Government leaves customers out in the cold

So the government acted slowly and the treasury foolishly with its bungled nationalisation of Northern Wreck. You’ll forgive me if I refrain from gasping and holding my cheeks in disbelief.

It has been always painfully obvious that this is the case – and it is becoming more painful with every passing day, particularly for those poor mortgage holders who were enticed by the supposed competitiveness and security of a state run institution.

That a government run bank was still offering 125 per cent mortgages as recently as last Spring is awful, but hardly surprising. We know that at the time Brown was imploring banks to “return to 2007 levels of lending”. Chief exec Gordon clearly still believes that in order for people to keep afloat, they need to be in debt.

 

Interest rate decision: the choices

Tomorrow the MPC will announce that Alastair Darling has given permission to the governor of the Bank of England, Mervyn King to begin quantitative easing. The Bank’s purchase of government gilts and assets is designed to increase liquidity and, ultimately, increase lending.

Firstly, this wont work. The only thing printing money is likely to achieve is an immediate devaluation of the currency and, with no significant exporting sector, is unlikely to act as a fiscal stimulus. But more on that tomorrow.

For tonight, let’s look at the three options available to the MPC re: interest rates.

1. 0.5 per cent cut

Expected by almost everyone. In spite of David Blanchflower’s assertion that the “transition mechanism of monetary policy is broken” the Bank is likely to continue easing central credit conditions in a bid to encourage lending.

 

Mr Brown has a plan

After the Second World War, Prime Minister Attlee inherited a country on the verge of bankruptcy. The war had ravaged the nation’s finances and it wouldn’t be long before America decided they didn’t trust Britain to pay back the money we had borrowed.

Attlee, invoking measures proposed by the economist John Maynard Keynes, sought to secure employment through increasing the public sector. By 1951, 20 per cent of the British economy had been taken into public ownership.

On Friday, shares in Lloyds slumped 35 per cent after the announcement that its HBOS bride had lost £10bn last year.The shotgun wedding of the banks seems now to have been overly salacious; many senior government officials are now having wedding night nerves. Titters of HBOS’ nationalisation are spreading.

 

The Crosby no show

As bankers once again sat in the stocks today, grilled by the politicians who are also not above reproach for precipitating the crunch, one man from a third liable party fell on his silver-edged sword.

Sir James Crosby, deputy chairman of the City regulatory body, the Financial Services Authority (FSA), was handpicked by Gordon Brown to oversee a bull market – and presumably keep it that way. 30 minutes before PMQs today, he was forced to resign.

The allegations that Crosby sacked senior manager Peter Moore for expressing worries of unsustainable market trading may or may not be true. He may or may not have been right to do so.

Confidence is so crucially important in stock markets that saying a crash is coming can arguably make it so. It is thought by many to be best to keep saying things are swell, even when clearly, they aren’t. We need look only back to Roger Babson who said at the Annual National Business Conference on September 5, 1929, in New York:

Sooner or later a crash is coming, and it may be terrific.

We know what happened after that.

Crosby denies the allegations, but this will provide little comfort for Brown, who’s reputation for prudence must surely now be in tatters.

 

Tread carefully, Mr Brown

From the smallest acorn the mightiest oak may grow.

There once was a miner from Worsbrough Dale, Yorkshire. He worked hard, as his father had, in Woolley Colliery. Disenchanted with the deal he perceived British miners to be getting, he joined the Young Communist League in 1955 – a minor leftist sect at the time. That man was Arthur Scargill, organiser of the miners’ strike of 1973-4 which lead to the slaying of prime minister Ted Heath.

Our current PM has never been one to shy away from an argument. But Gordon Brown ought look very carefully over his shoulder to the annals of time before accusing striking workers of “xenophobia” as his government did yesterday.

 

Save us the history lesson

Whisper it quietly. Shout it from the rooftops. It’s finally here. The word that has been written, reported, blogged and tweeted countless thousands of times since last September finally gains credence. The UK is officially in recession.

It’s perhaps not the most compelling or unexpected of news stories but it does lend some perspective to what the Tories are labelling, only half-unfairly, Gordon Brown’s Recession.

That an article of such economically cataclysmic content is treated as old news is news enough in itself.

