Boris Johnson's cabinet is full of extraordinarily inappropriate people like Priti Patel, Dominic Raab, Gavin Williamson, and Liz Truss, but perhaps the most egregious appointment of all is Sajid Javid as Chancellor of the Exchequer.
Before his move into politics Javid was a banker at Deutsche Bank, where he sold complex financial derivatives called Collateralised Debt Obligations (CDOs).
In order to have any coherent understanding of what caused the 2008-09 global financial sector insolvency crisis, you need to know what CDOs are, otherwise you could end up believing any old economically illiterate shit (like "Labour bankrupted Britain" for example).
CDOs were economic alchemy schemes designed to turn toxic bad debts into fake gold-plated investments.
The way they worked was to collect together thousands of bad mortgages (the kind of mortgages people are highly likely to default on if there's any kind of economic downturn) then grade them into bands from worst to least bad.
The lower ranked bad mortgages remained risky investments, but the top tranche of "least bad" sub-prime mortgages were packaged up together and sent to the Credit Ratings Agencies to be classified as AAA rated investment grade financial products, meaning that major banks, insurance funds, national and local governments, and pension funds bought them up in their £billions believing them to be safe investments rather than carefully repackaged junk.
The whole thing defied economic logic: High return investments are riskier, low return investments are safer.
But Sajid Javid and the other financial sector alchemists selling these toxic products convinced their customers that they'd managed to rewrite the basic laws of investment to create these high return + supposedly low risk investments.
But while they were singing their praises to their customers, loads of CDO merchants were secretly referring to them in the most derogatory of terms, like "shit breather" and "piece of shit" in private chats, because they knew they were junk investments that were bound to implode sooner or later.
Furthermore, several of the banks selling these ticking time bomb CDO "investments" were secretly buying up £billions worth of financial insurance on the products they'd just sold, looking for huge payouts when the junk products they were selling finally exploded (this special insurance is called CDS and you can find out more in this article).
So given that it was an open secret amongst CDO merchants that they were selling toxic junk that's bound to fail, and that several of the banks selling this stuff were opportunistically speculating on the inevitable failure of the junk products that they were selling to unsuspecting customers, what was Sajid Javid playing at?
There are only two explanations, neither of them good.
If we're charitable to Javid, then we could argue that he was a clueless dupe, naively selling a load of toxic junk in good faith simply because he was too stupid to investigate the products he was actually selling, and so poorly connected within the CDO industry that he was unaware of the open secret amongst his peers that the products he was selling as safe investments were actually bound-to-fail financial Weapons of Mass Destruction.
So what on earth is Boris Johnson doing promoting a clueless idiot like this to the most important economic job in British politics just a decade later?
The other explanation is, of course, much worse. If Javid was smart enough to realise that the CDOs he was selling were bound-to-fail junk, and he was in on the open secret within the trade that they were certain to implode one day, yet he carried on selling them as safe investments to oblivious customers like other banks, pension funds, local and national governments, and insurance funds as low-risk investment opportunities, then he's a cynical and duplicitous fraudster.
If he didn't know, he was an idiot and certainly shouldn't be running the UK economy, but if he did know, then he's a fraudster and should probably be in jail for wilfully selling toxic junk to unsuspecting customers, rather than running the UK economy.
It's absolutely extraordinary that Boris Johnson and the Tories have promoted one of the shady derivatives traders who caused the economic crisis to the top economic job in British politics, and whichever way you look at it, his damning history clearly indicates his unfitness to hold such a crucial role.
Another Angry Voice is a "Pay As You Feel" website. You can have access to all of my work for free, or you can choose to make a small donation to help me keep writing. The choice is entirely yours.
were responsible for their own downfall.
My immediate response was:
In order to portray the financial sector as the unfairly criticised innocent victims of the economic crisis, it would take willful ignorance of what actually happened, which was this:
The parasitic "shadow banking sector" lobbied and demanded to be freed from the burden of regulation, which the "orthodox neoliberal" politicians were more than happy to oblige with.
