I was musing on the way home tonight whether Nigel Lawson would have saved HBOS. In 1987, there was a financial panic though of a different kind to the one we are experiencing today. I wonder whether had a major British bank been on the threshhold of collapse, Nigel Lawson would have personally intervened to suspend competition legislation and allow the creation of what are terming a "superbank".
On Newsnight last night, the Conservative Shadow Chancellor, George Osborne, supported the move by Chancellor Alastair Darling to facilitate the merger of Lloyds TSB and HBOS. If anyone needed any doubt that Thatcherism was dead, this was it. The free-market libertarian capitalists have had their day. Individuals may be left to sink or swim but not major public financial institutions like AIG or HBOS. If the rest of the financial sector won't bail these companies out, the Government will. Lehmann Brothers doesn't have the same exposure in the retail sector - they could be allowed to founder safe in the knowledge that for the man or woman in the street, it wouldn't matter too much.
We now see that in Britain and America, free-market thinking has died and social democratic-style pragmatism, begun by John Major and continued by Tony Blair, Gordon Brown and presumably by David Cameron, has won the day. The next election in Britain will therefore be a contest between two forms of social democracy, the Brown version or the Cameron version. In truth, there's very little to choose betwen them.
The Northern Rock experience has clearly driven home to politicians of all stripes the fear of panic. Had HBOS gone down, the scenes of panic and queues in the High Street would have been uncontrollable and the flight of cash from HBOS could have spread to other banks dragging them down too. In the end, HBOS was too significant to be allowed to fail as was AIG and while the US taxpayer will pick up the tab for AIG, the British consumer will face restricted competition and a tighter credit market in the future and the nagging feeling that all the liquidity being pumped into the markets has to come from somewhere.
For the social democrats governing us, the political and social consequences of major bank failure far outweigh the economic price of intervention and the philosophical qualms about so doing. One commentator on Wall Street has already claimed that the bailout of AIG shows America to be fundamentally socialist. I doubt that but there's little doubt the free marketeers and Thatcherites now know they have lost and the social democrats have won.