Tories in desperate fight for survival

Allister Heath
POLITICS has not returned to normality and may never do so; unless the Nick Clegg bubble is pricked in the next few days, the Liberal Democrats are about to overthrow the established order and hand Gordon Brown an astonishing opportunity to remain in Downing Street.

Few investors and voters have properly digested the revolutionary implications of Clegg’s sudden emergence; even though he is a professional politician, a former European parliamentarian and the leader of a party with unpopular policies on everything from Europe to immigration, he has captured the growing anti-politics, anti-establishment mood. The YouGov poll this morning shows the Tories on 33 per cent, the Lib Dems on 31 per cent and Labour on 27 per cent.

Shockingly, because of the vagaries of the first-past-the-post system, this would still make Labour the largest party in a hung Parliament, 68 seats short of a majority; there would almost certainly be a Lab-Lib coalition. If the Tory fightback fails, they are finished: the Lab-Lib coalition would introduce proportional representation, meaning that a pure Tory government would never again be possible in Britain. David Cameron has very little time to save himself and his party from Armageddon.

What do Microsoft, IBM and AT&T have in common with Goldman Sachs? The first three were all subjected to lengthy anti-trust and regulatory battles with the US authorities (from the 1960s to the 1980s in the case of IBM, the 1970s and 1980s for AT&T and the 1990s and 2000s for Microsoft); while they survived and remain major players, all were significantly held back. Goldman, of course, is not being subjected to an anti-trust case; but the SEC’s claim that it committed fraud is clearly intended to cut it down to size as part of a regulatory war on Wall Street. The goal is similar; the tools and circumstances different.

Reading both the SEC’s claims and Goldman’s lengthy rebuttal, it is hard for an outsider to determine who is right and who is wrong. It is certainly not clear-cut and the SEC could easily humiliate itself. But the great worry for investors and staff should be that many of the large banks will now be engulfed in lengthy, costly and debilitating wars of attrition. There will be endless lawsuits from the government and other parties, many of them baseless, gobbling up management time, draining resources and gradually weakening firms. The best staff will leave to set up on their own; firms, assuming they survive, will emerge as shadows of their former selves.

Asset managers could also be caught up in the race to find and criminalise a few high-profile scapegoats for the sub-prime disaster (the government-backed agencies that promoted the practice are likely to escape lightly, as are the politicians who spent years pushing for more lending to groups of people with poor credit histories).

The whole affair smacks of politicised justice, with the suit being launched just prior to Goldman’s results to help the administration and Congress pass a radical regulatory bill. The authorities have trawled through thousands of transactions and every email and have found one deal they think they might be able to use to destroy Goldman. But whether or not they eventually succeed in gaining a conviction, their real goal – to punish and weaken the banks’ power and influence – now seems in reach.