Britannia Radio

Finally at 2.30 pm I have prised the two articles by Halligan and 
Osborne from the Telegraph's site.  They are not so far apart as to 
be irreconcilable but the time is fast approaching when the Tories 
should be getting a very good idea of the situation they will be 
facing at a general election.  So to find Osborne still using the 
fatuous mantra of "slowing the growth of government spending" which 
was fatuous when they invented it and has now become ludicrous.

If that is to pass for Conservative 'thinking' then heaven help Britain.
xxxxxxxxxx cs

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SUNDAY TELEGRAPH    25.1.09
1. Full nationalisation of British banks is not the answer
The unlikely combination of Jon Moulton and John McFall united last 
week to call for the immediate wholesale nationalisation of Lloyds 
Banking Group and Royal Bank of Scotland (RBS).

By Mark Kleinman

"If it is to happen, the sooner the better. Let us get it over with - 
nationalise the pair of them," the pair wrote in a newspaper article. 
"With public sector backing, we can use these banks to restart the 
flow of credit. And they could lend a lot, since the Government can 
provide a better assurance of adequate capital than anyone else. This 
would temper the recession in the short term."

It was an easy argument to make against the backdrop of the most 
precipitous falls in banks' share prices on record. By the end of the 
week, Barclays, Lloyds and RBS had done little to dispel the idea 
sweeping the markets that full-scale state ownership will be 
impossible to escape.

But those who suggest that the share price declines make an automatic 
case for nationalisation have missed the point. Aside from the 
(crucial) interests of ordinary shareholders, the share prices of 
banks have become almost irrelevant. The banks are not in the same 
kind of danger of collapse that they were in October.

Full public ownership of the major banks would be a disaster. Its 
impact on the City would be incalculable, it would bring an 
unacceptable element of political bias to the entire industry's 
lending activities and it would destroy Britain's already-dwindling 
reputation in one of its genuinely competitive industries.

The time to make a proper judgment will be when the details of the 
Treasury's asset insurance scheme are published, not before. But it 
seems safe to assume that full-scale nationalisation of the banking 
sector would prolong, not reduce, the amount of time it takes the 
country to recover from this crisis.
==============

AND
2. UK's deepest recession since 1980 needs David Cameron to step up 
to the plate
The Conservatives seem to have had a good week. That old warhorse Ken 
Clarke has returned to the fold.

By Liam Halligan

The Tory front bench now boasts someone who's not only widely known 
and popular with the public, but with real experience in office - 
having run the Treasury and Home Office, as well as the departments 
of Health and Education.

With opinion polls giving David Cameron a double-digit lead, a return 
to Tory government is now in the offing. As Clarke returned, even the 
party's gun-slinging Eurosceptics held fire.

The Cameroons are being lauded for some canny positioning. But I 
can't help feeling political parlour games are a thin response to the 
economic problems we face.

The UK has now officially entered recession. Preliminary GDP data 
shows the economy shrank 1.5pc during the last quarter of 2008. Along 
with the 0.6pc fall in the previous three months, that amounts to 
"two successive quarters of negative growth" - the "r-word" definition.

This is the first UK recession since 1991, but October to December 
saw the worst quarterly downturn since 1980. As the credit crunch has 
tightened, starving millions of essentially sound firms of working 
capital, the impact of those toxic sub-prime loans has spread right 
across our economy.

The UK's manufacturing sector - often written off, but still world-
class in places - contracted an eye-watering 4.6pc in the last 
quarter. Even our much-vaunted services sector shrunk 1pc - not least 
given the job cull in the City.

Gordon Brown's out-of-control public spending has already put the 
pound under pressure. But these ghastly GDP figures sent sterling 
tumbling to a 23-year dollar-terms low.

In not much more than a year, our currency has lost more than a third 
of its value against both the greenback and the euro. Sterling is 
also at a 37-year low against the yen.

On a trade-weighted basis, the pound has shed 27pc since the middle 
of 2007. That's almost precisely what happened in the early 1930s, 
when the UK was forced off the gold standard - marking the end of our 
time as a truly global power.

Throughout this crisis, the Tories have clearly identified the 
problems [So far so good but weak on the remedies -see Osborne below -
cs] . While he's taken some stick for doing so, Cameron is right to 
highlight we could face a run on the pound.

The UK's current debt to GDP ratio is 54pc. Add in the cost of taking-
on the losses of some - or even all - of the UK's main clearing banks 
and, along with other bail-out costs, that ratio could easily double.

