You can read all 237 pages of the UK Government pre-budget report if you really want to, but to save time, cut to the chase o page 198. This tells us what the Government earns, spend and the difference between the two, and explains the headlines we have been reading. The biggest one shows UK Government (or is that ‘our’?) debt growing to £1,084,000,000,000 in 5 years time. That’s £17,777 owed by each person and child in the UK, at 2007 population levels. This time it’s serious. See Thus passim for more on the UK’s parlous credit status. (Thanks to Buckle, Green for pointing to p. 198. I personally have no intention of reading this meritricious jibber-jabber).

Innovative retail finance will replace failed banks with Scottish names

Beggars can be munificent, however. It’s cheering to note that the deposits of 10,000 savers with London Scottish Bank, a former secondary banker (credit trader) have been guaranteed by the government Financial Services Compensation Scheme. though the bank has gone into Administration (Chapter 11). London Scottish was a sub primer lender by any definition. Its business was old-fashioned money lending to people with a poor credit history, debt collection and fixed interest deposit accounts. It was a better example than most of this somewhat rancid but arguably necessary business, but its elevation to the status of a bank serves as an example of the failings of regulation in the UK financial services sector. While pleased for the depositors (but puzzled as to why folks would deposit money with the tallyman), I wonder if Gordon and Alastair were swayed by the faux-ethnicity of this Manchester ‘bank’. ‘London Scottish’ which joins Bank of Scotland and Royal Bank of Scotland in putting out the begging bowl. Next, pawnbrokers may be eligible to apply to the government to guarantee pledges, secured against dodgy watches, bling and musical instruments. UK plc might become a leading secondary market for such items, replacing our financial services industry, until a few weeks ago the envy of the world and other planets.

I made a rare visit to my bank last week, and was reminded why. I needed to send £62.00 to Switzerland. After a lot of wasteful form filling, I was charged £20.00 for this ‘service’, which will take 4 working days to process. The exchange rate is likely to operate on a 1.5 – 2.5% spread. The total transaction will be close to £100.00. Adding injury to insult, the bank called me and asked for ‘further proof of identity,’ despite giving them my card  and pin number, both of which they had issued. Some of this idiocy relates to the belated money-laundering regulations imposed at the behest of America and the EU (to which Britain, but not its financial system, sometimes belongs) after some British banks had scooped up most of the Russian mafia’s savings accounts. Part of it is endemic ignorance, inefficiency and extreme parochialism, but mostly it’s just routine gouging.

From Williams and Glyn's to RBS to HMG to Carey Street

I have been a customer of this bank since 1973 when it traded under the reassuringly Victorian name of William’s and Glyn’s, originally a Manchester bank I believe. I was attracted by the promise of an ‘alternative’ to big banking (no surprise there) but saw it morph from the smallest to the largest, most leveraged, most greedy and now most government-owned. I didn’t move because I thought the rest were probably just as bad, knew that some were worse, but not because it ever tried to reward my loyalty. The abiding reason why Royal Bank of Scotland’s shareholders failed to snap up its second rights offer this year, forcing the government to underwrite £14 billion of our money, is related. Apart from paying far too much for both NatWest and ABN Amro with little evidence of real synergies, the RBS policy of gouging and bullying its customers once it became a giant, proved unsurprisngly counter-productive. Natwest owns Coutts, bankers to the Queen, who enjoys a more personal service than most, with an ATM machine in the basement of Buckingham Palace. Presumably the recession will mean that she will also receive a personal professional beggar in blankets to moon about outside said cash machine, asking for spare change. I digress, but I have always found this puzzling. The smallest denomination of currency these machines dispense, if you can find one that works, are £10.00 notes, not change. Given the shaky state of RBS finances, HM might be well advised to switch to GiroBank or the Post Office Savings Bank. They will probably give her a free plastic piggy bank or install a box in the basement with a bloke in it pretending to be a cash machine, handing out readies.  