Both sides of the so called political spectrum in the US and UK repealed legislation which was designed to prevent banks from destabilising the economy. Margaret Thatcher's Tories began the deregulation process in the UK in the absurd attempt to create a post-industrial London based financial services economy. The Labour Chancellor Gordon Brown further deregulated the financial sector in the 1990s ceding all democratic control of the Bank of England to the private sector in compliance with neoliberal pseudo-economic theory. In the United States, Bill Clinton's Democrats set about dismantling the legislative firewalls that were put in place in order to prevent another Wall Street crash and George Bush's Republicans intensified the process in the 2000s. The European Union and other countries such as Argentina also set about enacting absurd neoliberalisation reforms and financial sector deregulations.
Once the financial sector were freed from the legislation which was originally put in place to prevent their reckless gambling tendencies from creating economic instability, most of them quickly set about over-leveraging themselves to the max (using mortgage payments, savings and pension schemes as their reserves) in order to make all kinds of insane bets on crap like Spanish and Irish property assets, Greek government bonds and complex derivatives (like Collateralised Debt Obligations) that they clearly didn't even understand.
As long as it was stamped with a decent rating from the (either corrupt or utterly clueless) Credit Ratings oligopoly, they racked up vast debts to throw money at it without bothering to assess the risk for themselves. Trying to absolve the financial sector of responsibility for their own reckless speculation on inaccurately rated and often fraudulent "investments" is as absurd as trying to absolve the customer from blame had they borrowed beyond their means in order to buy a wreck of a second hand car without negotiating any warranty coverage or even bothering to take a cursory glance at the vehicle first.
gross mismanagement of risk.
It is transparently clear that "austerity" is just the same old neoliberal claptrap rebranded as something urgent and necessary, rather than the defunct ideologically driven gibberish that actually caused the economic crisis in the first place.
Massively reducing government spending on infrastructure and causing a dramatic reduction in household disposable income led to the transparently obvious consequence of reduced aggregate demand and economic stagnation, which in turn led to increases rather than decreases in budget deficits and national debts as the pace of cuts failed to match the falls in tax revenues. The harder they cut the "real economy", the bigger the debt burden they ended up creating.
It is clear that for decades the global economy has been run by economic illiterates; by people that don't give a damn about economic history (the most stable and productive period was the mixed economy era, which their craze for greed-is-a-virtue, privatise everything, more riches for the rich and screw the workers, neoliberal pseudo-economics has ruined). They don't bother with vital regulations to prevent anti-competitive practices (monopolies, oligopolies, cartels, information asymmetry, subsidisation of failure...) from developing because the simplistic neoliberal mantra says that "all regulations are evil" and they don't even seem to understand really fundamental economic concepts such as aggregate demand, value multipliers and false economies.
than the bankers themselves, are the politicians that
meekly abdicated their responsibilities to protect
the economy from their reckless gambling urges.
The financial sector are to blame for the economic crisis. They caused it by inflating a giant bubble of "easy credit" and using it to fund their reckless speculative gambling instead of making carefully hedged long-term investments. The politicians that meekly enabled their risky gambling habits by deregulating them, then bailed them out, and are now working to make the "real economy" pay the costs of the financial sector gambling debts through "self-defeating austerity" and even now refuse to prosecute or even re-regulate the banks.
The lessons of history are pretty clear, the free market fundamentalists / neoliberals / anarcho-capitalists (call them what you want) have tended to create the economic crises through enabling risky short-term profiteering and it has been government's job to clean up their messes and prevent them from doing it again, two things that the impossibly compromised "orthodox neoliberal" politicians of the West are abjectly failing to do at present.
So in conclusion, the people that are to blame are the reckless bankers that mismanaged the risk that they are supposedly paid their obscene salaries in order to manage, and the politicians that enabled this reckless gambling spree by deregulating the financial markets.
ANOTHER ANGRY VOICE
What is ... Neoliberalism?
Common sense and neoliberal pseudo-economics
Margaret Thatcher is dead
The Great Neoliberal Lie