This is the explosive news this morning. Peter Mandelson, EU trade commissioner, will return to government as business secretary.

It’s a shocker because of a] Mandelson’s “Blairite” status and b] the animosity - which may or may not be historic - between him and Gordon Brown.

He is also a controversial figure in UK politics, having resigned twice under Tony Blair. Here is the background.

Mandelson’s failure in 1998 to disclose a secret £373,000 loan from Geoffrey Robinson, a fellow minister, was seen as a serious misjudgment.  That was the first resignation.

The second was more ambiguous. He admitted making misleading statements over the passport application of Srichand Hinduja, an Indian billionaire, but denied any wrongdoing.

Since then, however, Mandelson has proved his numerous qualities in the Brussels job.

Brown will no doubt hope that this shows that he can rise above personal animosities. But the Westminster village will now be on tenterhooks to watch the first cracks appear in this new relationship.

UPDATE

I’m wondering whether the DBERR job will be anything like as interesting now that energy is being filleted into a new “energy and climate change” department under Ed Miliband. This means Mandelson won’t be fully involved in some of the most topical issues of the day; nuclear, renewable energies and the rapidly rising cost of electricity and gas.  

We have heard on good authority that Damian McBride, the prime minister’s controversial press adviser, will now be taking a back seat. He will remain at No 10 and continue to advise the PM.

But the official spin doctor job is going to Justin Forsyth, special adviser to the PM on international development. Forsyth is an expert on poverty, having previously been campaign and policy director for Oxfam. Incidentally he is said to be a very nice fellow. Not sure he has much experience of dealing with Fleet Street though.

Some MPs rightly or wrongly blame McBride for anonymous briefings against them.  For a taste of this:

Decca Aitkenhead in the Guardian this week, describing the Labour conference in Manchester:

“More than a cycle of abuse, it felt like the end of an era. What had begun back in 1994 was turning full circle, the ugly 3am briefing of Ruth Kelly’s resignation in the Midland bar a last ghost of the old Red Lion days of Charlie Whelan. But the self-belief - or Faustian pact - that had once sustained the project had broken down into self-loathing. Forged by spin doctors, the party was still in love with Campbell, even as it dissolved into mutinous rage, spitting at the thuggery of his unlovely successor, “that fucking Damian McBride“.

I wouldn’t presume that McBride will no longer carry on with most of his former duties, however. You may remember that Alastair Campbell stepped back from the front line - but remained at the heart of decisions - when he feared he had become the story.

The American Embassy is set to move from glitzy to gritty as it relocates from Mayfair to, um, Vauxhall. Here is the original story.

 There is some logic for moving to a more secure, cheaper neighbourhood. Other inhabitants of Grosvenor Square will no doubt be delighted, especially if the concrete monstrosity is replaced.

But will the 750 ambassadorial staff enjoy the amenities of Nine Elms as much as Mayfair? Where will they take visiting dignitaries from Italy, Israel or Iran? From memory, the best place to get lunch around there is…er….Sainsbury’s.

UPDATE:

Alex Barker, who lives nearby, says this is nonsense: There is a nice Portuguese restaurant (though it doesn’t serve foie gras) and…he’s struggling….some fine bars.

I’ll come back to you if he thinks of anything else.

FURTHER UPDATE:

The area has a very lively gay scene.

A corporate networking group - Business for New Europe - had breakfast at No.10 this morning with Gordon Brown.

Among its members is Paul Marshall, co-founder of Marshall Wace (which has been short-selling HBOS) and Lib Dem donor. See previous blogs this week.

I wonder if the PM confronted him about the evils of short-selling or not: small world.

Digby Jones bid farewell to high office (sic) today with a robust defence of capitalism in an interview with Sky News, warning of the consequences of a backlash against the City.

Conceding there had been “stupendous examples of arrogance and greed” among bankers - not least their ridiculously big bonuses - Lord Jones called for better regulation rather than more regulation.

“If you stop people being rewarded for success, Shanghai, Mumbai, Dubai will think it’s Christmas day.”

Digby won’t be around much longer to articulate this argument but that doesn’t mean the issue will die away.

The prime minister was heard telling aides on Friday night that there was “no sub-prime” in this country.

