It’s almost a year since the proverbial hit the fan and splattered the walls of economic institutions, our workplaces and our homes. While governments and central banks frantically try to clean up the mess, Paul Mason has stepped in to analyse the murky data. Although many explorations of the economic crisis leave the reader cold or confused, Mason has a knack for clear and engaging exposition of the processes at work. There’s a good glossary and an accessible style, like using the de-tailed analogy of a magic trick to explain “structured finance” – OK, I’m still a bit confused.
Getting the details of the crisis also involves understanding the past, something Mason does very well. Moving from recent to historical events with a fluidity well practiced in Live Working or Die Fighting, economic history becomes a fascinating story. Today’s world of high finance and high politics is also part of the story; a world apart from ours, mediated to us through story tellers. And Paul Mason tells it pretty well. Personal histories are given to key players and personalities are brought in, like ex-Bear Stern’s CEO, Jimmy Cane, who stays at a bridge tournament whilst his hedge funds collapse. Mason also tells his own story, one of a BBC reporter wandering bewildered from bank to workplace to news conference, forming a narrative to contextualise the haphazard activity of the economic and political players.
Among the anecdotes and personal histories Meltdown sets out the events and mechanisms that have created the current crisis, as well as the faltering attempts to fix it. Mason pinpoints the passing of the 1999 Gramm-Leach-Bliley Act in the USA as the major piece of deregulation that led to financial turmoil. Costing $300m in lobbying, the Act ended the separation of investment banking from people’s savings and allowed banks to behave as insurance companies. This, beside the development of information technology, it is argued, unleashed a new era in the world of finance.
One of the more troubling aspects of this era was the shadow banking system, “a huge, unannounced and unregulated banking network operating with almost no press coverage and little visibility”. The off-balance sheet companies known as “conduits” and “structured investment vehicles” ended up crippling the banks when they went bust. An-other well documented cock up is the credit default swap, an insurance policy that pays out in the event that somebody else goes bust – “the unwinding of this tangled web of default bets drove the markets towards catastrophe”. And of course there was the sub-prime market which teamed up with the derivatives people, apparently in a coffee queue at Bank of America, to create the accident waiting to happen.
The attempt to fix the subsequent mess is well charted in Meltdown, picking out the reluctance to move away from old ways of thinking and hesitation amongst central bankers and politicians. Essentially Mason believes the old monetarist and interest rate levers aren’t working and we need a change; “the search for an alternative to neo-liberalism is on”. The suggested alternative is a “socialised banking system plus redistribution” with low profit utility style banking separated from the speculative sector. Essentially, he argues for a more regulated capitalism with state intervention to ensure social justice, fought for by organised labour and liberal reformists. Mason is hazy on the details of this new model and doesn’t claim to have all the answers but at least he has something, right?
The anti-capitalists, he claims, don’t have an adequate response to the crisis. We can and should be promoting the end of capitalism but the level of class struggle necessary to support it doesn’t exist yet. Should we then be engaging with big ideas of generalised reform alongside “horizontal and granular” struggles?
Either way, Meltdown is a fun and illuminating read, a rare treat in economic texts.
Meltdown: The end of the age of greed
Paul Mason - 2009 – Verso Books – 208 pages – £7.99 – ISBN: 978-1844673964