RBS was good when its core business was personal banking. As things stand, the government has bought another turkey, which moreover operates back office banking for Tesco, Sainsbury and several of the other quasi-banks that have sprung out of our ‘vibrant retail sector,’ not to mention retail insurance (Direct Line) and mortgages. This will not be its last cash call. Break this monster up, give the Dutch their own busted bank back and repay the taxpayer as quickly as possible.  And encourage our banks try and at least pretend to be interested in Europe.

PS. Consider buying RBS shares if and when they get below 40 pence, if you’re into that sort of thing. Their asset value is greater than that and in the hands of decent managers the bank, if broken up, could thrive anew. The Tories are bound to sell them back to the markets, if only to ease the debt burden, which means 2010 at the latest. Bradford and Bingley and Northern Rock were should have never demutualised and both were mismanaged by oddfellows. HBOS is a puzzled entity, a mixed marriage between Bank of Scotland, a commercial bank which had few retail branches in England, and Halifax, once the UK’s largest building society.  Halifax were very inexperienced and bad at banking, while BOS were not adept at small scale mortgage lending. Result: misery. Their shares are probably a bargain at around 55 pence on the promise of a divorce. You’ll need to wait a couple of years to see a return, though. The FT SE100 index is likely to fall below 2600 in my opinion, as people are forced to liquidate whatever equity they have. On second thoughts, don’t pay any attention whatsoever to me, or to financial journalists, who are mostly feckless layabouts or blowhards. Play ‘share picking’ monopoly in your head and mentally kick yourself when it all comes true, banks are valuable again, the sun still rises in the morning and the sky didn’t fall in.

Woolworth crash will decimate the music industry

The latest nightmare recession headline is that Woolworths is about to go bankrupt (again) with the loss of more than 30,000 jobs and 860 store closures across Britain. Have the government thought this one through? Where are we going to spend the windfall cash bonanza that Gordon and his elves have earmarked to save the economy this Christmas? The country needs us to buy dancing santas, 6 ft high inflatable snowmen, artificial trees that randomly collapse like Bradford and Bingley, showering glass bomblets to choke the dog, snow globes filled with fetid water from Chinese open drains, anorexic Barbie dolls, unplayable TV Tie-in board games, Selection Boxes, plastic fish that sing ‘YMCA’ if you’ve remembered to buy the batteries. Where will we source Etch-a-Sketch, not to mention ‘Now That’s What I call Music, vol 201?’ Boney M live at Guantanamo? What about the Beano Annual? Has anyone thought about the Pick n’Mix mountain? How will we provide leery passport pictures with the collateral shortage of Photo-me booths?

Hidden assets - an Eldorado of chocolate coins

Actually, like the War on Terror, this is largely playful scaremongering. We can source some, if not all of this oxygen of consumerism at the Pound shops festooning our tumbleweed High Streets and at car boot sales. But Woolworths have gone one step further. In an audacious attempt to outdo their rivals in tat, and a last demonstration of their fabled retailing nous they offered all 862 shops on a first-come, first-served basis (provided you can find a manned till) for a shiny one pound coin (or a packet of chocolate coins, provided they are of Woolworths origin). I’m no Philip Green (thankfully) but did this send out the right signal to a potential buyer? Whitehall’s Willy Wonkers should seize upon this golden investment opportunity and nationalise Woolies, saving jobs, preserving our heritage, restoring the much-needed feelgood factor and providing ‘fiscal stimulus’ in one fell swoop.

The New Labour Woolworths empire might also include MFI, purveyors of white formaldehyde sofas, collapsing hardboard wardrobes and pouffes to the indiscriminate and the sub prime. For a modest fee to consultants and financed by one of the many government-owned banks, the new entity could be rebranded as GUM, after the highly successful USSR engine of supply-side retailing (now, ironically, a luxury outlet). Auto manufacturing could follow, had we not already sold Rover to clearly mechanically-illiterate Chinese communists, Nanking Auto, for an eyewatering £60 million in a cruel act of industrial sabotage. I’m amazed they didn’t buy Reliant at the same time.

