Credit Crunch

We won’t do a comprehensive analysis of the pre-Budget report here: there will be plenty of analysis elsewhere on But just three observations.

1] The central assumption for RPI next year is -2.25 per cent: ie deflation. That doesn’t necessarily mean that CPI – which excludes house price inflation – will go negative. Read more


This Bloomberg chart tells a striking tale. Credit default swaps are a form of insurance on gilts. People buying UK government debt acquire CDS’s to protect themselves against the risk of the country becoming bankrupt. Read more

Will Westminter follow the lead of the US congressman who has forced nine big US banks to declare the size of bonuses awarded to all their staff?

As he issued the order, the tenacious Henry Waxman questioned “the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry’s worst years on record”. Read more

Gordon Brown’s mantra of “global solutions to global problems” is rarely followed by details of the institutional reform he envisages. He prefers to discuss why the reforms are needed, rather than highlight the power broking required to set them up.

On Monday, he made an exception. During a Q&A session he said he wanted the International Monetary Fund to be “more like an independent central bank rather than a political committee”. It is a revealing quote. Read more

For those wanting to know more about Oleg Deripaska’s ailing metals empire, Catherine Belton’s weekend piece is indispensable. One observer likens the Russian oligarch’s business to a house of cards.

A worrying aspect for UK taxpayers is who he owes money to. Mr Deripaska is presently scrambling to repay Royal Bank of Scotland, a UK bank that is set to be part-nationalised. In this small and indirect way, Britain is exposed to the Russian oligarch’s financial fortunes. Read more

Gordon Brown has long preached the need for financial transparency. As part owner of a handful of banks, it is perhaps time for the prime minister to lead by example.

Two “special purpose vehicles” used by HBOS and Lloyds could be a good place to start. The “conduits” hold billions of pounds of asset backed securities — Lloyds’ conduit “Cancara” comprises about £11.6bn of assets while HBOS has £16.2bn in “Grampian”. Read more

At some point the government may not be able to raise any more money in the gilt markets.

That’s my interpretation of comments made yesterday at a Treasury sub-committee by Robert Stheeman, chief executive of the Debt Management Office. Read more

The superhero theory is catching on. A supportive backbencher has just referred to Gordon Brown as “Superman” at PMQs.

Not sure this rings true. One colleague believes the prime minister is more like Batman, given his desire to save the world, his brooding nature and nocturnal tendencies. Read more

It is the eternal cry when things go wrong: “Something must be done!”

The councils today demanded an inquiry into the ratings agencies. Hazel Blears, communities secretary, swiftly deployed a “rapid response team” to help the 116 councils (at least) who put £858m (at least) on deposit in Iceland. Read more

The FT was among many newspapers this morning to point out that Hank Paulson, US Treasury Secretary, had not found the time to meet Gordon Brown on his visit to New York. The PM had suggested – at Labour conference - that he would be meeting US financial regulators.

This doesn’t mean he has been snubbed by everyone. Mr Brown has just emerged from a power breakfast with some of the top names on Wall Street. They include Steve Schwarzman, chairman of Blackstone, Anne Marie Petach, CFO of BlackRock, and George Soros – who needs no introduction. Read more

I only ask because on the Today programme the prime minister explained “naked short-selling” as the practice of institutions lending stocks to hedge funds who then sell them in order to buy them back later.

Er, that’s normal short-selling. Read more

The City knows which way the wind is blowing and is concerned. Stuart Fraser, chair of the policy and resources committee at the City of London Corporation, warned last night at an FT fringe event:

“I understand the pressures the politicians will be under but as we go forward governments and regulators should resist the temptation to pile on excessive red tape for the sake of it. Act in haste and repent at leisure is a good watchword for all regulators.” Read more

True, George Osborne didn’t sound desperately sympathetic to the plight of credit crunch victims when he said on Newsnight last week: “Well look, no one takes pleasure from people making money out of the misery of others, but that is a function of capitalist markets.”

But that is NOT the same as the quote attributed to him by the prime minister just now: Read more

It’s a serious question. We are set to hear a lot of words on this as Gordon Brown jets to New York tomorrow to discuss international financial regulation. “Supervision can no longer be national, it has to be global,” he has just said in his speech.

But how will a global regulatory monolith – based in Tokyo, or Wall Street for example – be able to monitor financial services more effectively than a national one? Read more

gordonbrown2.jpgWhen markets violently move against Gordon Brown and undermine his carefully planned policy positions, he has shown no hesitation in kicking City spivs.

When he was caught on the wrong side of the ERM debate (Mr Brown enforced an unpopular anti-devaluation line within the shadow cabinet), he took a swipe at the “handful of shirt-sleeved speculators” who brought down the pound. His answer to the “global economic problem”? Some “new international institutions” to keep the wicked speculators in check.* Read more

In any other circumstances today’s bank merger would not be passed by the competition authorities.

Rightly, Gordon Brown has decided that financial stability – in this case – trumps competition. Read more

Is Gordon Brown telling Lloyds to weaken its lending standards? Speaking on Sky, the prime minister just said: “We’ve also insisted on assurances from the new company [Lloyds/HBOS] about their mortgage lending in the market place so they will not reduce it. They say they will expand it and it will remain a very high share of lending in the market place and I think that was the right thing to do as well.

Lloyds of course was in a position to take over HBOS because it had been more prudent and conservative through the boom, while HBOS by comparison let its hair down. Read more

I still can’t get my head around the maths of the £615m which the government has promised to spend on its stamp duty holiday for those buying a home worth between £125,000 and £175,000.

The figure suggests that – at about £1,500 per home-buyer – about 30,000 people will be helped every month. Read more

persimmon-2.JPGThere has been a mixed reaction to the first part of the recovery plan. But, at least in the equity market, the response has been relatively positive. Shares of struggling housebuilders are rebounding, with Taylor Wimpey up more than 8 per cent and Barratt Developments up more than 5 per cent.

But this may have little to do with stamp duty. A close look at some of the share price movements today suggests they moved up before the stamp duty holiday was announced by press release at 9am. Most housebuilders have been relatively steady since then. Read more

More from the interview that keeps on giving. Alistair Darling told the Guardian that he first heard the credit crunch alarm bells while on holiday with his family. Here is the quote in full:

“I remember I picked up the FT in the supermarket, as you do, and it had the European Central Bank starting to put money into the economy. I phoned the office to ask why they were doing quite so much. It didn’t surprise me that money was going in – there was concern going around – but it was the sheer scale of it…..No one knew how serious it was yet.”

 Read more