We have just experienced our worst quarter since the depth of the last recession – the word’s usage has apparently increase 2000 fold recently – in 1990.

History is a guide to navigation in perilous times.

- Pulitzer Prize winner David McCullough

The natural tendency once something of this magnitude has been confirmed is to seek solace in history. Previous events set precedents that can cajole us into believing that, although we are in awful shape, we are not in that scariest of positions – uncharted territory.

We hear that the pound is at its weakest against the dollar for 23 years. Unemployment is encroaching on levels not seen for 15. Economic growth is the slowest in 27.

Yet we are are in unprecedented financial times in many ways. The Bank of England’s base rate has never been lower. Media reporting of job losses and instantaneity of market transactions have never been quicker nor, lamentably, more prone to error.

History cannot console us. Look back and comparable figures show that the last time Britain’s economy shrank by 1.5 per cent, we were still in the mire. The oil shocks of the Seventies were still rippling and inflation soared to levels not seen since – you get the idea.

Analysts understandably look to history in order to predict a recessions course. But all they provide us with are a set of rules that apply to different times. No recession is identical and no country has exactly similar problems. In this recession alone we have had ‘worst since 1990′, ‘worst since 1980′, ‘worst since 1929′ etc. Will we have the worst ever?

I wouldn’t bet against it, just as I wouldn’t advise anyone to attempt further predictions based on historical premise.

One modicum of solace can be taken from history, in the Nineties recession, to be exact. On the morning of 22 November, 1990 Prime Minister Margaret Thatcher, after over seeing a meteoric boom in unregulated financial growth followed by crippling bust, resigned from office. Are you listening Mr Brown?

 

You’d do the same at Heathrow

Planes are bad enough. The two runways at the UK’s busiest airport make thousands of lives miserable as huge jumbo-jets come swooping low over rooftops for the majority of every day. Heathrow’s CO2 emissions are already the highest in the country; already in excess of EU directives. So, obviously, the government that has been ‘leading the way in the fight against climate change’ is set to agree to a third runway.

This will pile more misery on residents in the area, potentially split the party and fly in the face (excuse the pun) of Labour’s green agenda. That Geoff Hoon has the audacity to declare today the birth of “green Heathrow” beggars belief.

Greenpeace executive director, John Sauven:

It will shred the last vestiges of Brown’s environmental credibility. An expanded Heathrow would become the single biggest emitter of CO2 in Britain. Labour MPs will lose seats over this. We’ll fight it every step of the way because the lives of millions of people depend on us all slashing carbon emissions.

The apparent payoff is that eco-protesters get a high-speed rail hub. Just what they always wanted. Unless these new high-speed trains can photosynthesize CO2 (which they can’t – they can’t even be carbon neutral), this is a farcical attempt of placation from a government now clearly contemptuous of green policy. It is environmental nonsense.

But. The decision makes business sense. Brown decided a few years ago that a new runway is important for Britain’s economy. Aside from the hundreds of jobs that will be created during the construction and operation of new transport hubs, Heathrow’s expansion, so thinks the PM, will increase Britain’s standing in global transport and freight delivery industries.

You just need to look at opinion polls to see that Mr Brown, no matter how devastatingly wrong in the long-term, is right to push this through now. For himself.

People forget about being green when they can now longer afford to be. They choose to save money rather than the planet. They value income over icebergs. But recessions naturally ease pressure on the environment as economies consume less fuel when contracting.The two are symbiotic.

Mr. Brown, with his uncanny ability to turn everything he touches to debt, will sanction another £9bn of lending to BAA, the airport’s operator. He has missed his chance to be a PM with green credentials, just as Britain looks, under his not-so-watchful gaze, to have missed the chance to genuinely move away from carbon-focused expansionism.

Still, you can’t blame him – respect pressing priorities, unions and skilled workers will say. Work first. The world second.

 

We’re all Slumdog Millionaires now

Congratulations to a gushing Kate Winslet. Congratulations too, to those who worked on Slumdog Millionaire, the film that last night won five awards at the 66th annual Golden Globe Awards.

