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Who's to blame for this credit mess? A trio of theories

Last update: August 3, 2008 - 4:01 PM

How Blind Faith in Markets Has Cost Us Our Future

By Larry Elliott and Dan Atkinson

Bodley Head; about $25

The Credit Crunch

Housing Bubbles, Globalization and the Worldwide Economic Crisis

By Graham Turner

Pluto Press; $27.95

The New Paradigm for Financial Markets

The Credit Crunch of 2008 and What It Means

By George Soros

PublicAffairs; $22.95

Almost a year has passed since the credit crunch burst into the public consciousness. As the publishing industry finally lumbers into action, authors are attempting, like real-life Hercule Poirots, to assemble the suspects in the library and identify the guilty party.

Of these three efforts, the most entertaining (despite sloppy editing) is by Larry Elliott and Dan Atkinson, two British journalists; the book with the most detailed economic analysis is by Graham Turner, an independent consultant; while George Soros' slim volume is largely a rehash of his early writings.

The common narrative is that consumers in Britain and the United States were allowed to build up too much debt over the past 20 years by central bankers who were desperate to avoid recession.

The debt was used to buy houses that consumers could not afford, within a reckless and poorly supervised financial system, leading to the crisis in the mortgage market that broke last year. A further consequence of this lax monetary policy was big trade deficits in the Anglo-Saxon countries.

These deficits could be financed only with the help of surplus-generating countries in Asia and the Middle East, which has left Britain and the United States quite vulnerable.

To complete the circle, the triumph of Wall Street over Main Street has not only forced workers to take on more debt to maintain their spending, but also has increased inequality by disproportionately boosting the incomes of investment bankers and hedge-fund managers.

Turner foresees that, "The homeless crisis will intensify and tent cities will proliferate. More banks will fail. Economic depression may then follow."

Elliott and Atkinson go so far as to speculate about a crisis prompted by attacks on Iran's nuclear facilities and hurricanes in the Gulf of Mexico that will push oil to the unimaginable heights of $150 a barrel and wreck the global economy.

And who is to blame?

Elliott and Atkinson finger the "New Olympians," the global elite of bankers and investors who worship what they describe as the gods of globalization, financialization and a whole pantheon of compound nouns: the very people, the authors argue, who oppose state intervention until they need a government bailout.

Turner seems to feel that the problem is free trade, an idea it is not clear he understands. In one rather odd section, he states that "free trade today is no longer driven by comparative advantage, rather the ability to maximize profits by cutting costs."

Surely the point of free trade has always been to do those things.

As for Soros, he seems to blame all those who have not listened to him in the past.

All three books expect more regulation of the financial system, which will inevitably have perverse consequences.

The lesson of the credit crunch is that pinning the blame on any one participant may be fruitless. Rather, like in one of Poirot's most famous cases, "Murder on the Orient Express," they all did it.

THE ECONOMIST

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