Britannia Radio

TELEGRAPH     3.12.08
Ignore the excuses, here are the signals showing disaster on the way
Listen to government ministers long enough and you may begin to 
believe that our economic woes were unforeseeable. They talk about 
"shocks to the system" from the other side of the world.

By Jeff Randall

Many business leaders seem also to have been caught unawares, as if 
the horrors of debt-propelled over-consumption had crept up on them, 
like a bogeyman in the dead of night.

"Nobody could have seen this coming," is a common excuse from those 
who are struggling with Swiss-cheese balance sheets. They are wrong. 
The looming crash of 2008 was a juggernaut with its headlights on and 
horn blaring, speeding past "Drive carefully" posters.

Common sense died in 2007. The FTSE 100 index hit 6,732, not far 
short of its all-time peak, 6,950 (reached in the dotcom mania of 
1999). That in itself was not an indicator that the world was about 
to spin off its axis. It was, however, a measure of warped confidence 
in illusory prosperity.

In April 2007, the average house price in the United Kingdom was 
£209,454. Across the country, annual house price inflation was 
running at 11.3pc. In London, it was 14.7pc. House prices were 
holding up spending and debt was holding up house prices. But how 
would the debt be repaid?
In an interview with The Sun, former US vice-president Al Gore said: 
"The planet is in distress and all of the attention is on Paris 
Hilton. We have to ask ourselves what is going on here?"

Mr Gore was talking about global warming, but might easily have been 
referring to the debauched economies of Britain and America. 
Celebrity worship had replaced rational thought.

In business, the warnings were there; not subtle hints, but neon 
lights flashing: "This is the top of the market." Foxtons, the estate 
agency with just 40 branches, was sold for nearly £400m.

Bonuses on Wall Street and in the City - funny money - totalled about 
$80bn, sums greater than the output of some countries. A Ferrari 
Testa Rossa went at auction for $9.3m and someone paid David 
Rockefeller $71m for Andy Warhol's Green Car Crash.

Here are five other events from 2007 that signalled the end of the 
road for irrational exuberance:

1. Sports Direct is floated for £2.2bn.
Mike Ashley's rag-bag of leisure brands was not fit to be a public 
company. Mr Ashley is congenitally unsuited to be in charge of a 
business with outside investors. The shares, offered at 300p, started 
falling almost from day one. Five months after the sale, Mr Ashley 
said of Sports Direct's share price: "It may drop to 80p, but over 
three years I am betting it will be nearer 800p." Today it is 32p, 
and I am betting that 800p will not be achieved in Mr Ashley's lifetime.

2. Blackstone raises $4bn on the stock market.
The investment group that had made its partners fabulously rich in 
private equity suddenly fancied some of the public's cash. Co-founder 
Stephen Schwarzman trousered half a billion dollars from the sale. He 
was one of the smartest guys in the boom. On day one, the shares 
closed at $35. Today, they are $5.50. The debt upon which the vast 
majority of private-equity deals depended has dried up. It was, as 
Time magazine observed: "A classic case of selling at the top to the 
suckers, which would be us."

3. RBS consortium pays £50bn for ABN Amro.
One month after Barclays had agreed to buy Dutch bank ABN, RBS and 
its partners, Santander and Fortis, made an aggressive counter-offer. 
Even as the market turned against RBS, it ploughed on. The deal, 
which seemed over-priced at the time, now looks like an act of 
corporate madness, not least because RBS more than doubled its 
portfolio of mortgage-backed securities to £68bn. Few acquisitions 
are so incorrectly priced they cost the chief executive his job. This 
one did for Sir Fred Goodwin.

4. Cerberus buys Chrysler from Daimler.
The US car industry is hopelessly burdened by pensions and healthcare 
commitments. Daimler, which knows a thing or two about making cars, 
could not make sense of Chrysler. Cerberus, a private-equity firm, 
gave a notional $7.4bn for the business but, in effect, Daimler 
slipped it a hefty cheque to have the wreck towed away. Daimler had 
paid $36bn for Chrysler in 1998 and blew a bigger fortune trying to 
restore it. With Chrysler heading for the scrapyard, was Cerberus 
barking mad?

5. Gordon Brown's Budget speech.
When a chancellor starts with a long burst of self-congratulation, 
it's time to head for the lifeboats. This is what Mr Brown said: "My 
report to the country is of rising employment and rising investment; 
continuing low inflation, and low interest and mortgage rates... this 
is a Budget to expand prosperity... our fiscal discipline is the 
foundation of the strength of Britain's finances." We knew his claim 
was risible. Since then, it has become ever more ridiculous.
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TELEGRAPH Blog    2.12.08
'Desperate' Gordon Brown eyes the euro
Posted By: Bruno Waterfield in Brussels

"A sign of British desperation" was the response of one well-placed 
person to the news that Britain is "closer than ever before" to 
giving up the pound for the euro.

The revelation, a gaffe, from José Manuel Barroso, the European 
Commission President, that the British Government was looking 
wistfully at the euro zone is mark of how the economic crisis is 
redrawing the political map in Europe.

There has been a lot of speculation as to who Mr Barroso was talking 
about when he said: "I'm not going to break the confidentiality of 
certain conversations (...) but there is a period of consideration 
under way and the people who matter (or it could be 'people who 
count', depending on translation) in Britain are currently thinking 
about it."

This newspaper and others have fingered Peter Mandelson as the 
culprit. The unelected Lord, and former Commissioner, is certainly a 
fan of the euro and has been much more active than most other of his 
(elected) Cabinet colleagues. But is he the man?

But the attention, I understand, would be better focused on Gordon 
Brown's recent contacts and conversations with Mr Barroso. The Prime 
Minister and Mr Barroso have discussed economic affairs, on a regular 
basis for some weeks and at least twice in the last month.

Mr Barroso visited Downing Street on November 17 to discuss plans to 
increase spending to support the economy and the pair spoke on the 
telephone last Monday night, after the British Pre-Budget Report last 
Monday.

As Britain's economy has dived from new low to low, Mr Brown has gone 
to great lengths to cultivate Mr Barroso and the French President 
Nicolas Sarkozy. That has been the conversation that has taken place 
and Britain has been a supplicant in the process.

As noted over on Certain Ideas of Europe, there is a irony in the new 
reality that Britain, now economic Europe's basket case, would 
struggle to get into the euro - even [if?] the British people voted 
for it.

Soaring public debt, the Commission called it a "spiral" last month 
and a plummeting currency that is daily devalued by international 
money markets on the basis that a Pound based on a non-value creating 
housing market and financial sector is really worth that much.

Mr Brown ruled out British membership of the euro in 2003 after the 
Treasury concluded joining was not in the UK's economic interest. It 
seems that the case is altered.
  "Fluctuating exchange rates with major trading partners within the 
EU can exacerbate uncertainty and increase difficulties caused by the 
economic crisis," is the analysis here.

Perhaps the euro zone, which hands over so much responsibility to 
unelected bankers in Frankfurt, seems more appealing when Britain's 
economic chickens come home to roost.

It may well be that the EU, with the hyperactive President Sarkozy 
and a new global initiative every week, becomes a comfort zone and 
reassuring displacement activity for politicians who are evading the 
tough questions a recession poses.

There are lots of questions as Britain plunges into the slump over 
the next few months. The euro is not the answer and if the Government 
has been yearning for membership it is another ominous indicator of 
the mindset in Downing Street.