How bad will this get?

Bob

James,

Do you remember the 70's, power cuts, rubbish piled mountainously high on Clapham Common, everyone on strike, the three day week.

It will be worse. All the indicators are there are they not?

I hope Brown is still in power in a years time because by then the shit will really have hit the fan and he'll have nowhere to hide. The incompetent, hubristic fool.

Anan

And if a Tory government minister said something like "there well may be more bailouts, who knows?" there would have been a media outcry and a strong Labour attempt to stir the public up behind the outcry. And when it's a Labour government minister saying such things, not even a whimper from the media.

C Powell

Interesting to read Lord Healey's comments this morning in the Daily Telegraph: -

"However, when asked last week whether he believed the tax increase was designed to appeal to Labour's core voters, Mr Healey said: "I think probably so. Because what I learned as Chancellor were that the rich can nearly always find ways of avoiding tax that are legal, and in any case the amount raised is very small. And it does encourage people to leave the country."
The former Labour Chancellor also urged the Prime Minister to take action to cut the size of the public sector. He said that the number of civil servants could be halved.
"We've got far too many people working in the public sector," he said. "There's probably twice as many people working in the public sector as is necessary."

Is it too much to hope the Dave, Ken and George will run with this?

oldtimer

The Myners quote that caught my eye was "The government is very much in control". In contrast the Cavendish story was headed "Brown`s rescue ship is heading for the rocks".

It reminded me of the fun story of the battleship and the lighthouse that does the rounds from time to time (Google it). Except, this time, it is for real and is not funny at all.

I can see no prospect of confidence in the UK returning while Brown remains PM. The bungling incompetence of his government is now plain for all the world to see. The longer he remains in office, the worse our predicament will become.

AndyPandy

The only reason they 'don't know' is the 'government' don't have the cojones or the understanding to adopt Redwood's suggestion to force all the banks to fully disclose.anon

Duyfken

Interesting to note now the tenor of the Grauniad's coverage of the "Recession". Things must be really bad when traces of doubt are cast by that organ on the invincibility of our Leader.

Denis Cooper

There will be innumerable personal tragedies in the coming years, but the country as a whole will survive and recover, just as it has always done in the past.

Wild claims that the UK is already bankrupt, or will soon be bankrupt, are no more than that - wild claims, in some cases deliberately exaggerated for party political effect, which do not reflect the real position.

My guess - in abstract terms, ie total percentage reduction in the GDP statistic, this will be worse than the last recesssion; but in practical terms, ie actual, real, hardship experienced by people in the UK, it will probably not be as bad as the seventies and early eighties, and certainly not as bad as the thirties.

Lance Grundy

“…our public services must be cut…”

Correction Mr Oborne, our public services will be cut, whether the Labour Party, the Conservative Party or the British people like it or not.

These won’t be ’Tory cuts’ either - where the only cut is in how much of the ‘proceeds of growth’ the government will squander on the public sector. These will be real, unavoidable, in your face, you-can’t-help-but-notice-them cuts resulting from the near, or actual, bankruptcy of the country - and we have Gordon Brown and Labour Party to thank for that. T

By necessity, over the medium term, Britain’s bloated, overfed public services will be purged of wastefulness. Whether the state likes it or not it will only be able to afford to deliver core services and will have to shrink accordingly. Tough choices lie ahead. Rebuild the school or pay the teacher’s wages? Light the streets or clean them? A health visitor or a heart surgeon? A social worker or a fireman? Which is it to be…

Rhoda Klapp

Hello James. This post is interesting, but there is a lot of hand-wringing in it, and not a little rabbit in the headlights from the Great and Good. There really is a big problem coming. Nobody denies it. Nobody seems to be able to do anything about it, or even suggest what might be done.
My suggestion is for a further post. Postulating that there is something really bad coming, and asking what we could do about it, if all shibboleths were abolished, if everything we have said or believed up to now were suspended, and the sheet was clean. Desperate remedies only. It just seems to me that the political debate going on around this debacle is just not serious or radical enough, it's just the same old guff, as if this were all just part of the old bloody game, instead of a thing which will impoverish all of us, steal our futures and those of our children and yes, kill a lot of people too, not to mention the real threat to our whole society. Have I expressed myself well enough? I feel I haven't. Let me try again...WHISTLING IN THE DARK IS NOT A STRATEGY, LET'S FIND SOMETHING THAT WILL WORK!

