What a week that was

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It has been interesting, even sobering, to spend the last night of the most turbulent week for the financial markets in a lifetime in the City of London. I'm writing this on Saturday morning in a hotel within the Square Mile as I'm attending a joint Chartered Institute of Tax and HMRC conference.

I'm not going to write about the conference (at least, not yet). It's being run under Chatham House rules and I'm respecting that. Instead I want to reflect on what this week has meant.

It's been an extraordinary week. Investment banking is dead: if Goldman Sachs survives (and that's a big if) it will be the only real operator left.

Shares fell 2% on the week, and that's after yesterday's biggest ever one day rise of 8%.

AIG was nationalised. The Credit Default Swap market has died with it, I'll suggest. Many forms of derivative too. It's all too obvious now that the unregulated 'over the counter' market in which many traded did not provide benefit to society, as was claimed, but imposed massive cost.

Short selling has been stopped. It won't come back in anything like the same form. Quite right too: it was a case of madness on the part of those who lent stock anyway.

HBOS has gone. We have a massive high street bank in the UK. Expect that to increase mortgage costs and depress savings rates.

The market is still over 5,000 at the end of the week. I can't see that lasting. The real impact of what has happened on earnings has yet to be factored into prices, I suggest. It's all been asset panic, but now the real fall in bank earnings, if nothing else, will bring the market down further. But I've been saying that's been needed for some time.

US regulation has failed. London's claim to have a 'light touch' has been shown to be true, and hopelessly inappropriate. In Russia the market has just been suspended.

Will we, as I've also been saying appropriate, get over our stupid obsession with stock markets as if they were a barometer for what is real in our economies? They're not, and never will be. Most of what has happened in the last week has nothing whatsoever to do with meeting people's real needs, let alone wants.

Government has been shown to be more important than markets: it's clear markets fail without government support. I'll suggest this is a lesson we must not forget, and which we must reflect in future regulation.

The hubris that markets produce optimal outcomes has been shattered, and will be for a generation or more. It's very obvious they don't. Neo-liberalism will be eclipsed.

With luck banks will rebuild in their old style as deposit takers, as prudent lenders, as servants of productive capital, not as 'masters of the universe'. The days when investment banks thought they could run productive capital will, I hope be forgotten for a very long time.

The Big 4, bastions of the free market, will I hope be put back in their boxes. One hopes their era of consulting on all solutions for government will be over. They very obviously don't know the answers.

Tax revenues are going to be volatile. There will be a lot of losses around. Many though will not be usable. That notorious loss Merrill Lynch booked on sub prime in London not long ago has been foregone: its use won't survive a change in the bank's ownership.

This is the time to extract a price from mobile capital. It's the price they must pay for being saved. That's not being penal, that's capital accepting the external cost some of us have long argued it imposes on society.

This is the time for bold action by bold governments, and bold civil servants encouraged by emboldened civil society. When capitalism in its current form is dead (and it is: a new model will be developed to replace it, which I will welcome) this is the time to influence the way in which that new model replaces it.

The assumption of free movement of capital has to be questioned.

The assumption of a right to corporate privacy has to be questioned. Never again should we be caught out by not having the data we need to hold people responsible for their actions, or to simply appraise them.

The assumption that light regulation is good has to go.

The assumption that tax competition has any meaning has to go: tax cooperation is the future.

Tax havens have to go: the cost of buying them out is tiny compared to all the cost they have imposed on society. Those who will not play ball will have to be sanctioned.

Better accounting must follow.

And so must better tax systems. One note then from the conference I am attending. A discussion on the future of corporation tax was depressingly like a review of current (and, let's be candid, historic) gripes on petty issues. I was the only person to so far question the whole system and try to open real debate. I promised a unitary future. Discussion did not develop on any such theme.

So I hope, I really hope, we have the intellectual capital to tackle he issues that are arising right now. I really hope that those who have been brainwashed by the market system have the ability to now see beyond it. I really hope that we can create constructive capital in the future of a form we have not enjoyed in the past.

But this morning, here in the City, that's a statement of hope, not optimism. I haven't seen much evidence of that capacity, although one or two private conversations have been quite exciting.

But these are early days: this chaos provides the biggest opportunity for building a sustainable future we've had in a lifetime. Some of us are determined to ensure that happens.


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