Hank Paulson, Drowning Scorpion

Why has Gordon Brown found it so much easier to bite the nationalization bullet than Hank Paulson? Simple: it’s a question of old-fashioned ideology. Here’s John Quiggin:

It’s fascinating to wonder how Gordon Brown and Alistair Darling must feel about all this. Having long abandoned their youthful leftism, they have suddenly been forced by circumstances to implement something that looks superficially like socialism, and might even lead to a genuine restructuring of society (utopian I know, but who would have thought a month ago that we would have been wondering what to do with a nationalised finance sector). At the very least, Brown and Darling must have found it easier to adapt to the sudden collapse of the existing order than those who have never imagined anything else.

It makes intuitive sense that the further left the government, the easier it is to implement things like bank nationalization. And I was holding up Gordon Brown’s UK as a left-wing model two years ago. Not nearly as left-wing as Miterrand’s France, of course, which oversaw the last major wave of European bank nationalizations. But go back to Paulson’s famous statement to the Senate Banking Committee on September 23:

Some said we should just stick capital in the banks, take preferred stock in the banks. That’s what you do when you have failure. This is about success.

Whose failure is he talking about here? Narrowly, bank failures, of course. But also more broadly, he was talking about the failure of the laissez-faire regulatory system which he helped to create while CEO of Goldman Sachs — a system which was governed by an ideology which said that markets not only could self-regulate, but would self-regulate. That’s an ideology Gordon Brown, for one, never bought into, although for most of his tenure as Chancellor he never seemed particularly worried about overseeing one of the most leveraged banking systems in the world. Maybe he thought he’d outsourced those concerns to the FSA and the Bank of England.

I suspect that one of the reasons the G7 failed to come up with anything substantive in Washington this weekend was that the US remains atavistically opposed to anything which smells of World Government: it’s simply not in the nature of any Republican administration to go along with an international plan to bring a large proportion of the world’s biggest banks under some sort of state control. (And to this day, Paulson is weirdly insisting that Treasury will only take non-voting stakes in banks.) Paulson can’t help himself: it’s his nature.

Update: See also Peston.

I’ve also been musing on the historic significance of tonight’s events, and I think it can perhaps be seen as the death of Thatcherism, or at least of an important strand of the dominant ideology of the 1980s and 1990s.

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