Contrasting Fortunes

75,000 people. Yes read it again slowly - seventy-five thousand people will be losing their jobs from a single company, Citigroup, in the aftermath of the Credit Crunch fiasco.

Robbing Peter to Pay Paul - Zero Sum Finances Work

I haven't yet delved into the detail but I am fairly certain that the bonus pool paid out by Citigroup in the last 2 or 3 years would have been enough $billions to have paid for those people to stay in their jobs. It's not exactly what everyone has been raging about when they get upset about City Bonuses as most think about their own pockets. The Bank Bonus Pool would have been divided out in the main between a very small percentage of its employees - the elite, high fliers who 'create the wealth' as Mr. Fuld, formerly of Lehman Bros would describe it, no doubt. The reality will be that the mainstay of the job cuts will be everyday banking staff from backroom people to counter-manners and ATM stuffers. The thin wedge of elite will be mostly unaffected and even if they are they will have literally $millions to console themselves with.

Boom & Bust Cycles

It's happened before. Banks manage boom and bust cycles - make vast profits, gear up their businesses in mega-fashion, pay out incredible bonuses, then lose the lot and the average guy in the Bank plus the customer pays the price. In reality Banks make their real money out of loans, mortgages and charges - and that's about it.

Because it has happened so regularly, watching this bubble expand was particularly appalling as the average guy in the street knew it had to pop, and more so because the 'complex instruments of finance' which we were told we did not understand just appeared to us to be straight forward mega-bets with other people's money. It turned out we weren't so stupid after all.

Michael Lewis, who wrote a fine book called Liar's Poker about his time as a Salomon's Trader recently wrote a long article on what he now sees as the demise of Wall Street. In his book he thought that the public would gasp at the $3.1m salaries CEOs at Banks made or get angry that a trader could make a $250m loss and still get another job. But that was 80s money. Now Lewis asserts that Wall Street's big gambling arena must surely end.

I am willing to bet it won't. Too much vested interest will see to that and lots of free Government money too.

In contrast - Spend, Spend, Spend

Less than 6 months ago, if you cornered Gordon Brown in a lift and asked for a load of tax cuts so you can spend more he would probably have had you arrested for lunacy. His 'prudent' fiscal rules would not have allowed him to consider such heresy - in fact he has proudly resided over the largest growth in tax as a percentage of earnings in modern times, even more so than the Super-Tax of his long-forgotten forefathers like Jim Callaghan.

But in Callaghanesque style, Brown has concluded that despite the fact the country is already borrowing far too much in the IMF's eyes, and has so for 5 years or more, he now feels we should borrow for the Bank bail outs and, yes that's right, borrow to give us tax cuts too, so we will all go out and spend more.

Ignore the fact that inflation is now higher than when Labour took office, or unemployment too for that matter, and ignore the fact that major companies are shedding up to 6% of their staff in a single blow, ignore the fact that a potential 3m unemployed will place a massive tax burden on the country and create a hole in our tax revenue - just get out there and spend. And spend lots; just focus on that low interest rate.

Here is a pile of money to spend on buying new houses and goods, despite the fact that we have seen the biggest single fall in house prices in a year at 14% since 1932, it really does make sense to try and kick start the growth in the housing market.

And We Love It

In a perverse reverse of opinion, Brown's handling of the Financial Crisis has increased his personal stock when in fact we should be vilifying him for creating the mess. Thanks to numskull opposition leadership like Osbourne, the point seems to be missed every time.

The Economic Crisis in which we are sitting is a confluence of an economic downturn and a reluctance to lend. Both stemmed directly from the unreal growth experienced in the British Economy due to an unsustainable rise in house prices due a fiscal model which allowed Banks to offer more and more freely available, cheap and unregulated credit due to their adherence to unstable business borrowing based on financial instruments which were no better than bets at the horses.

As we lap up Brown's genius in gearing the country's borrowing to well over 50% of our GDP using our future tax receipts as collateral for the loans, remember each time we borrow more, Britain becomes less attractive as a place to invest. In the last few months it is estimated over £200bn has been sucked out of our Financial Markets, the very place we got that phenomenal growth in GDP from. Sterling has dropped through the floor, and Osbourne may well be right that there is more bad news for our currency as Britain becomes a walking credit risk for the future.

As The Day Dawns

Have we all worked it out yet? Yes, just like the 75,000 hapless people at Citigroup, it will not be the collective genius of our Parliamentarians who cough up the cost, it will be the guy in the street. As the 'Dark Lord' himself, Mandelson hinted, there may be some tax 'adjustments' in the future to cope with all this.

The future for Britain is on a knife edge. We are heavily reliant on two major sources of wealth as a country - 1) Oil and 2) Financial Markets. We already know that our North Sea reserves of oil are fast running dry but we are very close to seeing a potentially vast and possibly permanent exodus of capital from the City. Without much else to balance our payments, Britain stands on the brink of a slippery slope to financial ruin.

There is a heavy price to pay for the last 10 years of folly and the ultimate risk is that Britain becomes a poor Island. I really do believe, borrowing more and more will not help us turn this around in the long run. But then, I am not as clever as Mr. Brown, even though he could have called at any time in the last 5 years and I would have told him a massive hole would have appeared in his finances due to his reliance on the housing market growth which was vastly exaggerated.

In fact, any fool could have told him.