Brown must stop sounding like a sore winner

18 October 2008

The Prime Minister has triumphed for now with his grand rescue plan, says Irwin Stelzer. But that is no reason to blame the crisis on America. It may be a reason for an early election

‘I was born for this moment,’ Gordon Brown is said to have told a small group at a recent dinner party. The Prime Minister is too keen a student of history not to have known that he was parroting Winston Churchill’s famous remark on becoming Prime Minister in 1940, ‘I felt... that all my past life had been but a preparation for this hour and for this trial.’ Perhaps it was reasonable of him to contend that the current financial crisis is as dire a threat to the British way of life as Adolf Hitler, perhaps not. But why quibble? The Prime Minister is entitled to his bump in the polls, the new spring in his step: ‘a dour man rejuvenated by the gloom’, according to my Sunday Times colleagues. The nation certainly faces a grave economic threat, and Brown has reason to feel he has risen to the occasion with a plan that might prove every bit as important as his long-ago decision to grant the Bank of England partial independence.

The Prime Minister’s plan to recapitalise the banks goes straight at the problem in a way that other rescue plans do not. Plans to guarantee savers’ deposits might prevent runs on some banks, but in the end will do little to get the major banks to lend again. US Treasury Secretary Hank Paulson’s original $700 billion plan to buy dicey IOUs now on the banks’ books will do nothing to add to the banks’ capital unless he overpays for those assets, which he says he will not do. So he has now agreed to devote some of the funds to a Brown-style investment in nine leading banks.

Score one for the world-leading Prime Minister, who realised before most of his counterparts the need to recapitalise ailing banks. That’s why he told Britain’s banks to raise more capital in the market if they can, and that he will force-feed them taxpayer money if they cannot — and restrict bonuses, dividends and golden handshakes. The end result will be banks with sufficient capital to avoid going bust when they write down assets that are now wildly overvalued on their balance sheets. But here as elsewhere there is no free lunch: government-run banks are likely to be too cautious to provide credit of the sort an expanding economy will need.

1 | 2 | 3 | 4 Next page

More articles from: Irwin Stelzer | this section

Print this article | Email to a friend | Permalink | Comments (8)

Post this entry to: del.icio.us | Digg | Newsvine | NowPublic | Reddit

Post comment

john problem

October 16th, 2008 9:17am Report this comment

Of course we should blame it on Wall Street - they invented all those glittering derivatives that the City bought. In the old days, when the City was populated by chaps, there was a chance that the phrase 'Timeo Wall Street et dona ferentes' would have sprung to mind. Not with the new breed of investment banker. They were dazzled by the sleight of hand of Wall Street's most accomplished card players. And the promise of out-bonusing their mates, and acquiring Lambos and yachts and gallons of Krug. Nonetheless, we have to blame someone foreign.

David

October 16th, 2008 9:19am Report this comment

"The Prime Minister has triumphed for now with his grand rescue plan, "

The Sarkozy plan?

David Short

October 17th, 2008 10:56am Report this comment

John Problem is right to say the City is no longer populated by 'chaps'.

After Big Bang, you had to have brains, not just family connections, to work in the City.

All that family connections gets you now is a job in Fleet Street. Hence the number of 'chaps' and 'chappesses', wiht not much upstairs, with familiar surnames who now work in journalism.

And one reason why newspaper circulations continue to fall.

R King

October 17th, 2008 4:27pm Report this comment

Good article but for the originality of the "so called" Brown rescue plan. According to the french finance minister on newsnight the plan was thought up over several days at the meeting of the european finance ministers. She stated that Brown was the first one to adopt the plan. As David (9:19am)said it really should be called the Sarkozy plan as he was the one who initiated the talks.

A Theologian

October 17th, 2008 7:03pm Report this comment

There are only 4 Qs for historians:
1. Why did Sir Terry Burns resign from the Treasury in 1997?
2. Who took really took the decision not to let Lloyds TSB take over Northern Rock?
3. Who leaked to Robert Preston re Northern Rock and down the line?
4. Did GB at any point take a decision which precipitated the crisis which makes him a "Saviour"? e.g. like Caesar Augustus not the real Jewish fellow

Rafaelo

October 17th, 2008 8:09pm Report this comment

I write from Virginia to say-oh, go ahead, blame us. Why not? The New York Times blames former Federal Reserve Chairman Alan Greenspan for blocking regulation despite Warren Buffett and George Soros warning that derivatives were wild, hair-trigger "financial weapons of mass destruction." Also Greenspan's interest rates encouraged handing out mortgages like candy at Halloween, to giggling children in masks (do you do that over there?) Greenspan in turn, blames greedy ambitious bankers who took on absurd risk, thinking they'd lay off the bet in time. http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?hp Former Republican US Senator Rick Santorum blames Democrats, blames Wall Street for manic greed--and then charmingly, blames himself for running up his own credit card. http://www.philly.com/inquirer/opinion/20081009_The_Elephant_in_the_Room__Meltdown_has_many_culprits.html Democrat Barney Frank, of course, blames the Republicans for irresponsible free market dogma. http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/09/28/franks_fingerprints_are_all_over_the_financial_fiasco/ This we call in America the Circular Firing Squad.

R King

October 18th, 2008 4:20pm Report this comment

Browns defence that the USA is to blame for the economic woes of the UK are stretching belief somewhat. If he really wants us to believe that he wasn't able to see that the almost completely unregulated finance system in the UK under his tenure had no part to play then he has surely re-written the law that ignorance is no form of defence?
Can I now say when next charged with speeding that I thought it was OK because they drive this fast in America?

Just a thought!