This stretches the “narrative” (all of our problems have come from the US) to breaking point.

While it is true that financial markets have been brought to their knees by a crisis which originated in the US - where subprime lending was close to 20 per cent of the total - that does not mean that we are immune. As this blog has pointed out before, we won’t know the full impact of foolish lending practices within the UK until our housing market has fallen further; as our property cycle is at least one year behind that of the US.

In fact sub-prime lending in the UK is (according to banking organisations) 5-8 per cent of the total; even excluding “self-cert” (or ‘liar loans’) and buy-to-let mortgages.

Of the pure sub-prime mortgages, one in four borrowers had missed a payment by mid-2008; a far from reassuring figure.

So what is the PM talking about? Is he using the thin argument that UK subprime does not exist because it tends to go under a different name: “non-conforming” loans? Vince Cable tells me the prime minister is “out of touch”: “It is still a problem here. Even if it has a different name it still exists”. 

All of them.

Yes, that’s right; the MPs’ pension fund makes money from the same hedge funds which many of its members denounce as amoral “spivs”.

My colleague Alex Barker had the bright idea of trawling through the parliamentary pension scheme. It reveals that the fund has invested £7m in Quellos, a fund of hedge funds. Perhaps even more damaging, the MPs’ pension fund lends out large amounts of stock to hedge funds to allow them to bet on share prices falling.

This is the pension fund which will benefit - among others - Alex Salmond (who described hedge funds as “a bunch of short-selling spivs”), Yvette Cooper (”irresponsible” and “destructive”) and Vince Cable (”speculator” had “brought a major British bank to its knees”).

So who will now call for a revamp of how the pension fund invests?

Lord Oakeshott, Lib Dem Treasury spokesman, was horrified by the idea that Tory donors might have short-sold stocks, HBOS in particular (see my previous blog).

But what of Paul Marshall, co-founder of hedge fund Marshall Wace, who has given the Lib Dems about  £162,000 in recent years? Guido alludes today to the fact that Marshall Wace likes to short stocks.

What he doesn’t mention is that three separate funds run by the hedge fund were among those who disclosed short positions in HBOS after the FSA four-month ban on financial short-selling was brought in .

Oakeshott (pictured left) had described hedge funds which shorted HBOS as “wolves”. How come the discrepancy?

A Lib Dem spokesman says that the party has chastised short-selling despite having taken the Marshall donation. The Tories, by contrast, have refrained from any criticism. Not sure this explanation really washes.

And then there is Michael Brown, the controversial character who gave the Lib Dems £2.4m. Brown loved speculating in the City, although it is not clear if he went short as well as long.

Some readers may be excited by the fact that Tory donors have sold some equities short during the recent financial crisis. That may seem like a gift to Labour during these perilous times.

But this is a time for cool heads. Bear in mind that the last high-minded group to attack short-sellers - the Church of England - was revealed as hypocritical last week when it emerged that its own investment arm uses similar practices.

Not only does the church lend stocks to short-sellers but…I quote… 

“As well as aiding shorting by lending stock, the church commissioners had £13m invested in Man Group, the biggest listed hedge fund manager, at the end of last year. The commissioners also sold a £135m mortgage portfolio last year, says their annual report, despite Dr Williams’ criticism of trading debts for profit.

“Through the Church of England pensions board, which manages another £847m, the church invested this year in a fund from Auriel Capital, a London hedge fund, which aims to make money from currency trading - including short selling currencies.”

Could any of the newspaper groups attacking the Tory hedge funds have any investments (direct or indirect) in the same vein? Or any of the Labour donors? Just a thought.

UPDATE: Jon Aisbitt, non-executive chairman of Man Group (one of the world’s largest hedge fund managers) gave £1m to Labour.

Gordon Brown has just told the UN that the “age of irresponsibility” is now close to its end.

Raising the obvious question: if everyone was so irresponsible, why did the Chancellor of the Exchequer (G.Brown, 1997-2007) do so little about it? The silliness in the banking world was not confined to the US, whatever the prime minister might claim.

All very well for Ed Balls to say this week - in the same vein - that those urging light-touch regulation had been “routed”. This argument is an attempt to rewrite history and unlikely to convince many.

Expect to see this all over the papers on Saturday morning.