. I have looked at these and still think it would have been less awkward and more polite to shake hands there.]

With the financial meltdown accelerating in the wake of the US bailout, and the recognition that many more failing banks will have to be nationalized, the British government is moving to get ahead of the game by offering equity injections across the board. But already this seems inadequate. Now that the taboo on nationalization has been broken, wouldn’t it make better sense to nationalize the whole sector? With full control, governments could then ensure the resumption of interbank lending at least among their own banks. This would provide a feasible basis for co-operative moves to re-establish international markets.

For this week at least, such an idea is beyond the range of political acceptability. But it’s striking to look back a month and realise that in that period the US government has become the main mortgage lender, the guarantor of the short term money market, the effective owner of the world’s largest insurance company, the potential future owner of much of the banking sector and now the purchaser of last resort for commercial paper. Since the reluctance of banks to buy commercial paper must reflect a significant probability of default, it seems inevitable that some of this commercial paper will end up being converted into claims on the assets of defaulting issuers, extending the scope of nationalisation beyond the finance sector and into business in general.

This kind of instalment-plan nationalisation seems to offer the worst of all worlds. At some point, a more systematic approach will have to be adopted, and given the rate at which markets are plummeting, the sooner that point comes the better. This isn’t the return of socialism, but it certainly looks like the end of the kind of financial capitalism that has prevailed for the last few decades.