Britannia Radio

THE DAY OF RECKONING   8.10.08
The IMF warns that Britain will fare worse than any other country !  
That difference is due to Gordon Brown's mismanagement of the economy 
and profligate spending!

And what does the market think of the Brown-Darling 'bail-out'? It 
knocked 5% off share prices on Day one!

And Thursday's front pages?  Independent -The Global gamble
* Telegraph -Back from the brink  * Times -Rate cuts overshadowed by 
spectre of recession  *    Guardian -Staring into the abyss  *  Mail  
-£16,000 each  * (The Star leads on Football and the Mirror talks of 
a £500bn deal over a late night curry - eh? )

In Jeff Randall's piece below,  he draws the parallel with the great 
1929 world crash and reminds us that 'It's worth remembering that a 
full recovery in the stock market took more than 20 years' - and that 
with the aid of World War II.

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THE TIMES
IMF: Britain facing worst economic slump since 1990s

Gary Duncan, Economics Editor, in Washington

Britain will slide into a new recession during the autumn and winter 
and now faces its most severe economic downturn since the slump of 
the early Nineties, the International Monetary Fund said today.

The mounting toll from the credit crisis, plummeting house prices, 
and financial turmoil, will make the UK the worst hit of the world's 
leading rich economies from a deepening global downturn, with the 
exception of Italy, the IMF predicts.

The warning today comes as the Bank of England cut interest rates by 
a half point in an emergency move as part of co-ordinated rate cuts 
on both sides of the Atlantic by it, the European Central Bank and 
the US Federal Reserve.

Britain's prospects for this year and next are downgraded drastically 
in the IMF's latest global forecasts.

The fund now expects the economy to grow by a meagre 1 per cent this 
year, compared with its April forecast of 1.8 per cent and Alistair 
Darling's forecast for growth of 1.75 to 2.25 per cent.

Next year, the British economy is forecast to shrink by 0.1 per cent, 
with national income - GDP - suffering its first full-year decline 
since 1991, when it plunged by 1.4 per cent.

A muted recovery by late 2009 and into 2010 will be only very 
gradual, it adds.

The IMF's bleak prediction that the British economy will contract in 
2009 as the credit crunch and housing slump undermine growth is a 
stark reassessment of its April projection when it tipped growth next 
year of 1.9 per cent.

In his spring Budget, the Chancellor forecast 2009 growth of 2.25 to 
2.75 per cent - a hope since dashed by the escalating crisis.

The IMF expects Britain's unemployment to rise by almost 180,000 more 
by the end of this year, taking it close to topping 2 million based 
on the Government's Labour Force Survey figures.

In even bleaker reading for Mr Darling and Gordon Brown, the fund 
also sounded a warning over the danger that the fallout from economic 
and financial upheavals could inflict a still more severe recession 
on Britain, as well as across the West's other big economies.

The UK's prospects are in peril from a barrage of risks, today's 
report finds. These include the threat that an even sharper plunge in 
house prices will spell further financial stress on banks from bad 
loans, triggering tighter curbs on lending to consumers and 
homebuyers, and a vicious downward spiral that will choke off growth.

Similar dangers loom over the eurozone and the United States, the IMF 
said, as it also made big cuts in its forecasts for other economies 
around the globe.
"The world economy is now entering a major downturn in the face of 
the most dangerous shock in financial markets since the 1930s," it 
said in its twice-yearly World Economic Outlook this morning. 
"Although a recovery is projected to take hold in 2009, the pick-up 
is likely to be unusually gradual."

As governments and central banks wage a desperate battle to douse 
what the IMF calls a global financial "firestorm", today's report 
said that "intensifying financial strains are beginning to take an 
increasingly heavy toll on economic activity across the developed world.
"Financial conditions continue to be under extraordinary stress," the 
IMF said. "Looking ahead, conditions are likely to remain very 
difficult, restraining global growth prospects."

Worldwide, the IMF cut its prediction for global growth next year 
from 3.9 to 3 per cent - not far above the 2.5 per cent level that it 
says defines global recession.

In the United States, today's report expects that a recession will 
take hold of the world's biggest economy in the present quarter and 
drag on into early next year. US growth is expected to be only 1.6 
per cent this year and fall to a virtually stagnant 0.1 per cent in 
2009 - down from the 0.8 per cent the fund forecast in the spring.

With 10 million American households in negative equity, with their 
homes worth less than their mortgage debt after an unprecedented 
house price slump, the IMF said that the US housing downturn was not 
likely to end until next year.

If financial turmoil persists and an even tighter credit crunch takes 
hold, the housing slump could last into 2010, deepening the American 
and world recession, the IMF cautioned.

The eurozone is also succumbing to a battering by huge financial 
strains, the report said. It is now forecast to grow by just 1.3 per 
cent this year and virtually stall next year, with growth of only 0.2 
per cent. German growth is expected to grind to a halt in 2009, with 
the Italian and Spanish economies each suffering a 0.2 per cent drop 
in GDP.

The IMF backed the case for rate cuts from the Federal Reserve, 
European Central Bank and Bank of England that united to make a co-
ordinated reduction in official rates on both side of the Atlantic.

