Saturday 6 June 2009

John Lanchester on the banks

An interesting, informative, but alarming piece about the banks, the financial crisis and the UK response by John Lanchester in the London Review of Books.

First, one intiguing fact.
RBS is today, by the size of its assets, not just a big bank, and not just one of the biggest companies in Europe. The Royal Bank of Scotland, by asset size, is the biggest company in the world.
I find that a bit difficult to get my head around. Bigger than Microsoft? Bigger than Toyota? I suppose being a bank, the assets are a bit different from companies that manufacture things, but still, RBS "Royal Bank of Scotland" the biggest company in the world?

The piece is alarming. Look:
It is possible that we are on course for the worst-case scenario. [...] Britain itself could become insolvent. [...] Sterling would be more or less worthless. Travel would be next to impossible, imports would be unaffordable, interest rates would zoom up and stay up, there would be cuts in all aspects of public sector spending, especially employment. It would be brutal. Nobody thinks this scenario is likely, but quite a few people are willing to admit that it is possible.
Even if we fall short of the IMF option in favour of a run-of-the-mill severe recession, the consequences for Britain are going to be horrific. Roads and schools and hospitals will go unbuilt and unrepaired, medical treatments will go unbought, nurses and policemen and council workers will be laid off.
There's a sense in which I have some understanding of how economics can make this happen - there's stories I can tell about it - but at another level I marvel that ecomonics can have this effect. One day people are building hospitals and have enough food and clothes, and the next they are sitting at home unemployed and short of food. What's changed? Information, that's what. The numbers saying who has got what money. That's all that's different.

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