What have the banks done with all the money they used to control? Where has our money gone? That is a puzzle because however eloquently the financial commentators try to explain this, I at least, am left with a feeling that the money must have gone somewhere. I have tried to puzzle out where it has gone, because that has never been satisfactorily explained.
We have experienced a banking crisis which seems to have caused a recession. I write “seems” because I think the relationship of causation is not so simple. A recession is a period of negative growth, when the amount of what we produce becomes less and we use fewer resources.
It seems that when the banks were making large profits, we were producing more, using more resources and more people were employed and prosperous. Then the economies were growing – that economic growth beloved of politicians. When the banks found that their investments proved worthless, they ran out of money which prevented the rest of the economy from working, at least that is how it is being presented to us now.
I suspect that the truth is different. It is all about timing and confidence. The banks did not invest in their “toxic” investments in the past year or two. They have been pumping money into these kinds of investments for the past ten or fifteen years.
The banks and other institutions have declared billions of pounds of profits on these investments. Is it the case that in the past eighteen months that these investments have suddenly been discovered as worthless?
No, the investments have always been poor; they were overvalued for many years and are probably under valued now. When the banks were declaring all these profits they were not valuing their investments properly. A proper valuation of such investments would show their truth worth.
Over valuing the investments meant that everyone concerned in the performance of the banks could claim more in the way of wages and bonuses. We were constantly told that these “high performers” were important to our economy and if they did not get their high wages and bonuses they would leave Britain and go and take their talents elsewhere.
In fact they were using whatever talents they had to serve themselves. They claimed high value performance, when the truth has proved to be very different, and paid themselves accordingly. That is where the money went. The money has gone into the pockets of those who have wasted it, all in the pursuit of economic growth.
Now I know that this is a simplification and contains quite sweeping generalisations and there will always be exceptions – those that have genuinely performed well, as well as those who might have been under rewarded for performance that has been better than was understood at the time.
I have been concerned for many years about the modern obsession with the short term. It is an obsession that damages everything – the economy, the environment and our future. It is born out of a union of greed and selfishness. It is measured by a faulty yardstick.
Instead of relentless pursing economic growth, we should ask our politicians to pursue economic quality. A sustainable economy is better than one that lurches from famine to feast and back to famine again.
The concept of economic growth is as sound as the concept of human growth. The obese growth that our economies have experienced has sucked up our resources and made our economies unhealthy, although it has also benefitted, in the short term, the undeserving few, who took advantage of the fact that we used the wrong measures.
We should aim for healthy, lithe and supple growth, measured by quality, not quantity and make sure that we use the right yardstick when measuring our economy.