Ian C

The realisation what need doing is only just beginning to emerge among the (better) media and economists. So for politicians who drive by watching in the rear view mirror, it is not surprising they don't know what's next.

The original Paulson TARP plan was sensible (but insufficient on its own) and if acted on then would have halved the current degree of panic and pessimism. What it lacked was the other pieces that replaced it - recapitalisation and dealing with the real hard-luck re-possessions.

So before we can know "what next" the TARP – benefits: write off toxic stuff and re-capitalisation of now clean banks - has to be implemented.

There are said to be c $2trn of toxic stuff out there and only $0.8bn has been written off so far. The UK share of the remainder is too big for us to deal with alone (hence the Iceland comparisons) because of the international nature of UK finance industry.

Special incentives (e.g. to pension (i.e. long term) funds) must be introduced (premium interest rates and protection) to get money flowing into the banks. Nationalising them does the opposite, as we have discovered this week (as if we needed to!).

So what next? Go plan to Plan A - TARP in conjunction with the G7 and China as one unit, so a G7 guaranteed Bond to raise the necessary $1.2trn with which to finance the 'bad bank' and thereby re-capitalise the international banking sector. The banks so recapitalised will have to retain some of losses on the bad bank's 'assets' in order to get capital at close to 100 C on the $ initially. The bad banks share any profits on ultimate realisation of current toxic assets once their capital and interest costs repaid. Someone also needs to sit down and un-bundle the securitised mortgages so that it can be calculated much more accurately what the likely outcome will be. Huge job, but not impossible given the circumstances.

Oh, then pension off all directors of banks in G7 countries as at 1.1.07, without contract compensation.

Terry Rawnsley

James, how much confidence do you have that Cameron's government would be bold and reformist?

mitch

"We've got far too many people working in the public sector," he said. "There's probably twice as many people working in the public sector as is necessary."

And all those huge pensions we cannot afford.

Mazza1230

The public will make its opinion very clear on polling day. For the good of the country this day should be sooner rather than later........

michael m

Lord Myners goes on about "greedy bankers" It would be interesting to see how much he was paid whilst a Dircetor of NatWest and Coutts

Hawkeye

Healey may be worried about the rich leaving the country, but apparently the Poles are off and going back to Poland.

Since they seem to be productive people that will not help, but on the other hand the reduction in population may ease school and medical pressures.

Over on LabourHome they have a thread running about Brown's state of mind. One poster has suggested that he exhibits all the signs of being under tremendous stress and wonders if those in the media know more than they are letting on? They covered for Charles Kennedy's problems but it all came out in the end. If Brown has problems coping then for the good of the country (and Brown) someone should "out" him.

TGF UKIP

C Powell, you beat me to it with Lord Healey's comments.

You finish by asking "Is it too much to hope that Dave, Ken and George will run with this?" Well, I'm afraid you've had your answer which is a resounding "No" and it came in Dave's Marr interview two weeks ago.

Quite illogical, of course, but Dave while saying "I now see just how unaffordable Labour's spending plans are and perhaps we could have seen that earlier" also stressed in the very same interview that public spending would not be cut merely its growth. Indeed, and very unusually for Dave, he gave actual figures. While 09 spending would be £620bn rising to £650bn in 2010 under Gordon, it would rise to just £645bn under Dave. What a savage slash in spending growth! A whole .77%!

What really would be fascinating and really would have me laughing my wotsit off, is if Gordon shoots what should be the Tory fox and does what Denis thinks he will. For, after saying that "it would be much easier to cut the public sector these days" he goes on to say "I think it's very likely that Gordon will take what Digby said seriously." And then asked whether he feels that the state does too much "I do and I think Gordon will get around to do something about it now."

