Thursday, October 02, 2008

The Banking crisis: We are in unchartered waters now

Over the past week, it has been fashionable to argue that by rejecting the $700bn bailout of the US banking system, congress is repeating the mistakes of 1929. But the truth is, nobody knows. We are in unchartered waters now.

Throughout Europe, Anti-Americanism is stronger than ever: The EU has shown its usual contempt for democracy and have attacked congress, horrified that US lawmakers should be showing so much deference to their angry constituents at a time like this. But there are a few lone voices on this side of the Atlantic that beg to differ. After all, the reaction of congress was not simply a wish for revenge on greedy bankers (as portrayed by all the British media). Many were doubtful whether the current plan is little more than trying to plug a leak in a sinking ship with sticking plaster. The damage has been done and US taxpayers may be paying $2300 apiece in order to delay the inevitable by a few more months.

Maybe the $700bn bailout is a risk worth taking. I don't know the answer. It will probably be months or possibly years till we know whether we have seen a repeat of 1929.