Review of the Book:

The Inquest

by Fred Harrison

Edward J. Dodson

[A review of Fred Harrison's new book, 2010 The Inquest. Reprinted from GroundSwell, March-April 2010 with the title: "Warning: Politics Dictates Economic Outcomes to the Advantage of the Few and the Harm of the Many"]

For the last six years, I have closely followed the insights on the global economy developed by British economic analyst Fred Harrison in several books, documentary films, speeches and interviews. My own independent research confirmed what he was tell us; namely, that overstressed property and credit markets driven by destructive public policies were bringing the world's national economies to their knees.

Regrettably, there was no one here in the United States who agreed with Fred's analysis and who also possessed the same ability to attract a significant public hearing. Day after day the mainstream media followed the lead by economic analysts and government officials who clamored for renewed regulation of the world's huge financial institutions as though this will stimulate the creation of jobs for the millions who are unemployed, losing their homes to foreclosure and falling deeper and deeper into debt. Not really understanding or acknowledging the origins of the crisis, we were being assured it could be prevented from happening again. Such assurances to anyone familiar with Fred Harrison's body of work are recognized as disingenuous.

Now, in his latest book, 2010 The Inquest, Fred Harrison details his repeated efforts to warn officials in the United Kingdom of the coming economic crisis in time to implement changes in public policy that could have softened, if not prevented, the downturn.

This soft cover book is definitely written to be read by the general public. Its 273 pages fit easily into one's briefcase, coat pocket or bag. However, the book's content would be more immediately apparent if the cover had included images of, say, Tony Blair, Gordon Brown, and some sort of economic chart showing the rise and crash of property prices in the United Kingdom.

What greets the reader is a story with which many proponents of structural reforms will identify. Feeling we have grasped important truths, we reach out to those who are in a position to act in the common good and are repeatedly ignored and frustrated. For Fred Harrison, his own campaign began during the late 1960s, another period when the Western social democracies were stressed to respond to both internal and external pressures. In an article he wrote for Land & Liberty, Fred warned:

"The politicians and commentators who mould public attitudes and values would be obliged to defend their positions, to discard the hypocrisy and double-talk. But for the present they are spared the intellectual effort, for the educational system is resisting the radical questioning of students, and education must continue to serve the function of a hot house for battery hens, valued purely for the efficiency with which it trains people for their place in the system."

Forty years later, the idealistic young have for the most part made peace with the entrenched social order. Fred Harrison never did. He recalls:

"I had lived through three recessions, beginning with Barber boom/bust of 1972-74. That was when I embarked on my autopsy: I wanted to know why the people of Britain were forced to suffer these repeated bouts of mass unemployment."

His first book on the economic problem, The Power in the Land, was the result, published in 1983, in which he documented the evidence for an 18-year cycle in land markets at the core of the so-called business cycle. What he came to see during the next two decades was that the integration of the world's financial and property markets intensified and deepened the power of land markets. As he examined the evidence he warned of "a freefall in the global economy of depression proportions." This became the theme of his 2005 book (to which I provided a modest level of research support on the United States), Boom Bust - House Prices, Banking and the Depression of 2010.

Fred did not rely on the reading public to generate a growing demand for the reforms he advocated. Boom Bust brought his message to the national stage. Still, this would be no more than an academic exercise unless he could stimulate serious discussion and debate within the halls of government. As early as 1997 he sent letters-of-warning to all of the key New Labour politicians, and delivered a copy of his book, The Chaos Maskers, to Alistair Campbell, the Downing Street press guru. Near the end of 2005, he prepared detailed letters addressed to Gordon Brown (Chancellor of the Exchequer) and to Tony Blair (the Prime Minister), and to Alistair Campbell (who, until 2003, had served as Blair's press secretary, and had voiced some interested in Fred Harrison's analyses). He followed these letters up with a communication to Alistiar Darling (Treasury Secretary at the time and today Chancellor of the Exchequer) and others he hoped might take his warnings seriously. Neither Gordon Brown nor Tony Blair paid attention, with disastrous results. Fred Harrison's book provides the evidence and places the responsibility squarely on the shoulders of Gordon Brown.

When land markets throughout the United Kingdom reached their inevitable stress point on the overall economy and came crashing down, the new Prime Minister took no responsibility. Fred Harrison turns the Prime Minister's own words back on him, reminding Gordon Brown of his pledge as Chancellor of the Exchequer "that as a country we never return to the instability, speculation and negative equity that characterized the housing market in the 1980s and 1990s." Harrison knew the policies of New Labour would do nothing of the sort and repeatedly issued warnings.

Also strongly criticized for wrongheadedness is Bank of England Governor, Mervyn King, who followed textbook anti-inflationary measures even as residential foreclosures mounted, incomes fell and unemployment skyrocketed. Harrison charges King with "dereliction in his duty to protect [the] welfare" of the British public, by refusing to study the history of business cycles and putting all the blame on the excesses of bankers.

