What if there had been no banking crisis?

I began these articles just over a year ago, when our beloved banks were scaring the daylights out of those parts of the world that depend on their services.

Hank Paulson had been forced to tear up his original Troubled Asset Relief Plan because the banks were unable to value their toxic assets. They didn’t understand what they owned.

My view has always been that the banking system should have been shut down at that point and rebooted under total government control rather than the phoney public-private partnership now in place. My first piece questioned the mantra of “doing whatever is necessary” – for whose benefit?

Instead Gordon Brown seized the hour and “saved the world” with his recapitalisation strategy, a plan to throw so much public money at the banks that they could not fail.

As we now know, the plan has saved the banks rather than the world. Global poverty and hunger indicators are moving smartly in the wrong direction. A handful of Goldman Sachs executives are set to receive bonuses for 2009 totalling $21 billion. Less than half of this sum could fund the World Food Programme’s entire budget for 2010. Why not Mr Blankfein?

Although politicians avoid the subject, state finances will take a generation to recover. Faced with chronic global insecurities over food, water and energy, plagued by climate change, governments have nothing in the kitty. Rich countries have mortgaged their exchequers for a turkey.

I often wonder what would have happened if all those financial risk management systems and banking regulations had functioned properly. The industrialised world would approach 2010 bathed in solvency but, for the poorest countries, the consequences of long years of economic injustice and environmental abuse would be there just the same….

…eventually, as successive crop failures, extreme weather events and forced migration take their increasing toll, world leaders pronounce that poor sovereign states are “too big to fail” and that we must do “whatever it takes” to bail them out. Analysts draw attention to “sub-prime” assets of small farms, prone to accepting loans beyond their means. And regulatory bodies responsible for stabilising the climate are exposed as useless.

Successive attempts to revive these economies with aid and poverty reduction programmes fail. Then it’s discovered that the toxic agriculture assets are impossible to value. No one can agree on a price for adapting to climate change. The opportunity cost of saving tropical forests is disputed, indeed scientists don’t even know how to measure the carbon content of a forest.

In desperation, the world turns to Gordon Brown, the only leader with a grasp of international development issues. They accept his decisive remedy to recapitalise the least developed countries, a Marshall Plan for world poverty. The funding is raised effortlessly in a global justice bond issue, skilfully brokered by Lehman Brothers….

Elements of this whimsy may increasingly haunt the debt-laden years that lie ahead. Even the most extravagant of NGO estimates for addressing the troubles of the developing world – food security, education, health, AIDS, climate adaptation, safe water, sanitation, electricity – would cost a fraction of all those bank rescues and recession-busting stimulus packages.

That Gordon Brown missed his real chance to “save the world” has been a personal tragedy for him, and for the cause of sustainable development.


this article was first published by OneWorld UK