Gordon Brown “an arsonist” according to Norman Lamont

A few weeks back I found this fantastic January 09 article by Norman Lamont. Despite my delay in commenting on it, this type of material is unfortunately set to have a rather long shelf life, unfortunately for us Britons; Gordon Brown is set to wreak further havoc in the economy before the fat lady sings eventually.

Lord Lamont argues that Brown is “like an arsonist posing as a firefighter”. What does he mean by that?

Gordon Brown: meet the saviour of the world’s financial system!

It’s fascinating to see how much everyone around the globe is presently applauding Gordon Brown, the UK’s PM, for coming up with “the plan” to rescue us from the economic meltdown. Features of this plan are now being adopted by other governments in need of a magic wand to get them out of the financial abyss.

UK plans: The plan amounts to the UK Government formally taking a stake in UK’s banks whilst giving them money (£37bn to three named banks – RBS, Lloyds and HBOS) to recapitalise and hence become more resistant to the current market volatility and the ongoing liquidity crisis.

This was received exceptionally well by the world’s markets. FTSE 100 is positively rocketing upwards – on Friday it closed below 3,900, it now stands at 4,400, up well over 12% in just 2 nerve-wracking days. European and Asian indices are also up very strongly.

US adjust the approach: US’s bailout package of $700bn, which was originally intended just to buy off bad debts off failed banks, was badly received by the markets earlier in October and failed to stem the fall of american indices which dragged the world’s markets down with it. Now the US government is turning towards the UK-style idea and is planning to recapitalise 9 banks (amongst them Goldmans and Morgan Stanley) using $250bn of the bailout pack for this.

This will be deeply humiliating to Goldmans and Morgan Stanley which until now have been the last 2 “pure” investment banks left on Wall Street. Goldmans, in particular, was initially trying to raise its own capital to ensure its survival, whilst Morgan Stanley was looking for a merger. I wrote about that earlier in Sept.

US markets strongly welcomed US’s change in thinking on the rescue plan and Dow Jones is finally on the up.

Knight in shining armour? Gordon Brown is getting credited for coming up with the plan that is going to work, where all else failed to date. Paul Krugman who got awarded the Nobel prize for economics, has been praizing Mr Brown as the one who might have saved the world’s financial system: more details here.

But we must not forget, before we get carried away on the sudden euphoric wave, that:

• Gordon Brown failed to prevent UK entering the credit spending spree in the first place, creating conditions for a very sharp comedown to earth which are only starting to bite now
• He failed to get the regulators involved when alarm bells have been ringing for months as banks were increasingly entrenched in runaway activities which were hardly regulated

And thus we must consider Gordon Brown’s achievements and undoubted strong leadership skills in the last few days in light of the fact that really, we should not have been here in the first place.

What is always impressive is the well-oiled Labour spin machine which helps Mr Brown deliver his recent “save the banking world” speeches so very well. UK is newly rebranded as “rock of stability and fairness”. The stuff that would normally make one cringe was swallowed by this week’s hungry for reassurance markets, hook line and sinker.

A very bitter pill: As for the bailout itself -  no-one likes the sound of it. In fact we all loathe the sound of it. And I for one thought in the last month, just let these banks fail, as “damned if you do, damned if you don’t” – bailout or not bailout – it will hurt in both cases. But economic tools and alternatives being rather thin on the ground, I agree with some of my recent commentators, I have come round to semi-accepting the inevitability of this bailout. This is mainly because everything else I have seen suggested would have implied an HUGE social and economic upheaval. Like write off everyone’s debt and assets, for instance.

What this means is that as the world’s order is shifting towards quasi-socialist principles and a very strong government hand in regulation, we are not trying to shake the foundations of the existing society. Call me a coward but I don’t feel there is a call for that at this stage.

Yet from the UK’s point of view, it is extremely disappointing to see Gordon Brown take so much credit for an event that he did not manage to prevent.