In the third chapter, Fred writes about the enormous amount of financial asset values lost as a result of the collapse of property markets, residential and commercial property foreclosures, falling business profits and declining share values. This part of the story is a bit difficult to follow. Here in the United States, the policies that added fuel to an already dysfunctional land market began with creation of the first money market funds in the 1970s, offering returns to investors that redirected individual savings from neighborhood thrifts, thousands of which were forced to close during the 1980s. A long process of dismantling of restrictions on banking activities eventually brought Wall Street firms into the secondary mortgage market, offering mortgage-backed securities with high nominal yields to investors who looked no further than the AAA bond ratings attached to these securities. With this small added explanation, Fred Harrison's conclusion stands, that "the catastrophe that struck banks on both sides of the Atlantic was not caused by the sub-prime scam."

As property prices increased annually at double-digit rates during the mid-1990s and after, investors sought to acquire and flip properties after a few years to capture the rise in land prices. Investors paid less and less attention to the actual cash flows generated by leasing buildings to tenants. Fred points readers to the research and analysis performed by economist Michael Hudson, confirming that with each year that passed the banks were lending more and more on land values and less and less on building values, while paying insufficient attention to the borrowers' ability to service debt out of income and liquid assets. It should be said, however, that when borrowers default on these loans, the originating banks may or may not actually experience losses. The financial instrument is likely to have some type of pool insurance and other performance guarantees that limit exposure and counterparty risk. Fred briefly summarizes the workings of the secondary market, concluding that "risk was intentionally shifted on to others." However, telling that part of the story is even more complex and might cause the average reader to cry out in exasperation. Investment in financial assets are always priced for risk, and the market does a good job of accurately pricing for that risk when the true facts are disclosed. The real problem with these new instruments was the extent to which fraud was permitted to occur.

What occurred, argues Fred Harrison, was wholesale institutional and regulatory failure to protect the public from fraud - and from the activities of land speculators. "I allege," writes Harrison, "that governments and their advisors fail to hold penetrating inquests to reveal why the economy crashed." Examining the Irish property markets in advance of a March 2008 speech in Dublin, Harrison discovered there were no statistics to be had on land prices.* The same is true in most other countries, and Fred Harrison sees this as a deliberate effort to keep light from the land market. He notes, ironically, that "Japan has the best land price stats., but fails to use them properly." We should recall that skyrocketing land prices and their collapse pulled the Japanese economy into a deep recession from which the nation has never fully recovered.

The second half of 2010 The Inquest explains how government programs and policies consistently benefit the landowning class, providing them with "windfall gains," at the expense of the general public, who are taxed and taxed heavily to make up for the subsidies channeled to landowners. Where the United States is concerned, the Federal Reserve Banks under Alan Greenspan deserved special recognition by Fred Harrison, for Greenspan's ignorance of how the real world economy actually works. "The 'guru' did not have a clue what was going to happen," writes Harrison. "Instead, he continued to pontificate about the health of the economy." Harrison's discussions with Rachel Lomax at the Bank of England revealed the British authorities were equally in the dark.

To the uninitiated reader, all this is both sobering and frightening. Fred Harrison declares "[w]e need a new social contract," but there is in his story a sense of desperation of the kind long ago given voice by Thomas Paine in Common Sense, The Rights of Man and Agrarian Justice. The British people, after all, continue to embrace a system of inherited wealth and political power that makes a mockery of participatory democracy. The British are not alone. For all intents and purposes, only the very wealthy (or those willing to follow the dictates of wealthy contributors) rise to high political office in the United States. Paine saw this coming but found some comfort with Thomas Jefferson in the White House. Tragically, Jeffersonian Democracy proved to be but a brief interlude to the dismantling of a nation of freeholder farmers in favor of a people dominated by agrarian and industrial landlordism and monopolies. Fred Harrison understands this history better than most. He calls for "a new kind of society" because, he reasons, "[c]apitalism is a bankrupt paradigm [that] cannot be reformed." And so, he asks a great deal of the reader who follows his reasoning, concurs with his findings and sees the need to do something. He provides his blueprint and calls upon "all of us to work for change."

The unanswered question, of course, is how centuries of entrenched institutional privilege can be effectively challenged in the political arena. New leaders must emerge who are principled and committed to real justice. It seems unlikely that such leaders will come from within the mainstream political parties, but perhaps Fred Harrison's writings and speeches will have an effect on as yet unheralded political leaders in the same way Henry George's writings and speeches affected the thinking of the young Winston Churchill and other Liberals early in the twentieth century. The future is, of course, not yet written. If the lessons provided by Fred Harrison in this book and his other writers are understood by enough of us, perhaps real progress toward peace and widespread prosperity will be possible.


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* Some years ago I pointed out to the research group at Fannie Mae (where I worked as a market analyst and business manager) that our ability to track trends in property values could be dramatically improved by adding one additional data element - site value -- to the information submitted by mortgage loan originators. The total appraised value was already captured, and the site value amount was reported on the appraisal report. All that was required was a change in reporting required under the Home Mortgage Disclosure Act.