One major advantage an unpopular British prime minister has over an unpopular American president when a crisis strikes is that he can decide what to do, and then just do it.
Prime Minister Gordon Brown did not have to stand in his rose garden each morning and plead with the parliament to take action. He did not have to fiddle with legislation (Congress expanded President Bush's original 3-page bill to 451 pages) while the financial system burned. Under the British system of parliamentary government, which concentrates great power in the hands of the prime minister, Mr. Brown held emergency cabinet meetings, came up with a bold plan and carried it out.
It may not have been the best possible plan. He poured taxpayer's money into the collapsing British banking system and partially nationalized some of the major banks. But it was the most comprehensive bank bailout ever seen. And at least initially, it appears to have shored up the banks and has become the model for action by the rest of Europe and the United States. Mr. Brown drew on the lessons of earlier French and Swedish nationalizations, Japan's dithering reaction to its 1990 crash, and U.S. Treasury Secretary Henry Paulson's drip-feed of money into the American banking system. What made the Brown plan so effective is that it was carried out with lightning speed.
There has been a lot of holier-than-thou finger pointing on this side of the Atlantic. European politicians – Mr. Brown included – assured the public that the problem originated in America and that it was the risky behavior of American banks and their tricky financial products that spread the poison around the world. Well, that's only part of the picture. European banks lapped up those dodgy American financial products like a cat presented with a bowl of grade AAA milk. They could not get enough of them. A recent British financial newsletter points out that, relative to their GDP's, European institutions own more of America's toxic sub-prime debt than Americans themselves. A lot of it may be held in Italian banks, which claim to have no such problems but whose balance sheets are not models of clarity.
Mr. Brown himself cannot claim to have had no responsibility for the mess in Britain's financial system. He was Chancellor of the Exchequer (the equivalent of Treasury Secretary) for a decade before stepping into the shoes of Tony Blair last year as Prime Minister. During his years in charge of Britain's finances, Mr. Brown piled up debt (and like the banks pushed some of it off the books) and presided over an economy in which the British spent money as if there were no tomorrow. By one estimate, the debts of the average British consumer equal 160% of their disposable (after-tax) income. By contrast, the notoriously profligate Americans owe only 130%.
By now, the Europeans are no longer arguing about whether they are in a recession. It's not the “R†word they fear. It's the “D†word. Columnists who pontificate in the financial press think the world has narrowly averted a depression and is headed for a deep recession. That's what passes for good news.
If you have been looking at your dwindling investments in dismay, here's something that may or may not cheer you up. You may recall the piece I wrote about the super-rich Russian “oligarchs†who are building the biggest yachts and buying up the most expensive villas on the French Riviera. Look at what they have lost in the market crash. Vladimir Lisin, the Russian steel magnate: $22,000,000,000; Roman Abramovich, another steel magnate: $20,000,000,000; Alexei Mordashev (also steel): $19,200,000,000. Others have lost lesser but still colossal amounts, according to the London Sunday Times. I was going to say that if misery loves company, you might like to hear that. But I do not believe that these rich Russians, even if their holdings are down as much as 80%, will now be living in misery.
I will let you know if “for sale†signs start going up on their Riviera palaces. That might be a signal that the world has slipped from a recession into a depression.
