January 22, 2008 | posted by Michael Baxter in Markets, credit crunch |

Monday 21 January will go down in history as a good day. It will go down in history as a good day for shareholders in Northern Rock, who saw shares in the bank soar 46 per cent. It will go down in history as a good day for Morrisons, because this was the day its management were preparing to announce that the supermarket had outshone its main rivals – enjoying a booming Christmas. British exporters should be celebrating too, the pound fell to $1.94, and more good news came with further falls in the price of oil to below $90. It will go down as a good day for US taxpayers – who will on average be benefiting from an $800 credit from the government. It was also a good day for investors across the world who have previously sold and gone liquid, and are now waiting for buying opportunities – right now, in many parts of the world, stocks are cheap.

But, for everyone else, yesterday lived up to its forecast. For yesterday morning, media reports were informing us that the day ahead was set to be the most depressing day of the year. It was that Monday morning, when we were still days from being paid, when bills were flooding in like the rain on the wettest January morning, but above all it was the day when, or so the reports said, we were counting the cost of our Christmas revelry. A day of financial hangover.

But this time, the markets went one further. This was no hangover related to Christmas, it was instead a hangover related to years of revelry. Years of a consumer-led boom, a boom fed by massive borrowing in the West, a boom fed by savings in China and the oil exporting countries, a boom that had been sustained by central banks and governments whose only course of action, whenever things got tough, was to turn on more gas.

It was a little like that film Speed, when a bus has a bomb placed inside it, and if the speed drops below a certain level – the bomb will explode. But in that film, Keanu Reeves, did his best to defuse the explosive device; in the world of finance, it was as if there was only one solution that had occurred to anyone, and that was to just ensure the runaway bus, just went faster.

And then, the man who took on the British government in 1992, and won, forcing the ejection of the pound from the ERM, the man who had been accused of bringing down the Malaysian currency in 1997, a man who had made his fortune from the worst excesses of capitalist speculation, but who has gone all moral, said this; “The situation is much more serious than any other financial crisis since the end of World War Two.”

Mr Soros blames what he calls “market fundamentalism.” Mr Soros has for some time argued that this idea that markets have a self-correcting mechanism is false; that in order to propel the global economy forward in a sustainable way, and to create prosperity for all, governments must act in unison. In his theories, he is very much in the same camp as Joseph Stiglitz, a man who seems to be emerging as the modern-day answer to Keynes, a man, by the way, who is a big critic of Alan Greenspan, not to mention the IMF.

But for every theory proposing one underlying cause for the crisis currently hitting global markets, there is another theory proposing something quite different.

But at least we can take refuge by reading the Daily Mail: “Now cut interest rates!” it exclaimed. If only we lived in a world as simple as the Daily Mail likes to pretend.