Brown on the edge? Kavanagh calls for his head

Have the Prime Minister's chickens come home to roost?

Last week was a bad one for the Prime Minister.The James Crosby debacle started it and by the end of the week with his prints all over what was turning out to be a disasterous Lloyds-Hbos,he seems more under pressure than he has been since this financial crisis began.

Trevor Kavanagh thinks that the events may be the last straw.Writing in the Sun this morning he maintains that

After the events of last week, why has he not resigned? And if he won’t go of his own accord, how long before he is hounded out by voters whose homes, pensions and jobs he’s put in peril?

The reason he should go returns to 1997 when

The seeds were sown by Mr Brown on his first day as Chancellor, when he handed the Bank of England control over inflation — but took away their role as City watchdog.
In a fatal error, he shared out that task between the bank, the Treasury and the new but toothless FSA. Nobody was in charge of this clattering train.

The bankers are taken to task

If yoiu didn't know the demons of the empire,otherwise known as the banking chiefs are up before the Common's select committe this morning.

Here are the best bits so far.

Former RBS chief Sir Fred Goodwin apologises to the country for the banking mess and chairman Sir Tom McKillop admits that the bank's purchase of ABN Amro may have been a bad mistake.

Andy Hornby, the former chief executive of HBOS also apologies for the turn of events but added that he didn't feel he was particularly personally culpable.

Bonus madness

Am I missing something here.Surely if you own a bank then you are entitled to tell it what to do.

Reading the various comment and analysis,I am not sure that is the case in the circumstances surrounding the news that RBS is set to pay out bonuses.

The Chancellor has said that he has talked with its chief executive Steven Hester and told him that nobody associated with its losses should be getting a pay out.

I fail to see how you distinguish between those that are and are not associated.

There is of course this argument that in order to maintain a thriving banking and financial sector we need to attract the best people.

Take a look at Mark Field's piece on Centre Right this morning in which he argues that

Our nation needs a thriving financial services sector. The spiritual home of the UK’s banking industry is in the City, but its importance as an employer and engine for economic growth extends throughout the land.

I agree to a certain extent but in these dire economic circumstances it is surely a prudent move to either defer or forgo these payouts.

As for the government simply responding to the arguments by setting up an enquiry well it smacks of a cover up pure and simply.Vince Cable has called it "a classic British establishment cover up".

Profits not lending will see us out of the recession

I blogged earlier today about the 200 economists who placed an advert in the NYT's rallying against Barack Obama's fiscal recovery plan

Over at Atlantic magazine, Arnold Kling writes of the thoughts of of Hyman Minsky,whom he calls a heterodox Keynesian economist.

Minsky believed that:

risk tolerance is cyclical. Investors will be risk averse for a while, and then gradually they will loosen up. Eventually, they become more and more complacent, until euphoria sets in, leading to bubbles and manias. This continues until a crash takes place, after which investors revert to being highly risk averse.

Sounds familiar doesn't it?

But Kling thinks that beacause of this

we need to step over the corpses in the financial sector. A revival of business investment will come from profits, not from lending.

and thus

Economic recovery will not come from bank bailouts. It will not come very quickly from the various public works projects in the pending stimulus proposal. The fastest way to recovery would be to inject more profits into the system.

Now try telling that to Gordon Brown

Will the market's lose patience with Gordon Brown?

Writing in the Spectator Martin Vander Wayer seems to think that well maybe the case.

If and when the next attack sweeps in , it could drive the shares of several banks to worthlessness, forcing the full-scale nationalisations the Treasury has been desperate to avoid and has no real idea how to manage

or on the otherhand it

could radically increase the cost and limit the scale of government borrowing — throwing Brown’s trillion-pound rescue strategy into utter disarray. Within a matter of weeks it might well do both of those things, turning the public-sector balance sheet into a giant version of the crippled banks to which other banks refuse to lend.

But more importantly he believes

The narrative that Brown wants us to believe is one in which he, and only he, has the power to defy markets, command the economy and bring justice on ‘irresponsible bankers’. But that is a truth-denying, solipsistic fantasy, and the market has seen through it

Turner-the biggest mistake was an banking intellectual failure

I am not a great fan of the Financial Services authority so was interested in listening to Lord Turner on the Today programme this morning.

He says that mistakes were made by individuals but the biggest problem was that there was an intellectual failure to appreciate that the banking community was building up a risky system

He believes that the latest banking crisis is not that the banks are in a worst position now than they were last October but that the markets has still not got confidence in the system.

He dismissed the Conservative calls for a complete bank audit believing that it totally misses the point,bringing out the point that the losses are known but what is uncertain is the capitalisation value of the banks.

He was also fairly dismissive that the re introduction of short selling has contributed to the latest falls in the markets but vowing to reintroduce the measures if the signs are that it is contributing.

Perhaps his comments that the authorities will not allow the banks to collapse may be the headline that comes from this interview,but as he points out no body knows how deep the recession is and therefore future losses from the banks are unpredictable.

Time for nationalisation and urgently

Reading the media coverage this morning it is hard to escape the fact that

1.Brown and Darlings recapitalisation mark 1 failed and

2.that the nationalisation of the banking system may be the only way out of this crisis.

In this morning's Independent Steve Richard's argues that this is indeed the case

Brown and Darling know that full-scale, formalised public ownership of some banks is possible. In my view it is probable and less messy than the current situation where ministers protect banks from the consequences of their recklessness and urge them to lend from a distance.

A view help by the Times leader which says that

The Government has a profound moral duty, never mind a practical one, to avoid the risk-taking of Sir Fred Goodwin, the disgraced former chief executive of RBS. To that end it looks increasingly likely that it will have to take the logical next step of wholesale nationalisation without delay.

It will be a difficult final step to take for it implies a failure on te government's part of previous attempts but to avoid GB UK following in the steps of Iceland there is frankly little or no choice

How does £5b turn into £1.4b?

An interesting point from the FT's Jim Pickard who asks a puzzling question ahead of the bank bailout

Taxpayers put £5bn into RBS in the form of preference shares in October. The bank now has a market capitalisation of £13.7bn (as of Friday night).
The government is tomorrow expected to swap the preference shares for equity. We - the public - will end up with another 10 per cent of the bank, ie up from 58 per cent to 68 per cent.
So we seem to be exchanging £5bn of pref shares for £1.4bn of equity. How come?

Answers PLEASE