This is a first!

I want today to agree with the comments of both Gerard Henderson and Janet Albrechtsen - and that is a first! They are both right in pointing out that there has been a Government policy dimension to the crisis in the US, that being the policy promoting home ownership through non-recourse loans increasingly made to people unable to pay, but fuelled by ever increasing asset prices.

They could have added, however, that the latter part of this was promote by the central banker from hell - Alan Greenspan - who kept US interest rates low through two booms. This not only created the asset price inflation that made house lending look like a risk free bet (so what if the owner can't pay the loan - the house is always worth more) but has left the US without anywhere to go on interest rates to stimulate the economy.

I am, however, not as sanguine as they are about the suggestion that because we can find this fault we can therefore deflect all criticism from the process of deregulation and the overall embrace of market capitalism, what Joseph Stiglitz has called "that grab-bag of ideas based on the fundamentalist notion that markets are self-correcting, allocate resources efficiently and serve the public interest well."

In part this is because of the three crises identified by Scott Birchill under the heading Capitalism in Crisis. These are a crisis in confidence, systemic crisis and a legitimation crisis. As an example we should consider the mark to market rules that result in asset bubbles being systemically moved through the whole financial system. Similarly we should question the role of institutions like the credit ratings agencies that rated the securities that created the crisis.