The Bear and The Rock

Huge gulf of difference

Time seems to pass quite quickly, it feels as though it was years ago that huge queues were formed outside of Northern Rock’s branch in Fowler Street, South Shields as investors caught in a panic were determined to release their money. Cllr. Eddie McAtominey the Labour stalwart from Hebburn formed a one man queue to deposit a sum of exactly the amount the then government rules would protect in an act of bravura to show support for an ailing Chancellor.

But time changes little, the credit crunch continues to cause alarm and concern, the uncertainty and volatility of the foreign exchange markets, and the almost constant intervention of central banks belies the belief of Alistair Darling that Britain’s economy will remain resilient to the market turbulence. However, where we saw dithering and indecision in the UK (Lloyds TSB could have had The Rock many months ago) leading to a nationalisation that nobody desired, across the pond Bears Stearns has been bought at $2 per share by JP Morgan over a weekend! Whilst there can be little doubt that the Fed facilitated the deal it will go some way to allaying fears in the American banking sector along with the 25pt cut in rates to ease the credit pressures (if only for 24 hours). This decisiveness was something glaringly missing at the Treasury as Northern Rock drifted towards the coastline without a rudder, if a private solution had been found in the middle of 2007 it would have led to job losses, but we learn today that the government will slash jobs by half in any case to meet EU guidelines on it’s management of the Wreck, the other half will presumably go when it is belatedly returned to the private sector. As I have stated earlier in this blog, it would have been preferable to lose those jobs, and cheaper to pay for massive economic regeneration in the North-East than to throw over £110bn at the ailing bank with no guarantee of a return for the tax payer.

On the gulf of difference between the British and the American approaches to the banking crises John Redwood in his post says:

Since last August I have been commenting on how different the approach of the US authorities is to the approach of the UK authorities. It has taken just four days to rescue the assets and what remains of the business of Bear Stearns. More than six months have passed and we are still a long way from finding a private sector rescuer for Northern Rock. The Treasury and the Bank now have much less flexibility to deal with any other financial catastrophe, because their balance sheets are stretched by taking on the Rock. Meanwhile the Fed is well on the way to laying off its problems with the Bear.

Unfortunately we still have to bear a Chancellor who still insists on telling us that our economy is buoyant and resilient, despite the hard facts that our debt is out of control, inflation is plainly higher than he tells us, the budget shows a huge deficit, spending still outstrips receipts, and there is still open demand for even more money and credit for lending. Whilst not yet in free fall, the British economy is certainly slowing, investors are showing more support for commodities than equities, and the price of Gold has shot past $1000 per ounce as markets seek a safe haven. Central banks are trying their hardest to inject cash into uncertain markets, rates are being trimmed to sustain activity yet here in the UK there is a reluctance to bring rates down further, shortly there will be an inability to flush money into the markets, after Gordon Brown spectacularly sold 50% of our gold reserves when the market was rock bottom near the beginning of his Chancellorship.

What a crass and magnificently stupid decision this now looks- a reputation for competence? I don’t think so.