An amazing feature of modern societies is that people believe what they read in the newspapers. As a result, consensus narratives become established from hurried guesswork about facts and instant opinion based on that guesswork. If people want to read newspapers and to believe the narratives they spew out, they are likely also to buy books that distil these narratives and reconfirm their views. The reconfirmed views then become the "conventional wisdoms" which motivate political dialogue and government action.
Outside his comfort zone: Brown on holiday in August 2008, when he claims to have devised plans to recapitalize the banks and for quantitative easing (Chris Radburn/PA)
As Britain's prime minister, Gordon Brown was one of the most prominent participants in the financial crises of 2007 and 2008 that preceded the Great Recession of 2009. In his book Beyond the Crash (Simon & Schuster, £20), he has set out his version of these events, and it must be said that future historians will be grateful to him for the clarity and seriousness of the account. However, the book is largely a reworking of the consensus narrative that was forged, above all, by the Financial Times in 2007 and 2008, and endorses the now prevalent orthodoxy about the allocation of blame.
According to the consensus narrative, financial institutions in the main advanced countries had indulged in an irresponsible credit binge in the years leading up to the closure of the international inter-bank market in August 2007. By implication, the subsequent inability of many commercial banks to fund their assets showed that they were "bust". When these banks asked the central banks in their respective nations for finance to replace the lost funding, they were deemed to be supplicants for "bail-outs" at the expense of the taxpayer.
The implied conventional wisdom is that the crisis can and should be blamed on the financial system, and has exposed a deep-seated flaw in free market capitalism. Moreover, since according to this view the banks were responsible for the disaster, they should "clean up their balance sheets". The recommended acts of cleansing include "fessing up" the true value of so-called "toxic assets", and then selling them and accepting "the hit" to profits. Detractors take it for granted that the bankers were lying about the quality of their assets and that these lies were part of a larger wickedness.
Is it going too far to suggest that the anti-banker rhetoric has resembled the demands for ritual contrition and purification found in some religions? At any rate, in late 2008 and 2009 renouncing the toxic assets was only part of the envisaged process of rehabilitation. If the banking industry really wanted to return to a state of grace, a concerted move to greater balance-sheet safety was seen as the main priority. The conventional wisdom defined the move to safety in two main ways. First, on the liabilities side of the balance sheet, banks should operate with higher ratios of capital to total assets than before, protecting the interests of their other creditors, particularly their depositors. Secondly, in the management of their assets, banks should place more emphasis on safety and liquidity. They should hold both more cash and more easily-sold assets like government securities, again relative to total assets.
During the crisis Brown played a key role in promoting the conventional wisdom. One message of Beyond the Crash is that he has no doubts that he was right in every opinion he expressed and every action he took. The book is not a subtle exercise in dialectic which recognises that there are other points of view. On the first page of the introduction, Brown scorns "the head of one of Britain's biggest banks" — presumably Fred Goodwin — who told him on October 7, 2008, that the "only problem was cash flow". According to Brown, this bank's problems "were not short-term or simply about liquidity", but "structural and fundamental" because it "owned assets of unimaginable toxicity and had been left with too little capital to cover its losses". This is the conventional wisdom with knobs on.
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