Even before that happens, the Government needs to issue three times 
more gilts in each of the next four years than it did during 2007. 
Under those circumstances, a "gilts strike", and an outright sterling 
collapse, is a very real danger.

After all, Britain is one of many slump-ridden, ailing Western 
nations trying to sell vast numbers of Treasury bills on global 
markets. Across the Middle East and Asia, foreign creditors - not 
least the Chinese - are sick of losing money on Western government 
debt. Such investors sold a record $24bn (£17.7bn) of US T-bills in 
November - and December data will surely be worse.

Western governments have long relied on Eastern nations to finance 
profligate spending. That reliance is about to be tested, possibly to 
destruction. So, again, Cameron is correct to say Britain "runs the 
risk", not to say ignominy, of a bail-out from the International 
Monetary Fund.

But such criticisms are only "on" if they're backed up with clear, 
concise, explanations of the Tories' proposed solutions. HM 
Opposition is good at political point-scoring, but what would they 
actually do?

The Cameroons put themselves forward as our next government, yet how 
would they tackle the biggest economic crisis in a generation, and 
the fact savings are at an all-time low? All we know is they (sort 
of) opposed Brown's ill-judged VAT-cut and they'd deal with an 
impending fiscal meltdown of historic - biblical - proportions by 
"cutting government waste".

Warming to the themes floated in this column, the Tories are now 
finally starting to accept the banking system needs to purged and the 
sub-prime losses "fessed-up".

But, again, the shadow cabinet takes the easy option, criticising the 
Government for "failing to come clean" about the true cost to 
taxpayers of bailing-out our banks.

That's a valid issue, but how about the Tories showing some real 
courage? Cameron should bite the bullet and publicly slate the all-
powerful banks themselves for continuing to systematically hide their 
losses - a reality that means the crucial inter-bank market remains 
frozen, blocking credit lines to firms and households and holding the 
rest of the economy to ransom.

Mr Cameron, red cheeks and cigar smoke aren't enough. The UK is 
crying out for real economic solutions - not just political stunts.
==============AND------>
3. Some basic truths need addressing to help clear up this economic mess
As Britain officially faces its worst recession for a generation, 
Gordon Brown is using what we might call the bankers' defence: "Don't 
blame me, everyone was making the same mistakes."

By George Osborne

We heard it deployed again in his depressing radio interview on Friday.
"Britain is the innocent victim of a downturn that comes from 
America," he intoned. "But thanks to me, we are well-placed to 
weather the storms."

The problem with this answer is that it is quite simply incredible. 
It provides no answer to the obvious question: so why is the 
recession forecast to be worse in Britain than any other major 
economy in the world, including the United States?

Look at the facts which are staring the international community and 
the British public in the face. Our housing boom was bigger than 
America's. Our households are more indebted, with the debts to income 
standing at 170pc for the average British family compared to 136pc 
for the average American family.

Our banks were allowed by our regulators to become more leveraged 
too, with tangible assets 39 times tangible equity in British banks 
compared to 17 times in US banks. Our government budget deficit was 
greater entering this recession than any other advanced economy. And 
our recent economic growth has been more reliant on banking than 
almost anyone else, with nearly two thirds of all new jobs in Britain 
over the last five years coming in financial services.

For the Prime Minister not to acknowledge these basic truths has an 
impact not just on his credibility, but also - more worryingly - on 
the credibility of British government policy. This is why Gordon 
Brown's tongue-twisting efforts to blame everyone but himself are 
making the recession worse. We need a Prime Minister who can honestly 
address the mistakes of the past and the weaknesses of the present, 
so people have confidence in his policies for the future.

The first priority when it comes to restoring confidence in 
government policy must be on the banking front. Ever since November 
the Conservatives have warned that the recapitalisation wasn't 
working, that the terms were too expensive and that loan guarantees 
were desperately needed to get credit flowing to businesses so jobs 
were protected.

