Margaret Thatcher, the Big Bang and the hypocrisy of politics

Even in death it was probably inevitable that Margaret Thatcher would divide opinion in very black and white  terms. Much has been written and said in the last few days about her, a lot of it by people that look at the world in very black and white, what's right and what's wrong ways, very much like Mrs Thatcher herself use to do. They talk with a certainty that they are right while everybody else of course, is wrong. It makes life very difficult for those of us who tend to see the world in shades of gray, although I might argue with the same level of certainty that the world is exactly like that.

So, let's explore some of those shades of gray that exist around Margaret Thatcher's legacy and we can start off with the Big Bang that freed up the city and banks back in the 1980's. It has been written that Thatcher somewhat detested the old boy city network way of doing things and that by freeing up the markets she would effectively destroy that old way of doing things. This she undoubtedly did, but perhaps she didn't see some of the long term consequences that she was unleashing.

For average investors/traders like ourselves, this change was in many ways a good thing, in time it opened up the market to Mr and Mrs Average to get involved. We can trade and buy shares today with a few clicks on our keyboards via the internet if we so wish in a process far more easy than what went on before Big Bang. To some degree, the stock market was "democratised" and opened up to us ordinary folk. This was helped on by the privatisation of many nationalised industries, usually at a discount. In the UK, "Sid" was born to patronisingly describe the eager new shareholders to the market, many of which simply wanted the quick profits that could be had in the first few days after IPO, easy money, greed is good, a mantra of the 80's and beyond was born.

However, this old wrong way of doing things was also extended to the banks, Big Bang helped see the birth of the investment side of banking. Many of the old fashioned big building societies like the Halifax, were happy to jump on board to become banks, allowing them to take advantage of the new financial freedoms. It was a time of light touch regulation that was taken to the extremes of almost no touch in the years of Blair and Brown. Much has been written about the banking crisis post 2008, but one thing that stands out is how the banks and financial industry exploited this light touch/no touch approach for their own ends, much of which they did in criminal ways.


Now, some who look at the world in black and white terms will want to blame Thatcher for what happened in 2008 because after all, Big Bang is her legacy, but as always in politics and finance it is not as simple as that. The roots of this legacy are clearly there, but it also took others who turned a blind eye to what was going on later on while the going was economically good, that allowed the banks to do what they did.

This however, does pose an uncomfortable question, especially for those with a right wing, libertarian, free market stance as to what would have happened to the banks had Margaret Thatcher been in power in 2008? First of all, would she have allowed the light touch approach much admired by Blair and Brown? As a free marketeer one assumes that she would have. But what would she have done once the banks started to line up cap in hand for taxpayers money to bail them out? Remember, this is the conviction politician that was quite happy to let the UK's old industry base go to the wall in the 80's because it was "uneconomic".

This is a comment that George Soros made back in 2008;

In regards to the current financial crisis described by many as the worst in multiple generations, billionaire investor George Soros stated here:

The cause of the current troubles dates back to 1980, when U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher came to power, Soros said. It was during this time that borrowing ballooned and regulation of banks and financial markets became less stringent. These leaders, Soros said, believed that markets are self-correcting, meaning that if prices get out of whack, they will eventually revert to historical norms. Instead, this laissez-faire attitude created the current housing bubble, which in turn led to the seizing up of credit markets...

http://seekingalpha.com/article/71265-the-credit-bubble-deregulation-gone-wild


Margaret Thatcher may well have believed that markets were self correcting, but would she have let the banks go to the wall rather than bail them out in 2008? The free market, capitalist answer is that this is what you have to do so that those who took things to excess learn their lesson, but with the banks this answer was clearly a problem.  A too big to fail problem. Let's remind ourselves that the potential liabilities of one bank alone, RBS, was 3-4 times the size of the yearly output of the UK economy.

Had Thatcher been in power and stuck to her convictions of no bailouts, she would have faced an economic and financial tsunami that would have made the 1980's recession look positively mild by comparison. I'm guessing, but I reckon she would have bailed them out. For a start, the US was bailing out their banks and for the UK to try the Icelandic approach simply wouldn't have happened, and what would the alternative be? Nationalising of all the bad UK banks? Nationalisation, a word which Thatcher hated? We can leave aside for one minute that the banks provide the lifeblood of the economy as well, by creating money in the form of credit, which of course makes them very powerful almost by default. I doubt Thatcher would have wanted Government to be the creator of money?

For many Margaret Thatcher is an libertarian, free market hero, while for others she's the devil in disguise, deeply hated and despised. What is often ignored is the simple fact that the UK like many democracies is usually governed by a political consensus, which changes from time to time. It changed in 1979 when Thatcher became PM and it has arguably been that consensus that has been in place ever since. She changed the political, economic and financial landscape of the UK, Blair, Brown, Cameron, Clegg are all part of that new consensus and it is why nothing much really changes at elections, that is until another consensus challenge hits the nerve of popular opinion and finds its way into power. Difficult to find any politician or movement like that around in the UK at the moment though.

Since the 1980's we have had asset bubble economics and politics which found its freedom to operate in it's too big to fail way in part because of the policy roots laid down by the Government of Margaret Thatcher and others of a similar outlook around the world during that time. That new political and economic consensus has not changed, but it presents its own problems when the financial free market gets into trouble. The free market answer to the problem, of allowing things to correct themselves, is feared by politicians the world over because the response of your own population is unknown yet can often be seen as dangerous as the lessons of history tell us. The response in Europe during the 1930's was the rise of fascism and communism, ideologies that have great appeal at times of crises to the downtrodden masses that the free market throws to one side during its "correction", because of their somewhat simplistic answer as to where the problem lies and what needs to be done, usually by collectivist, united action and force, to put it right.

What happened in the years leading up to 2008 is part of Mrs Thatcher's legacy and only those who like to see the world in black and white terms will prefer to shift blame to elsewhere, rather than where it belongs - with all of them in the shades of gray, somewhat hypocritical world that we live in.