British manufacturing hegemony may yet return

But all is not lost. This week brought the news that Yugo has conked out, a belated victim of the Balkan conflict. The government could indulge in a spot of liberal intervention and import Yugos for first-time car buyers caught in the trap of not having enough cash to buy a real car.

Of course, this is a riff too far. People who genuinely cannot afford a car can rush to Woolworths before it closes its doors for the last time and enjoy a driving experience in a Noddy car ride, or drive away with a plastic dashboard and steering wheel that makes pointless parping noises.

Wilkins Micawber, new Labour economics guru

Before spreadsheets enabled geeks to assume they could manipulate the economic weather, we knew that if we spent too much, we’d run out of money. If we ran out of things to sell or do in return for more money, we’d be in trouble. If we borrowed money at unrealistic interest rates, we’d be in even more trouble. If we borrowed money with no intention of paying it back, we’d be beggars and pariahs.

If we intend to borrow money for a ‘fiscal stimulus package’ when most of the developed economies are scrabbling to do the same, we will need to demonstrate that we’re a better bet than the other guys, offer a higher yield to the lenders or form an international syndicate – effectively what Brown is trying to do. Going it alone is risky. According to the IMF, British external debt is hovering around £UK 6 trillion. Net assets are around £350 billion. Gross domestic product (GDP) is around £357 billion and falling.

Gordon Brown is hassling the part-nationalised banks, tied to a 12% interest rate, to repay their government bailout loans, to start lending to businesses without further ado before it is clear where the backstop cash is coming from. They are ignoring him: losers don’t lend to other losers. Meanwhile, who does he strong arm to lend to UK Plc? The Americans have £13 trillion debt and troubles of their own. They might need to turn a tad protectionist. We’ve been routinely horrid to Europe over the past eight years, even though we’ve been net EU contributors. Unsurprisingly, the majority of our trade is with the Eurozone.

Back to the syndicate idea. The European Central Bank is sort of a pompous mutual savings and loan organisation. The once-stern criteria for entry into the Euro – sound fiscal policy and limits on public spending as a proportion of GDP – have probably been breached by the majority of its members of late. Regardless, as a result of Eurozone membership, Greek bonds are likely to be more attractive than those offered by the UK and even the US. (Thank you, Stilpon Nestor, late of OECD, for this insight. We had lunch today. Thank goodness we didn’t drink or this would be even more mazy).

This might be a good time to start thinking about how to get back into the Euro club. It may require a degree of grovelling and scraping. Labour still has an outstanding election pledge to give the electorate a referendum vote on the Constitution (‘Treaty’) but the Irish have given us all a breather. Europe should be a big ticket item on the forthcoming election agenda. The Tories have a recent history of Europhobia, which is ironic, since Ted Heath took us into Europe and the Iron Lady signed the 1992 Maastricht Treaty. The UK took part in European Monetary Union from 1990 until recession and George Soros forced an undignified exit in 1992. Incidentally, Britain was the fifth, not the first currency to be forced out. It is a mistake to compare EMU, an exchange rate mechanism, with a merged currency such as the Euro and it was an accident waiting to happen to peg our exchange rate, at an all-time high, to a falling Deutschemark. But no such problems now. Sterling is so low we could enter with ease. They might even welcome us back, prodigal style. We are a big, if obese, economy with Europe’s best financial markets.

The alternative is to carry on pretending we have a special relationship with the US. The problem with this approach is that it implies continued reliance on a busted economy and a falling dollar. Or we can go cap in hand to the IMF. Remember 1979?

We will need to have some sort of ‘fiscal stimulus’ unless we want to do a Hoover (the president, not the failed vacuum cleaner company, although there are similarities) but to do that we need allies, since we’re basically skint. There is an obvious mutuality with our European neighbours, and the Euro makes for a better spread bet than a single national currency. Labour and Tory will need to be explicit about their respective positions. Both have been suspiciously tight-lipped. Make sure you ask them what they think about Europe when and if you are called upon to vote, which I think will be next November, by crisis more than design.

Feel free to tell me if some or all of this is wrong. I’m not proud. I’m not an economist, but I’m Irish and was educated by Jesuits. It’s what I’d do.