What lesson does the former British Prime Minister take from the crash? Blame America!
Beyond the Crash:
Overcoming the First Crisis of Globalization
By Gordon Brown
Free Press; 336 Pages; $26
"We were days away from a complete banking collapse," writes Gordon Brown, the former Prime Minister of Great Britain and the latest financial crisis bard. Recalling the meltdown that swept the planet in 2008, he still shudders at the specter of "companies not being able to pay their creditors, workers not being able to draw their wages, and families finding that the ATM had no cash to give them." On the other hand, staving off this potential doomsday scenario may have been the perfect opportunity for Brown—the serious, number-crunching Exchequer veteran—to crawl out from Tony Blair's legacy.
It didn't work out that way. Expelled from Downing Street by an ungrateful electorate last May, Brown retreated to his native Scotland, and Beyond the Crash may be best seen as a therapeutic exercise in distraction. Readers seeking insight into the failure of Brown's government are given few clues. The book is stuffed with dry self-justification and more than the occasional hint of pleading. Mistakes that fostered the conditions of the crash are left largely unexamined. Finger-wagging and self-exculpation come in doses. It was the bankers' fault, he writes. And, anyway, it all started in America.
To his credit, Brown grasped the essential problems of the crisis more firmly and more quickly than many heads of state. When Fred Goodwin, then chief executive officer of the Royal Bank of Scotland (RBS), told Brown the bank merely needed overnight financing to stay afloat, the Prime Minister understood that billions of pounds of government support would be required to prevent an RBS collapse. "No liquidity without recapitalization" became Brown's mantra. Taxpayers would take an 84 percent stake in RBS as well as sizable positions in other troubled banks. The public was furious—and told there was no alternative.
Following the collapse of Lehman Brothers, Brown's government really did, as he puts it, "stand alone" in its willingness to pump immediate cash into the banking system. (The British Financial Services Authority's contribution to Lehman's difficulties is left unexplained.) Soon other countries followed his example, offering vast sums of taxpayer funds and open-ended guarantees to shore up and largely nationalize the tottering banks. Huge fiscal stimuli and great dollops of quantitative easing would also be needed. And while the British enjoy mocking Brown's claim to have led the world's response to the meltdown, he is entitled to some vindication, even if his solution transferred risk to national governments.
As an author, Brown remains a master of the fine-sounding platitudes he employed as a statesman. "The operation of markets must balance the necessary encouragement of risk-taking with proper standards of responsibility," he writes. How this may be achieved—and what exactly it is he's talking about—appears left for the sequel. He's equally opaque with regard to his own failed domestic policies. Most Brits outside the Labour party now appreciate that running deficits at the top of a boom left the government with precious little margin to maneuver once the good times ended. The billions pumped into Britain's sickest banks pushed the deficit above 10 percent of gross domestic product, leaving Brown's successors with few options beyond onerous spending cuts.
Yet Brown refuses to be bogged down by these unpleasant recollections. He has come to see the crisis as having been exacerbated by countries' determination to seek local solutions for international problems. The Troubled Asset Relief Program, he writes, was inefficient because it was "a plan to buy assets, not a plan for capital." Instead, he recommends a "global New Deal" to find "global solutions to global problems." Since he doesn't much explain what he's talking about, we'll just have to take his word for it. As a tireless believer in the power of summits and international confabs, Brown calls for "a constitution for the supervision of global finance." One can only presume that he will nominate himself Chief Justice of Earth's Financial Supreme Court.
A churl might note that little of Brown's account jibes with his frequent boast that his system of "light touch" regulation allowed London to become a center of financial "innovation." That was before the crash, of course, when he also bragged of having reinvented the economic cycle, putting an end to "boom and bust" once and for all. One might also note that his nickname, "The Great Clunking Fist," is an accurate appraisal of his prose style. Dry as it may be, Beyond the Crash offers insight into a man who, while in many ways ill-suited for modern politics, found himself at the center of a maelstrom for which he was unusually well-prepared. Brown's legacy is not a happy one, but this book suggests it could have been much, much worse.