The meeting of the President and the Prime Minister at the G20 is a meeting of the new Masters of the Universe. Between them they wish to gear up the world economy with unprecedented levels of public borrowing on both sides of the Atlantic. They will privately chide the Europeans for not doing more of the same.
The President’s levered fund to buy toxic bank debt looks very like the old hedge fund model. The Prime Minister is stress testing UK public finances by adding as many wobbly financial institutions as possible to the nation’s balance sheet to see how much stretch it can take.
Both these men seem to have learned from the excesses of the private sector.They think the message is that it’s fun to borrow, and a good idea to gear yourself beyond the levels of normal prudence. They have obviously been dying to run a bank or three and to have a go running their very own hedge funds with public money.
Now the President favours a version of the pre-pack bankruptcy and newco for a couple of struggling car makers. Alternatively, he subscribes to the theory that if you merge one weak company with another weak company you create a strong one – just as Mr Brown thought if you merged an OK bank with a weak bank you would create a strong bank when he merged LLoyds and HBOS.
I fear they have learned the wrong lessons from the past. You cannot cure a crisis brought on by overborrowing, by borrowing more. You cannot create strong companies by merging weak one. We need a new more prudent model for finance – and that applies to governments as well as to banks and investment institutions.