The Faustian Pact
April 10, 2010Posted by on
When they were young, many of today’s Labour ministers were Marxists, who accused an older and wiser generation of leaders of selling out. Yet by the time they arrived in office they had, as so often happens, flipped from one version of extremism to another. They went from wanting to abolish financial capitalism to wanting to venerate financial capitalism, without once stopping on the sensible middle ground of wanting to regulate it. Ed Ball said this week:
“We should in retrospect have been tougher on some of the investment banks who didn’t know what risks they were taking, regulation should have been tougher and it will be under a future Labour government.”
Really! This from the would be Chancellor of the Exchequer who no doubt made a significant contribution to New Labour’s fiscal policies and the speeches of Brown. Particularly the one where Brown gushed to a meeting of City bankers in the autumn of 2006:
“What you have achieved for the financial services sector, we, as a country, now aspires to achieve for the whole British economy.”
As an article in the First Post by Nic Cohen stated in 2009:
It is rare to find the causes for a national disaster encapsulated in the dull prose of an obscure measure. Helpfully, a concise explanation of why you and your children will be paying for the collapse of the banking and housing bubble into the 2020s are set out in the clauses of the 2001 Financial Services and Markets Act.
The article contended that Labour’s Faustian pact with capitalism led to the financial crisis. The seeds of the current crisis being found in the 2001 Financial Services and Markets Act. This Act required the Financial Services Authority “Not to discourage the launch of new financial products”. So said the government as it laid down the terms of trade for London’s banks and hedge funds. In addition, the FSA had to avoid “erecting regulatory barriers”, also “it must consider the international mobility of the financial business” and “avoid damaging the UK‘s competitiveness”.
Gordon Brown, a man who campaigned as a student for a socialist transformation of Scotland, provided both an epitaph and an indictment for his Labour generation when he gushed to the meeting of City bankers that what they had achieved for the financial services sector was the aspiration for New Labour and the whole British economy.
The “whole British economy” is sharing that achievement now. The money dazzled them, of course. Figures show how Labour’s social programmes were financed by taxes from the banking bubble. Financial services’ share of GDP rose from 6.6 per cent to 9.4 per cent between 1996 and 2006; trade surplus went from £8.7bn to £25.1bn; City jobs from 265,000 to 338,000; and City bonuses from £1.7bn to £8.5bn. Put like this, it sounds as if Labour cut a deal: you provide us with revenues for public works, we won’t regulate you.
But this explanation is too cold and calculating to catch the passion of the romance. Brown was no Dr Faustus knowingly entering into a pact with the Devil. He embraced the Devil, and gave no sign of realising that the Devil was indeed a devil. Even now, Labour ministers believe that the pact can be revived, and that they can go back to the lost bubble world, which suited them so well. Looking at the ruinous consequences of Labour’s naivety, Nick Cohen concludes:
“I don’t know what is sadder: the government’s demands that the working and middle classes bail out speculators, who earned more in a year than they will earn in their lifetimes; or the self-delusion of a once-honourable party, which abandoned its traditional suspicion of bankers and was then shocked when the world fell apart around it”.