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The roots of the financial crisis lie not in the greed and excess of a handful of the world's bankers, nor in their reward systems or penchant for innovation.
Ultimately the world is in trouble because of the tectonic shift in economic power from the West to Asia and in particular from the US to China. The decision taken in Pittsburgh this weekend to elevate G20 to be the major forum for the discussion of global economic issues is a welcome recognition of this fact. The economic summits of G7 and G8 have served a useful purpose at times in the past three decades, but today they simply do not have the right people round the table.
Today's problem is imbalances — that the exporting nations of the world build up huge balance of payments surpluses while the importing nations run huge deficits, and between them created the imbalances that provoke such massive capital flows and currency movements that they can destabilise the whole world.
It is heartening therefore to note that G20 has put resolution of the problem of imbalances at the heart of its agenda. Or at least it would be were it not for the fact that the reason the G5 came into being 30 years ago (it evolved into G8 with the addition of some other countries) was to try to agree on global action to solve the problem of imbalances.
The sinners in American eyes 30 years ago were Germany and Japan. The sinners today are Germany and China. Little else has changed. Throughout the 1980s when the world was not struggling to cope with a huge financial crisis and the concealed bankruptcy of most of the leading American banks after the sovereign defaults of 1982, the likes of Paul Volcker, Jacques de Larosière, Lord (Nigel) Lawson and others sought to persuade the exporting nations to reduce the pressure on the global system and the American dollar by encouraging more domestic demand. They were almost entirely without success.
The lesson you should draw from this is that exporting nations never believe they should export less. They always believe the importing nations are at fault and should bear the brunt of any adjustment.
There is a lot of talk about the need for China to stimulate demand at home so that it is less dependent on exports to maintain its phenomenal rate of economic growth. Some of the talk even comes from the Chinese themselves. There is no reason to believe, however, that over time the Chinese will be any more willing than were the Japanese and the Germans before them to curb their exports and encourage domestic consumption.
If solving the world's economic problems were that easy, it would have been done long ago. The way to bet is to assume that the instability and volatility will continue.
The return of '80s man Seelig
It is a sign of the trouble in which the Government finds itself that while it is struggling to sell out its fundraising dinner at the Labour Party conference in Brighton, last week's bash in the Carlton Club on behalf of the Tories, which was hosted by hedge fund manager Paul Ruddock of Lansdowne, was standing room only.
Some of the guests were those you would expect — longtime Tory supporters such as Michael Spencer of Icap, Stanley Fink, formerly of Man Group and now in charge of his own hedge fund, Cazenove managing partner Naguib Kheraj, former Lehman European head Jeremy Isaacs, CQS hedge fund boss Michael Hintze and RAB Capital's Michael Alen-Buckley.
Others were there presumably because when the time comes to sell off the banks, they would like to make as much out of the Tories as they have out of Labour. Among these one might count Goldman Sachs' Richard Gnodde. Then there was a series of what one might term oddballs— strange bedfellows for the Tory Leader David Cameron — such as nightclub owner Peter Stringfellow.
The strangest of all, however, and one name I never expected to see on the guest list, was Roger Seelig. The passing of years means a lot of people even in the City may not know who he is — or was. But in the 1980s when he worked for Morgan Grenfell — now Deutsche — he was, with George Magan, among the most successful corporate financiers of the age. He masterminded the Currys takeover by Dixons and the battle for Debenhams, and acted for Ernest Saunders and Guinness in the takeover of Distillers. He was therefore the man at the heart of the Guinness scandal that rocked the City more than any other scandal before or since.
Indeed, the evidence of fan clubs, share-rigging and general misbehaviour so shocked the then Prime Minister Margaret Thatcher that she feared the Tories might lose the 1987 election by being tainted by association with the City.
So to put distance between the Conservatives and the financial world, she set in train the legislation that became the Financial Services Act 1986, and which created the Securities and Investment Board, forerunner of the Financial Services Authority. It was the first official regulatory structure for the Square mile.
The scandal finished Seelig's career. He was not one of those who went to jail but he was never again high profile, though he did often act as a discreet solo adviser. Good to see him back and rubbing shoulders with tomorrow's leadership though. Perhaps he could straighten out George Osborne and give him some sensible ideas on how to reform City regulation.