Our warnings were ignored and then finally accepted. But when Gordon 
Brown eventually unveiled his second bank bail-out, it could not have 
been more badly handled. Far from increasing confidence, it sent bank 
shares tumbling and the pound sliding. Why? Because after a weekend 
of leaks from the Treasury, what we got was a plethora of complex 
Government initiatives and an insurance scheme without any detail. [- 
still ! -cs]  Markets hate uncertainty and lack of detail. In 
addition, Downing Street was apparently unaware until it was too late 
that the announcement would coincide with the news that the Royal 
Bank of Scotland had made the largest loss in British corporate 
history, which meant it looked more like a rescue package than a shot 
in the arm.  [The date of the RBS announcement had been known - even 
to me - for ages and the coming horror of it for about 10 days!  Were 
they asleep? - cs]

And at the same time, and without even bothering to tell the 
Chancellor until the last minute, the Financial Services Authority 
decided to lift its ban on short selling. You could not have had a 
more stark demonstration of the lack of coherence at the top of the 
Government.

What we need is an audit of what the potential losses of the banks 
might be, under different economic scenarios, so we have an idea of 
what the public is being asked to insure. The banks need to have a 
clearer idea of what the premium will be and how it will be paid. The 
Government says all this will take weeks to work out, but the US 
authorities were able to give Citigroup and Bank of America details 
of their similar scheme over a weekend. Above all, we need some 
confidence that the British Government has a longer term idea of 
where it wants our banking system to end up. Otherwise everything 
they do will inevitably look like a short term sticking plaster.

But it is not just banking and credit policy where confidence in 
Government policy is lacking. The public and the international 
community are increasingly alarmed at Britain's rising debt. Labour's 
debt crisis has its origins in Gordon Brown's unfunded spending spree 
in the boom years, when he so conspicuously failed to fix the roof 
when the sun was shining. It has been made worse by the decision to 
borrow further billions to fund the temporary VAT cut. [The £12bn 
cost of the VAT cut has been a total waste of this vast sum -cs]

That is the fabled fiscal stimulus the Prime Minister has boasted of, 
not some great programme of public works. Readers of this article can 
judge for themselves whether a temporary VAT cut paid for by 
permanent tax rises on working people has had a confidence boosting 
effect. The near universal verdict from Britain's biggest retailers 
is a resounding "no".

A far more sensible move would have been to remove the tax on savings 
income for basic rate taxpayers, and increase pensioner tax 
allowances, to help the millions whose incomes have been decimated by 
cuts in interest rates. Conservatives would fund it by sensibly 
slowing the growth of government spending [No NO NO  -  It MUST be 
drastically cut -cs]   and instilling a culture of financial 
discipline in Whitehall. It comes alongside our proposals for public 
service reform and an independent Office for Budget Responsibility, 
so that we have a clear plan to get Britain living within its means 
and deal with Labour's debt crisis. We understand that Britain cannot 
borrow its way out of debt.

Confidence in Britain's economic future and confidence in British 
government policy are two sides of the same coin. Both are lacking. 
Both need to be urgently restored. Without them the recession will be 
deep and the recovery delayed.

The question is whether a Labour Prime Minister who denies there is 
even a problem can ever be part of the answer.
------------------------------------------------------------------------
---------
George Osborne is MP for Tatton and Shadow Chancellor of the Exchequer
========================
ECONOMIC 'Shorts'   23.1.09

SUNDAY TELEGRAPH
=GKN to offer 'token dividend' as it slashes workforce by thousands
=Fall in sterling may avert UK depression
The devaluation of the pound over the past year has given Britain its 
best chance of avoiding a depression, experts have said.   BUT ---
=Weak economies tempted to quit the euro face a fate worse that the 
current squeeze   - - - - -
Although that would give a fillip to exporters, the value of its 
debts when translated into the new devalued currency would soar. 
Governments, private-sector borrowers and banks would find "hard 
currency" debts virtually impossible to service. The end result would 
probably be bankruptcy - a fate far worse than the current squeeze.
Politicians driven can, of course, make errors. But pulling out of 
the euro would be so crass the even populist politicians will surely 
avoid it.

SUNDAY TIMES
=The government to probe bank auditors
The government was under pressure last night to investigate the role 
of auditors in the collapse of British banks
=Corus to axe 3,500 jobs as crash hits steelmakers
The cuts are likely to overshadow this week's announcement by Lord 
Mandelson of aid for the car industry
=Severn Barrage plans revealed
Ed Miliband will unveil five proposals tomorrow for the tidal scheme 
that could become the country's biggest source of renewable energy
=Britain is not Iceland. Is EU the next Japan?
If there was a currency I would be worried about at the moment, 
however, it would be the euro   (David Smith)

BBC ONLINE
=Recovery 'to take years' - Clarke
The UK's economic recovery is likely to take several years, shadow 
business secretary Ken Clarke has said.