So why won't Dave and Boy George say what's becoming increasingly inevitable as all the other economic escape doors are sequentially slamming shut? Simple, this Pusillanimous Pair are terrifed of carrying any convinction and making and sustaining the argument under even the slightest media or parliamentary pressure.

If they do get power it will certainly be through an election that the government looses and not one the opposition wins. And then with no mandate for radical public sector surgery, they really will find out what it's like to fight unions, media and Labour full on.

Verity

Bob - Agreed. If he's still in power, the Tories, having lost the next election, will have chosen a new leader - someone who can thrash Gordon into a bloody pulp - and the Socialists will be finished off with a stake through their heart.

Meanwhile, may I make the humble suggestion that if we are to call in the IMF in 2012, we go ahead and cancel the London Olympics right now? Today?

Nicholas

"It will have to be bold and reformist"

This should include making New Labour a proscribed political organisation and making it a criminal offence for civil servants, local government employees, teachers and employees of the BBC to be members of the Labour party or activists on its behalf.

New Labour poses the greatest of the current threats to our democracy and way of life.

It is a terrorist organisation in the sense that the prospect of another Labour government terrifies me.

Tom Knott

The basic question remains unanswered. Does the world "need" a City of London finance market? If not, then does the UK need to have one remotely of this size? The past back to the Paleolithic is strewn with the remains of economic and human entities that passed beyond need. Some, like the ancient and more modern Empires, and for that matter the British Empire lasted too long after their day had come. It is my view that the City as it has been since the 1980’s, a temporarily revived relict of our imperial past, is now done for, and we need to sort out what pieces remain and adjust to a very different world. Tourism, retailing, and public sector expansion are not enough, and we need many fewer throwaway clothing, cheap jewelers’ outlets, various eateries, and other things. I saw the Lancashire Cotton Industry go, other industries go, once rich industrial towns lose their raison d'etre, and major changes to the political and economic geography of the world since my elementary school teacher pointed to a large map, pointed out the red bits, saying "These are ours, learn them off by heart." We have had to rewrite the history of the climate, and much else with new knowledge in the last two decades. We now have to adjust to a very different economic and financial world. And to do that soon, we need to answer the basic question above. Does the world need a City of London?

TomTom

Funnily enough I now feel more confident. Brown is finished and must be removed but I do not believe the banks cannot survive but they need to cauterise wounds somewhat faster.

The main thing is to draw up a spending budget and start to bring public finances in line and to control the tax burden.

Creation of an Office of Management & Budget is essential to develop proper assessments outside the Treasury which is nowadays a Spending Department encompassing all other areas of government

Our media is much worse than German media in reporting events - far too melodramatic and inaccurate. They think bad news sells and play the recession like they played AIDS scares in the 1980s.

Brown can go at any time then we can flail around with Osborne and Cameron

Paul Maglione

To paraphrase Churchill, "Never in the field of human affairs will have so much been destroyed by so few affecting so many." In the last 12 years, Gordon Brown and his coterie of incompetents will have grievously indebted the nation; heavily increased taxes and bureaucracy; sunk the pound; divided the nation by fomenting public/private pensions apartheid; overseen the explosion of yobbishness and the creation of a knife and gun culture ; and dumbed down educational standards. The tragedy of this man would be almost Shakespearean, were it not for the damage he has inflicted on an entire nation.

D

James - Please, for convenience, can you put a link to Labour Home down the Coffee House blog poll? Many thanks.

Verity

Rhoda Klapp hits the nail on the head. "It just seems to me that the political debate going on around this debacle is just not serious or radical enough."

She's right. All this handwringing and wittering and blame-throwing. Let's have some solutions.

In response, and to TGI UKIP and Nicholas, here are a couple of ideas to get the ball rolling:

Reduce the public sector by 50%. Starting with the socialist vote-buyer overlay of gay outreach coordinators, street football coordinators, Bangladeshi translators and interpreters, Urdu translators and interpreters, Somali, etc and other pointless jobs. Put an upper limit on the ratio of council employees to population. (Caerphilly has over 3,000 people working for the council. Why? What are they all doing?) Pare the public sector to the bare bones. Then chisel off a bit of the bone as well.

