Panic on the streets of London

So I got it slightly wrong in my blog of February 23 – the Bank of England must have thought twice about cutting interest rates to minus 2.5%. Instead they just brought them down to 0.5%. In other words, suppose you lend someone £100, taking the risk you don’t get it back. For taking that risk of losing your money, you stand to earn yourself....50p! Interest rates have been slashed by 90 per cent since October, and Labour and the bank are astonished that nobody wants to lend.

Still, the bank’s governor Mervyn King gave a wholehearted defence of the policy. He said: "Nothing in life is ever certain, but these measures we think will work in the long-term." I feel better already! Who was it who said “in the long-term we are all dead”? Oh yes, it was the great economist John Maynard Keynes. Anyway, let me tell Mr King one thing that is certain – those who depend on interest from their savings – like pensioners, for example – are being hastened towards destitution, and they will do exactly the opposite of what the economy needs – they will stop spending.

Yesterday’s decision was another triumph of hope over evidence. Have the previous five interest rate cuts in five months got the banks lending? No. Why should this one? What effect have each of the previous five cuts had on the economy? Nobody knows, because nobody bothered to find out before making the next panic reduction.

All Labour’s economic policies – including the Mugabe option of printing money – are based on doing something, anything to get the banks lending, like the bizarre decision for you and me to take £325 billion of worthless assets off RBS’s hands so it would lend £25 billion (see my blog of Feb 27). It would have been cheaper, more effective, and more socially just for Labour to have simply given us the £25 billion.

There’s no point in basing an economic policy on prayers – prayers that the banks will lend money. Here’s what Labour should do instead – hand out an immediate tax cut or benefit increase to everyone receiving, say, twice average earnings or less. The pay-out should be on a sliding scale, with those earning most getting least, and the poorest getting most. This would stimulate the economy, as people who are less well off are much more likely to spend their money – and to spend it on local goods and services.

If Labour wish to be financially responsible (which I would advocate) the funds could be raised by an emergency tax levy on those earning more than, say, £100,000 a year. These people have benefited from huge tax cuts and pay increases over the last two decades, and are well equipped to help those less fortunate than themselves in what Mr King seems to be painting as the worst economic problems we have faced in the Bank of England’s 315 year history.

It's only money - an apology

I am sorry. I realise I may have given the impression by some of the things I have written that I did not consider that our bankers were the cleverest people on earth. Now I realise I was wrong – they ARE the cleverest people on earth. Who else could grab billions of pounds from taxpayers like you and me because they’ve run their banks so incompetently they are now broke, then pocket that money in bonuses?

Lloyds, in receipt of £17 billion from us – that’s about £500 from every taxpayer in this country – wants to hand out £120 million to its staff, and whines that some are earning as little as £17,000 a year. Well, some of the taxpayers who will have to fork out for the bank’s bonuses will be earning as little as £7,000 a year, and most of them, I suspect, never get paid any bonuses themselves.

RBS, bailed out to the tune of £20 billion, has still not denied that it wants to pay out £1 billion (!!) in bonuses. Surely Labour will not be weak-kneed enough to allow this. These banks are broke. If they insist on paying bonuses, Labour should put our shareholding in them up for sale forthwith. Then let’s see how much money they’ll be able to afford to pay out. But why on earth did Labour not set conditions BEFORE handing over our money, instead of having to plead with the bankers after they had pocketed it?

Forest fires (3) + it's only money (3) + cricket, lovely cricket

The authorities in Australia are now saying that at least 173 people have been killed in its worst ever forest fires, but the toll seems certain to rise as the emergency services search the more remote areas. Many of those who died were trying to escape the blaze in their cars, but they were outrun by the flames which were whipped along at terrifying speed by powerful winds.

Police report some of the fires were started deliberately – crimes that amount, says Prime Minister Kevin Rudd, to “mass murder”. The revelation comes as a new report from the Australian Institute of Criminology says that every year more than half of the country’s 20,000 forest fires are the result of arson.

Bunch of bankers. Even though they have brought the economy close to destruction by their incompetence and greed they still want to pay themselves huge bonuses. The Royal Bank of Scotland, bailed out by £20 billion of our money wants to hand over £1 billion of it to its staff. Whose achievement was what exactly? To run the bank so incompetently, it is now broke.

Still bankers must be quaking in their boots. Labour has got tough! It’s going to, er, set up an inquiry into bankers’ pay. And this is the really scary bit – the inquiry will be chaired by – wait for it – a banker! Nor is there going to be any hanging about – if all goes well, Sir David Walker will be reporting his findings....by the end of the year. How many billions of our money will have gone down the bonus drain by then?

Not sure how much Labour was planning to spend on Sir David’s inquiry, but I’m prepared to do the job for a fiver, and I can report right now. No bonus of any description should be paid to any person working in any bank bailed out by the taxpayer until all the money has been repaid.

Cricket, lovely cricket. If you’re still smarting from England’s dismissal for 51 at the hands of the West Indies, see my blog of January 28th.

It's only money

Financial disasters are not normally within the scope of this blog, but with RBS shares heading fast towards zero, closures and redundancies everywhere, and countless (literally) billions more being pledged by Labour to bail out the banks, it seemed churlish to ignore our present plight.

In 1999, RBS shares stood at £14. Yesterday, they fell below 12p. It seems the government is not clear quite how many additional tens of billions of pounds of our money it has pledged to the banks this time, but it should lead to some interesting discussions on the next occasion when someone is told the NHS can’t “afford” a drug costing a few thousand, or that public transport fares have to rise above the rate of inflation, or that people have to be bullied off benefits, or.....you get the idea.

Last week the Economist ran an interesting, and disturbing analysis of some research from a couple of American academics. They found that recessions spawned by banking crises are particularly long and deep. Unemployment keeps going up for five years, house prices fall for five years, and shares lose half their value.

It would be nice to think, wouldn’t it, that while Labour was handing out all these billions to the banks, someone in the bowels of the government was drawing up a comprehensive and binding agreement for them to sign, ensuring that we never again return to the excessive salaries and bonuses, and reckless lending and investment policies that have characterised the sector in recent years. Money talks and it’s saying that banking is too important to be left to the bankers – certainly the ones that got us in this present mess. It would be nice to think, but don’t hold your breath.