Based (loosely) on Vikas Swarup’s novel, Q & A, about a Mumbai chai boy winning the Indian equivalent of Who Wants to be a Millionaire? It’s a game show that the producers hope will never be won for one reason: they don’t own the jackpot.

Well-educated doctors and lawyers rarely get past the 60,000 rupees round, so imagine the public’s surprise and joy at a slum-dweller bagging the billion grand prize.

Slumdog Millionaire is an important film for these times for a few reasons. First are the parallels we can draw between the financial management of the game show’s organisers and investment bankers, hedge fund managers and Bernie Madoff.

All have been subsequently reviled for being perfectly happy in betting long and hoping that they will never lose; assuming an elaborately packaged web of debt would never catch up with them.

Slumdog Millionaire marks another significant step forward by Indian movies  in Western film industries.

The film’s most important facet in a recession is its rites-of-passage plot focusing on social mobility. A lower caste individual climbs the financial and social ladder, demonstrating such a possibility to the countless millions starting in his position.

The last decade of prosperity has seen an increase in wealth disparity as the rich, taking risks with money they already have, get richer and the poor stay the same. Such a failure by a Brown-financed Labour government has led the PM to draft in arch-Blairite Alan Milburn to get British social mobility moving again.

The number of entrepreneurs increases during recessions. Resourceful individuals see gaps in a market in the first throws of re-finding its feet and act decisively. If they are are suitably financed in the short-term (this is a big if) they can emerge richer from slumps.

Another reason people move up the wealth ladder during recessions is that they recognise what goods and services consumers need, not necessarily what they want. Recession tightens the belt and focuses the mind.

One can only hope the banks allow the next generation of entrepreneurs the finance to kick-start their dreams, and our economy.

 

What’s Hungarian for ‘bailout’?

Firstly, I must apologise for not posting in while: been in Brussels and away from my beloved laptop.

In a week where Gordon Brown failed to “save the world” the EU summit met to firmly reinforce its public image as a Union marred by mud-slinging and in-fighting.

A key point of discussions in Brussels was the proposed €200bn bailout planned across the EU’s 27 member states. It has been hastily assembled to counter the 5 percent drop in European industrial action and dampen the affects of recession in around 15 countries.

Germany have just come on board, not before deriding Gordon Brown’s planned VAT giveaway as “crass Keynesianism“. This, hopefully will be an example of how the EU can, when it wants to, move quickly and decisively, free from tangled bureaucracy.

The problem is, 27 different countries have 27 different priorities. 1 single plan is going to be difficult to agree and near impossible to implement.

What happens to Britain’s share if the pound keeps falling at its current rate? Our negotiating power will be compromised. France now has a bigger economy than us. Poland and Hungary are addicted to coal. How can the EU hope to manufacture a panacea of worryingly arbitrary size when there are different rates of deflation, currency exchange and manufacturing decline in different member states?

How will this money be allocated? When? Why €200bn? Why not more? Will this fix all our ailing economies? Is this another piece of legislation from a Union seeking to justify its relevance to an electorate in decline since the Seventies?
As usual, the EU’s efforts have raised more questions then they’ve answered?

 

Brown’s financial gamble losing backers

The latest Populus poll shows that only a third of people in Britain support Labour’s plans for borrowing and public spending outlined in the Pre-Budget Report.

This is perhaps uninspiring stuff. After all, Brown is gambling on the British economy making a remarkable recovery in line with some optimistic predictions. He and his cohorts have been wrong before.

Brown’s support from middle-class voters has plummeted 10 points to 42, still ahead of David Cameron on 36. This, again, is unsurprising given that the truth about NI hikes is now being realised.

More surprising is that only 1 in 4 people questioned thought that Labour’s extreme ratcheting of public debt levels would be bad for the economy over the next few years. Maybe they’ve been taking clairvoyance lessons from the Chancellor – the man who predicted growth this year would be 2.25% and that there would be no recession.

Also – tellingly – over half of people questioned say that any money saved from Darling’s PBR will be exactly that: saved. Any fiscal relief – small, populist measures – will not help stimulate the economy.

People are already in a hole after a decade of easy debt proliferation. They are looking to cut losses, not go and create potential for more.

If being bold is what is needed, Labour has missed a trick. And it looks as though the public are starting to notice.