With inflation set to drop from present highs - expected to top 5 per 
cent in Britain in September figures, out next week - the IMF said 
that this, alongside rapidly weakening growth and the squeeze from 
the credit crunch on both sides of the Channel, left ample scope for 
rate cuts in the UK and eurozone.

It said that, on both sides of the Atlantic, the pressing priority 
for governments and central banks was to restore calm in markets and 
halt the downward financial and economic spiral.
"The immediate challenge is to stabilise financial conditions, while 
nursing economies through a global downturn," it said.
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TELEGRAPH   8.10.08
Remember 1929 - what seemed to be the end was only the beginning
The dismemberment of Dick Fuld, Lehman Brothers' former chief 
executive, before a Congressional committee on Monday was a 
compelling, albeit brutal, event.

By Jeff Randall

His televised humiliation was orchestrated by a veteran Democrat, 
Henry Waxman, whose simple question about Fuld's alleged $480m of 
earnings - Is that fair? - hit the banker like a haymaker, rendering 
him speechless.

As the cameras focused on Fuld's haunted stare, there was a sense of 
action replay. Hadn't we seen this freak show, or at least something 
remarkably like it, long before Lehman went under - a display of 
furious inquisitors wiping the floor with Wall Street's loftiest 
reputations?

Yes, history was repeating itself: "As the ghosts of numerous 
tyrants, from Julius Caesar to Benito Mussolini will testify, people 
are very hard on those who, having had power, lose it or are 
destroyed. Then anger at past arrogance is joined with contempt for 
present weakness.

"The victim or his corpse is made to suffer all available 
indignities. Such was the fate of the bankers. They were fair game 
for Congressional committees, courts, the press and comedians."

These are the observations of economist J K Galbraith in The Great 
Crash, 1929. First published in 1954, his analysis of the greed and 
self-delusion that led to the unravelling of America's stock market 
and the subsequent Depression is undimmed by time.

Replace 1929 with 2008 and the story, I'm afraid, is eerily familiar: 
a speculative orgy, crescendo, climax and crash. As this plays out, 
important people - business and political leaders - rely on "the 
power of incantation" to keep the rest of us calm. Their efforts are 
doomed to fail.

"Cause and effect run from the economy to the stock market, never the 
reverse. In 1929, the economy was headed for trouble," wrote Galbraith.

As now, too few understood this. Many who foresaw disaster kept 
quiet. There was a conspiracy of silence. "The foolish thus [had] the 
field to themselves."

In the 1920s, says Galbraith, America's economy had been weakened by 
"bad distribution of income... bad corporate structure... bad banking 
structure... dubious state of the foreign balance... and poor state 
of economic intelligence". Who can say with certainty that today it 
is different? Who now wants to defend the promoters of a one-way bet 
on property? Any takers?

For those hoping that the stock market's recent "correction" will be 
followed by a swift recovery, Galbraith puts a wealth warning on 
suckers' rallies. "The singular feature of the great crash of 1929 
was that the worst continued to worsen. What looked one day like the 
end proved on the next day to have been only the beginning. Nothing 
could have been more ingeniously designed to maximise the suffering."

It's worth remembering that a full recovery in the stock market took 
more than 20 years. During that time, in July 1932 the Dow Jones 
index was 89pc below its top. In Britain, the reaction was less 
severe: the market merely halved.

Amid the carnage, there were buy-backs of stock by investment trusts, 
desperate to shore up their share prices. This resulted in a massive 
outflow of cash, just when liquidity was at its most precious. "They 
bought their own worthless stock," wrote Galbraith. "Men have been 
swindled by other men on many occasions. The autumn of 1929 was, 
perhaps, the first occasion when men succeeded on a large scale in 
swindling themselves."

Sadly, it was not the last. In 2006, Royal Bank of Scotland spent 
£1bn buying 54.3m of its own shares at an average price of £18.37. As 
late as December that year, it paid £141m for 7.1m shares (average 
price: £19.79). Yesterday, RBS shares fell by 39pc to just 90p.

RBS was not alone. Even after the credit crunch hit the headlines in 
September last year, when Northern Rock crumbled, Halifax-Bank of 
Scotland was busy buying its own shares at fancy prices. In 2006-07, 
HBOS spent £1.5bn (average share price: £10.01). Yesterday, it joined 
the infamous "Ninety Per Cent Club" of losers, after the bank's 
shares dropped 37pc to 94p.

What drove HBOS to carry on with its madcap scheme? Galbraith's 
musing on the short journey from hubris to nemesis helps provide an 
answer: "If one has been a financial genius, faith in one's genius 
does not dissolve at once... The cash went out and the stock came in, 
and prices were not perceptibly affected or not for long. What six 
months before had been a brilliant financial manoeuvre was now a form 
of fiscal self-immolation."

That was certainly true for Lehman's Dick Fuld. In the end, he was 
sucking up his own exhaust. He took his last year-end bonus, about 
$40m, entirely in shares. They went down the drain with the rest of 
his bank. Before this mayhem subsides, much treasure and many more 
egos will follow. The comedians await.
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