 

Copyright 2008 by CuriouslyInspired

UK Bailout plans unveiled for three key UK banks

The UK Government has now unveiled the plans for a £37bn bailout for key British banks, as the BBC reports today.

Terms of the UK Bailout: The key features is that the Royal Bank of Scotland (RBS), Lloyds and HBOS will get cash injections of £20bn for RBS and £17bn between the two latter banks. This money will be used to recapitalise these banks, ie strengthen their reserves in order to withstand financial turmoil and market volatility we are facing at present. However in return the Government is effectively part-nationalising these three banks by taking a large or controlling share in them as these banks sell its shares to the Government in exchange for money.

The objective of part-nationalisation, apart from taking more control in the banks’s affairs now, is to also get income back to the Government and the UK taxpayer once the banking system does recover and shares go up in value.

Banks management changing: On the strength of this effective humiliation, the heads of RBS (Fred Goodwin and Tom McKillop) and HBOS (Andy Hornby and Lord Dennis Stevenson) are resigning, stepping down, or retiring. The UK Government is keen to see proven people with strong and relevant industry experience step into their shoes.

Banking bonuses curbed: One of the conditions of the UK Bailout is that there will be no bonuses to senior executives this year, and a move towards paying bonuses in shares not in cash in future years. However these restrictions do not impact those banks that are not part of today’s headline £37bn bailout proposal.

Barclays route: Barclays has opted to raise the money it needs without Government’s help. It needs £6.5bn. It seems that one of the reasons Barclays is trying to make it on its own, apart from avoiding the humiliation of the bailout, is that it will remain free to set banking bonuses as it sees fit.

US v UK Bailout compared: There are some distinctions between the US and the UK Bailout proposals. Some are driven by the fact the two banking systems have different features - for instance, in the US there are many more banks in existence making individual targeted action possibly more difficult to achieve.

Details of the Lloyds – HBOS takeover: job cuts

All set to go: Lloyds has confirmed that it is intending to take over HBOS for £12.2bn. As expected yesterday, the share price of HBOS taken as the base of the merger valuation was the pre-fall value of 232p, as opposed 100p at which HBOS was trading just before the announcement of the merger yesterday.

The deal will probably be completed very quickly to end uncertainty around HBOS generally and help consumer confidence in the UK.

Lloyds is expected to generate cost savings of £1bn a year whilst slimming down the operations of the combined bank.

Job losses: To you and I this means that there will definitely be job losses as the result of this merger. There are some rumours of 40,000 jobs expected to go, which Lloyds denies. This would be about 27% of the total workforce of about 145,000 people and looks very, very aggressive. We’ll just have to wait and see – usually rumours that are strongly denied end up being true!

The merger will result in the formation of a huge institution owning a third of the UK mortgage market. The competition and monopolies commission did not stop this as the deal was encouraged and backed by the UK government.

The job losses we fear as the result of this transaction will add to the other expected job losses in the City in 2008 – together this paints a sad picture with many people ending up out of work. I am sure not everyone will have sympathy with the ex-high earners but there are plenty of people in the financial sector who are not earning crazy money and are the primary earners for their family. Losing their jobs will be tough on them.

Lloyds bank to take over HBOS

Interesting times continue – as news broke this morning over breakfast in the UK that Lloyds is in “advanced merger talks” with HBOS (Halifax Bank of Scotland). This merger will create a giant UK retail bank out of two considerable players on the UK market.

Over the last week, HBOS shares fell from 300p to about 100p this morning following speculations about HBOS’s weak balance sheet. Rumours of insufficient reserves were vehemently denied over the past few days. However, as in politics, once the loss of confidence sets in, it’s almost impossible to reverse it as everyone believes “there is something in it” and acts accordingly – to sell.

HBOS shares recovered 15% after the surprise announcement about merger talks came out this morning.

The news of the merger will be welcomed by many investors and UK consumers as many mortgages and savings are with HBOS.

More information about the merger progress is expected tomorrow.