Now that taxpayers on both sides of the Atlantic have woken up to find they are shareholders in their own banks, governments are going to begin asserting a little shareholder power on behalf of their citizens.
In a few days Gordon Brown, the British prime minister, has managed partially to nationalise British banks, and now the US and Europe are following suit. The move has been welcomed by the markets as the only realistic policy for saving the financial system.
Awakening from the dizzy chaos of collaterised debt obligations and securitisations, the New Olympians have left, shame-faced, through the back door. The house of cards has collapsed, and the West finds itself facing an historic realignment of its political economy.
The prime minister sought to don the mantle of Churchill and Roosevelt yesterday as he called for world leaders to gather for a new Bretton Woods, the conference held in 1944 to draw up a postwar financial order.
The state is asserting control on behalf of the ordinary citizen. The bail-out plan won’t save us from recession, but it averts the risk of collapse of the financial sector. More importantly, it offers a unique chance to regulate the international markets for the common good – not least because of the man who finds himself leading the call for restructuring.
This is Brown’s hour. Only a few weeks ago I was lamenting, along with everyone else, his lack of leadership and political vision. But it has been a gift from heaven for both him and the world that the banking crisis should have occurred on his watch. His 10 years as Britain’s chancellor of the exchequer has given him more experience with the world’s financial architecture than any other world leader.
That does not absolve him for his part in the crisis -- the markets went wild on his watch, after all -- but it does give him a central role in confronting it. Brown never had a blind faith in markets, and never made a secret of wanting to reform them. And now he has the opportunity, because the idols have fallen.
The suprising talk now is of markets needing morals to function properly.
The Government is acting to restrict bonuses and dividends. And they are already considering how the tactics used to deal with the banking crisis could be applied to other parts of the economy. A government-backed mortgage company to get the housing market moving has been discussed, and there is talk of creating an “ethical banking system". In Europe today, Brown is hoping to secure agreements for new mechanisms of global supervision. All this suggests a “New Populism to replace the New Olympianism”, as two canny British analysts of the current crisis put it.
But what is the "true and effective directing principle" -- as the papal encyclical of 1931, Quadragessimo Anno, puts it [para 88] -- that should guide this new interventionism?
"....[T]he right ordering of economic life cannot be left to a free competition of forces. For from this source, as from a poisoned spring, have originated and spread all the errors of individualist economic teaching. Destroying through forgetfulness or ignorance the social and moral character of economic life, it held that economic life must be considered and treated as altogether free from and independent of public authority, because in the market, i.e., in the free struggle of competitors, it would have a principle of self direction which governs it much more perfectly than would the intervention of any created intellect. But free competition, while justified and certainly useful provided it is kept within certain limits, clearly cannot direct economic life - a truth which the outcome of the application in practice of the tenets of this evil individualistic spirit has more than sufficiently demonstrated. Therefore, it is most necessary that economic life be again subjected to and governed by a true and effective directing principle."