Britannia Radio

TELEGRAPH - Business News   22.9.08
1. America rises to the occasion as storm heads towards brittle Europe
    By Ambrose Evans-Pritchard

An almighty crash has been averted, very narrowly. There is no 
guarantee that the revolutionary actions of the US government will 
prevent a full-fledged global slump, but at least we now have a 
fighting chance.

By taking the colossal wreckage of the credit bubble onto its own 
books in a $700bn (£382bn) taxpayer sink, Washington has forestalled 
a run on the world banking system, and may hopefully have saved the 
viable core of modern capitalism.

Hank Paulson's "Super Sink" is the "game changer" we have all been 
waiting for in this interminable crisis. It puts a floor under the 
toxic debt that is bleeding the banking system to death, and ends the 
downward spiral of CDOs, CLOs, HELOCs, and such instruments of 
leveraged excess that lie at root of the credit terror. No doubt the 
Fed, the Treasury, and Congress have made a string of mistakes but 
they are now rising to the occasion - the reflexes of a wounded but 
still formidable superpower. The US has shown time and again that it 
has the institutions and flair to pull itself out of disaster.

We will find out soon enough whether the rest of the world can 
respond with such dispatch as the hurricane smashes into them. As of 
today, the core risk is no longer in the US. It has rotated to the 
weaker and more brittle polities of Europe, Latin America, and Asia - 
especially China.

Europe has embedded paralysis in its treaty law. Maastricht prohibits 
a Keynesian blitz. Budget deficits above 3pc of GDP are not allowed 
until an EU country is already in dire straits, and even then 
approval requires a committee vote by 27 states. So Ireland, Italy 
and France must now tighten fiscal policy into the downturn.

There is no EU Treasury to back the euro, and therefore no Euro-
Paulson with the powers and legitimacy to take sweeping steps in an 
emergency. By extension, there is no clear-cut lender of last resort 
either. Each country is on its own, yet none have the instruments of 
monetary policy to carry out a Paulson-type rescue with credible punch.

The European Central Bank stands aloof with Teutonic severity, as 
hawkish as the old Bundesbank - or the Reichsbank in 1931. It too is 
a prisoner of a rigid treaty mandate. There was a mad Wagnerian feel 
to its July rate rise. We now know that Euroland was already slipping 
into recession when it acted. Do the hawks mean to unleash 
Götterdämmerung on the peoples of Spain, Ireland, Italy, Portugal, 
and Greece, with all the dangers that must accompany a disintegration 
of EMU?

It is incessantly repeated - often by people with an animus against 
the US - that "dead-beat America" cannot afford these serial bail-
outs. Perhaps, but compared with whom, and to what?

The US government debt (owed to the public, using the IMF measure) is 
just 48pc of GDP, one of the lowest of the G7 industrial powers. This 
compares with 57pc for Germany, 94pc for Japan, and 100pc for Italy. 
After the Second World War, the US debt touched 120pc of GDP. As the 
Habsburgs liked to say, today's drama is desperate but not serious.

Note too that the US is the only power (bar India) with a birth rate 
high enough to meet its future pension costs. Japan is already 
shrinking; China faces the start of workforce implosion within seven 
years; Russia is a demographic basket case.

Mr Paulson's Super Sink is modelled on the Resolution Trust 
Corporation, which cleaned up the Savings & Loan mess in the early 
1990s. The RTC added no debt and made a profit in the end.

The Paulson plan will not prevent a deep US recession, but as the 
spearhead of a policy crafted to keep Americans in their homes, it 
will slow the avalanche of foreclosures and change the profile of 
future mortgage defaults. House prices may not, after all, drop by 
34pc as now priced by the futures market. That is a reprieve for 
hundreds of regional lenders on death row.

Call it moral hazard if you want, but as President Bush said: "There 
will be ample opportunity to debate the origins of this problem. Now 
is the time to solve it."

The game was up in any case on Wednesday when yields on three-month 
Treasury notes fell to zero in a panic flight to safety, and 
investors began mass withdrawals from America's $3.5 trillion money 
market funds.

After the trauma of the last week - the Lehman bankruptcy, the state 
seizure of AIG, the Morgan Stanley scare, the heart attack in the 
market for credit derivatives, and the monoline debacle at AMBAC - it 
should be clear to everybody that rigorous debt liquidation would be 
viciously destructive.

The world has seen nothing like this (in peacetime) since President 
Franklin Roosevelt shut the banking system and confiscated gold in 
March 1933, though his words were more memorable than last week's 
Bushisms.

"The rulers of the exchange of mankind's goods have failed, through 
their own stubbornness and their own incompetence. They know only the 
rules of a generation of self-seekers.
"The money changers have fled from their high seats in the temple of 
our civilisation. We may now restore that temple to the ancient 
truths," he told the nation.

Will we hear such language before long from President Obama, 
addressing the most radical House and Senate in living memory? 
Probably. From moral hazard to moral rebirth.

===============AND --->
2. Business leaders attack government's failure to address economic 
problems
    By Amy Wilson

The government has failed to tackle Britain's economic problems, a 
group of business leaders said, calling for a "new direction" in policy.

Bosses including Next chief executive Simon Wolfson, Sir Anthony 
Bamford of JCB, Carpetright chief Lord Harris and Sir John Craven, 
chairman of miner Lonmin, said Gordon Brown's government must 
simplify taxes and make them more competitive, reduce red tape and 
better manage public spending.

These steps are needed to make the country "well placed to weather 
economic difficulties", the group wrote in a letter to the Financial 
Times.

Also on the list of signatories are Brixton chairman Lady Patten, 
Severn Trent chairman Sir John Egan. Anthony Habgood, chairman of 
leisure group Whitbread and Bunzl, and Anthony Fuller, president of 
brewer Fuller, Smith and Turner.

The group also called for improvements in education and a reduced 
budget deficit.
"It is time for a new direction that ensures that, in future, Britain 
is better prepared for economic downturns and better placed to 
compete in a global economy," the letter said.

Chancellor of the Exchequer Alistair Darling has called economic 
conditions the most difficult since the Great Depression, and many 
experts predict the country will to go into recession this year.

Last week, the government had to aid the forced rescue of Britain's 
biggest mortgage lender HBOS by its rival Lloyds TSB and introduced a 
crackdown on short-selling to end the collapse of banking shares