Harold Wilson blamed the gnomes of Zurich, a disparaging term for Swiss bankers, when his economic policies went awry, while John Major pointed the finger at currency speculator George Soros for wrecking his government's finances.
Last week Alan Greenspan joined the blame game and outed the Germans as responsible for much of the US sub-prime crisis and the resulting financial meltdown. Admittedly, the former Federal Reserve chairman never actually mentioned the German nation as chief culprit. He told the opening day of a US inquiry into the crisis it was big bad Europe that played a significant role when it recklessly bought dodgy US mortgages without checking to see if the promise of a risk free 10% return was too good to be true.
He meant the Germans because 15 years of export success has left them with huge unspent savings and a thirst for owning foreign property, even when it was packaged as a financial derivative and called a mortgage-backed security. They couldn't get enough and are still counting the cost (just ask the four pensioners convicted last month of kidnapping their financial adviser after he lost them thousands of euros investing in Florida property).
Greenspan's inquisitors dismissed his suggestion that investors, European or otherwise, were to blame. Several of the panel, made up of business people and representatives of Congress, blamed the 85 year old directly for failing to supervise lenders and the many fraudulent brokers who sold billions of dollars of home loans. They attacked him, despite his sleight frame and sometimes stumbling delivery, for his lax regulation of investment banks and their high octane trading. They asked how he came to ignore warnings about the ravenous bonus culture on Wall Street and extracted another admission from him that he was wrong to believe in the self correcting nature of global capitalism that, in his terms, almost made the regulation of global money flows irrelevant.
Yet while all these points are valid, Greenspan was adamant the underlying cause of the meltdown lay elsewhere. Not so much the German investor, or even the European, but the unstoppable force that is the investor community as a whole, much of it participating through what we usually think of as wholly benign institutions such as pension funds.
Greenspan was saying that crux of the issue was and is the demand for assets. In a telling submission to the committee he said his ability to influence asset prices, and in particular the US housing market through short term interest rates had largely evaporated by the early part of the decade. Mortgage rates were determined by long term interest rates and they were influenced by other factors, including the readiness of investors to lend their funds to US banks through the purchase of mortgage-backed securities.
But for the time being the securitised market in property has disappeared. So the question is where next for investors?
Ask a pension fund, a US college endowment fund or a sovereign wealth fund and you are likely to get a similar answer and that is bonds, private equity and hedge funds.
A recent report on hedge funds said they were on their way back to accumulating $2tr (£1.3tr) in investments by the end of the year and would soon regain the $2.7tr they amassed just before the crash.
Private equity, which was equally badly hit by a flight of investors into cash in 2008, is enjoying an influx of funds. Bond funds have also swelled. Not as a safe haven, as in the past, but for many a route to riches.
Combined, these funds act like a shoal of tuna, roaming the seas in search of a ready meal. When they spot easy pickings in the shape of an even larger shoal of sardines, they encircle their prey and swoop.
Bill Gross, the smiling Pimco bond fund manager, is the poster boy for today's investor.
Gross has gained notoriety for steering his $158bn fund clear of government debt issued by the UK, US, Greece and most other European nations. He favours Asian markets where there are plenty of young people willing to work for low wages and growth is more assured.
In his March newsletter he urged investors to reject promises from Bank of England governor Mervyn King that the UK economy will make it to the promised land. "Show investors the money, not vice-versa. An investor's motto should be, "Don't trust any government and verify before you invest," he said.
No doubt Gross will be held up as the root of all evil, much as bankers are now, when the next crash comes, but throwing insults at bond fund managers will be as fruitless and misplaced as Vince Cable's display of anger at bankers as pinstriped Scargills.
The real villains of the piece are the California teacher, the BT engineer and the German car worker. They have promised themselves an affluent retirement. Even lower paid workers in final salary schemes want a retirement income they can only afford if they bet on every rising asset, wherever it appears in the world.
These investors, along with the massive oil-rich sovereign wealth funds (think of the $330bn Norwegian pension fund and United Arab Emirates $750bn fund), are seeking the best returns they can and will stop at almost nothing to win big.
A look at the UK stock market tells us that it is now a meeting place for international companies and international investors who through their investments speculate as much on commodity prices through UK and Russian mining firms as they do on the prospects of bog standard retailers, insurers and defence contractors.
Investors are creating asset bubbles as they move around the globe. Earlier this year there were worries about a commodities bubble. Now a bubble in bonds is ready to burst. Property is also on the way back.
In the early 1990s it took property prices six years to begin growing again after the recession and 10 years to recover their losses. This time they declined for 18 months at most and in London are racing back to bubble-like levels, despite this recession being the worst for 60 years.
Why is the California teacher at fault? Because they have an asset – a promise to pay a fixed and generous retirement package – and instructed fund managers to seek the best returns possible to meet a deficit in the pension scheme. Whether they understand the implications or not, they have effectively agreed to fund managers like Gross shunning their own government's debt in favour of richer pickings elsewhere. They agree to fund managers telling employers to freeze pay and cut pension contributions to younger workers. They pay lip service to corporate governance while they demand extra dividends and asset price growth so they can cash-out before retirement.
These savers have racked up trillions of dollars over the last 30 years and own much of the wealth created during that period. Their power is vast. They own the homes, the stock markets and they lent their cash to the banks, governments and companies and as we know to our cost, there were plenty of them.
Now that such savers have lost money in the crash, they are desperate to regain their winnings.
Politicians picture savers as if they are down trodden LS Lowry matchstick people filing into the local post office to deposit a few coppers. They believe them to be a force for good.
But when you ask why Greece is going bankrupt, ask yourself who gives Gross his money. Why does he have the power? It is only because greedy western investors have told their fund managers to rape and pillage on their behalf to fund an otherwise unaffordable retirement.
phillip.inman@theguardian.com
theguardian.com/business/economics