Slash NHS administrators by 50%.

Deny treatment to foreigners - and immigrants until they have paid in for three years - unless they are able to pay the market rate in cash.

Pakistani parents who have caused their child to be born severely disabled because they themselves are from generations of marriages to first cousins, to pay for their children's treatment for life. (Already, 1/3 of birth abnormalities in Britain are Pakistani.)

Dump the EHRA. Mass deportation of illegals, foreign criminals and all "asylum seekers". If they were that scared, they should have sought asylum in the first country they came to. Second, as they're mostly Islamics, they should have gone to the closest Islamic republic, which is obliged by Allah to take them in.

Close failing schools and sack the teachers, who would go on a register - the socialists love registers - of people not to be employed in education.

Cancel the Olympics, of course.

The shareholders of failed banks are the ones who should assume the burden. Not the taxpayer. The shareholders didn't hold the Boards to account. They should take the hit.

This is all by way of belt-tightening. I look forward to reading constructive, radical solutions from people who understand the banking system and the capital markets better than I do.

TGF UKIP

Ian C, as usual a very positive, constructive and sensible post from you.

The problem I have, though, is with what the scale of the problem truly is or might be. At least you mention $2trn while Gordon & Co talk in terms of tens or a few hundred billion.

The figure that haunts me, though, is one that appeared in the FT of 24 November 2007 and I quote: "According to the Bank for International settlements, over-the-counter equity, credit and interest rate derivatives markets are worth $400,000bn dwarfing the the $60,000bn in the value of shares trading on the world's 10 biggest stock exchanges."

The root of this global problem has long appeared to me that bankers forgot what an asset really was and instead believed that if something could be traded it was an asset regardless of whether or not it had any intinsic value.

Now with so many derivatives untraded and worthless the fundamental question must be how much was lent by banks based on the security of these now worthless derivatives.

Just 2% of $400,000 bn is $8trn and somehow I can't bring myself to believe that it's only 2%!

Verity

The towering lunacy of this whole thing is, Gordon Brown has no democratic mandate to be our prime minister, or to speak or act for us.

This is awful.

Archie

Verity: your hugely desirable list is almost the manifesto of a certain radical party that I shall certainly be voting for! PLUS...I doubt that any of the Lab/Lib/Cons would abandon the Olympics, as the concommitant loss of face would lose them their future place on the EU gravy train!

Verity

Archie - I'm not associated with any political party, although my instinct is to support the Conservatives. Currently there is no Conservative Party, as we understand the term, to support.

You are right that Gordon Brown would rather fiddle while Rome burns than cancel the Olympics. Brown has no sense of drama, just whining. Cancelling the Olympics would resonate with millions of people who have seen their savings and their pensions slashed. The Olympics will probably end up costing around 10bn, as Tessa Jowell and her coven lied about the costs, of course; as they lied about the ridiculous Millennium Dome. But £10bn saved by cancelling the Olympics would resonate with the voters. Empathy-wise, Brown is tone deaf.

And you are right that the shadowy Nomenklatura of the EUSSR would frown upon such a move.

Ian C

TGF

My understanding is that it nets down to a relatively small amount and alot of the remainder will play out their term with banks either winning or losing and mostly able to pay. The urgent problem is to re-create a liquid market in loans so the banks can function again. This will ensure that delivery of liabilities under derivatives contracts, among other vital things, can be met. This is one reason why it is so exhausting watching the idiot politicians thrashing around. It is quite simple but needs clarity - something politicians, by definition, do not have. Paulson lost it because he was mixed in with them.

The good news is that the majority of loans on derivatives were secured on the other more liquid assets of the borrowers (hedgies - in the broadest sense). That is why the stock markets have plummeted as they have had to cash their good chips to pay for the bad. This will go on until its over - another year or so I would guess. We're in a pause at present until 'what- next' unfolds. The expected Obama rally happened before Xmas and I can't see the next development being positive until someone grips the fundamentals, without favour. If Obama does not we are all well and truly screwed - for a decade.