'My Farts Smell Better Than Yours'

I think most people would agree a fart is a fart. I suppose there are those connoisseurs of the subject who would claim that some are more powerful, deadly or obnoxious than others but in reality they are pretty unpleasant generally.

Why do I mention this odd subject? Well, I have just listened to the weekly puerile urinating contest which is euphemistically called Prime Minister's Question Time. It has been a dodgy old week for the PM as the news that the size of our economy has been over taken by Italy's was not ideal but the fact that we have now experienced 6 quarters of successive contraction of our economy denoting the most prolonged recession since records began has taken some precedence. It gets worse for the PM as he has been somehow persuaded to go lobbying in Europe to have Tony Blair elected as the first permanent President of the EU. It could not have got much worse when David Cameron fired a few salvos at him about the economy.

Perhaps the PM has led a sheltered life but he grimly clung onto the notion that despite the obviously dire economical position the country finds itself in, when he has repeatedly claimed that Britain had a superb economy and so would not be badly affected by any recession, he actually argued well at least it was better than if the country had followed the Conservative policies. To round that illogical argument off, he claimed that unemployment was ONLY 2.5m and that he had proved that for every decision he had made on the economy he was right and the conservatives were wrong.

It's the kind of daft thinking that comes from desperate people but sometimes you have to believe your own bull. He basically argued that he had 'farted' but at least it wasn't as smelly as Cameron's.

The fact remains that prior to the whole crash the bill for those claiming benefits for being unable to work was at an all time high while unemployment is now at a higher percentage than when Labour took office. Finally, despite all reassurances to the contrary, our recession continues to dog us despite the enormous amount of 'Stimulus' we had given it and we have not even tried to get rid of wastage on the annual public sector budget, let alone start prioritising spends.

It could be described as monumental hubris as opposed to sound financial acumen, yet that has been the path followed in order to get us into this mess so we should not be surprised that it is the same methodology used to try to rescue us.

The one moment of 'victory' for the PM was the announcement that the EC will not stand in the way of the plan to split up Northern Rock so that the profitable bit can be sold off while the smelly bit with all the dodgy debts in is retained and underwritten by the taxpayer. In doing so, the PM claimed this had saved 3,000 jobs by nationalising the bank and now the public could get some of its money back while underwriting the toxic debts of the 'bad bank' left behind.

For those of us with an iota of intelligence, we will have noticed that the first prospective bidder is none other than Virgin who actually made an offer for the bank when it hit the crisis. At that point, the Government argued that the deal did not inject enough capital in and so rejected it for nationalisation instead. A while down the line, Virgin will bid for the profitable bit and not have to provide any capital for the smelly part. It may be argued that the same deal could have been done at the onset of all this and the same number of jobs been saved as the public would have had to have underwritten the whole thing then and now. So we have paid £90,000 per month for Sandler's fees and much more for the army of consultants used just to get back to the same basic position. Some 'victory'.

It about sums up the whole economic policy of this Government - a whole load of knee jerk reactions costing £1.4 trillion which has not got us anywhere. The whole process of rescue has been one colossal 'fart'. But at least it smelt better than the Conservative's fart, had they indeed been in a position to exercise their muscles.

Small comfort as we view the potential cost of the economic mess we are in.

"A Socially Useless Activity"

I don't think the FSA has done its job properly. I lay that responsibility directly at the feet of its Chairman, Lord Adair Turner, and his inept and idle CEO, Hector Sants. That said, it is a bugger's muddle to sort out the banking industry and get it properly regulated.

Why? Because it is so powerful and the people in it are powerful. So when Lord Turner finally speaks his mind and shows he actually has a modicum of understanding of how the general population feel about the kinds of bonuses people earn by simply pushing our money around, without a jot of accountability if they lose it but incredible bonuses if they gain some profit, he gets castigated by the industry as if he has suddenly put a pile of fresh horse manure on their dinner table.

Turner has suggested that some investment bankers perform 'a socially useless activity'. The industry was deeply offended but frankly it was a comparatively minor insult. For a few years, each morning I used to listen to some of the inane and positively insulting talk that bankers come out with when I attended a City gym. The locker room conversation was all about measuring manhood in terms of how much money they could blow in champagne bars, restaurants, on new cars and holidays while their lack of knowledge and understanding of the markets they operated within was clearly limited and each was looking for a lead from the other to actually do their jobs. You have only to read or listen to the disparity in opinions on the markets by so called analysts to know that much of the City aura is, in reality, guesswork and controlled by strokes of the buttons on computers.

That much was proven in particularly the UK's response to the financial crisis. We have burned money and printed more as if it were old wallpaper to save the financial system at a cost of real things like jobs and manufacturing. And now here's the rub.

The Telegraph yesterday printed an 'apology' for the bankers after Lord Turner's insults which included charging banks a 'special tax on pre-remuneration profit' (he must read my blog as I proposed the same, less elegantly) and they illustrated a heartstring-twanging litany of why we should feel sorry for bankers. You see, the financial sector employs about 1m people or around 5% of the workforce and 13.9% of the tax take came from the financial sector in the form of around £25,000 per employee, £12bn in Corporation Tax, £15bn in income tax and £3.2bn in National Insurance Contributions. The tears are welling up.

But before they start to tell us how important they really are, let's also remember that the financial sector only contributes 7.1% of the UK's GDP. And here's the reality - in the financial crisis triggered by the credit crunch, we are set to double our Sovereign Debt in order to pay for the losses incurred in the sector, which could take borrowing as high as 99% of GDP by 2014 if you believe some figures. To date we have printed £175bn of new money to heal the wounds caused by the industry while it is thought as much as £1.3trillion in capital, loans and guarantees has been used to prop up their industry, yet their net annual contribution to the tax budget is just £30bn.

We have helped them deskill their jobs even more as we have now fully guaranteed their future losses and given them virtually zero-cost money to replenish their cash and to go and play their games again as the markets bounce back. And once again earn the billions they feel they so richly deserve.

People argue that such taxes proposed by Lord Turner would drive 'talent' away from the City and I have argued 'good riddance'. If that is the cost of picking up the tab for them, then let them go. Reality will catch up with the financial industry - there is no such thing as zero sum accounting for taxpayers. When we lose money, we have to pay for it - there is no magnet that brings it back.

I think it is time we got some perspective here. These financial so-called gurus are not as brainy as they think. They have had the best jobs in the world which have catered to their greatest whims of making money. They are ordinary people, with no real intelligence who just have an unfathomable lust and greed for money. We have set up a global system for them to skim off a share in the profits of simply moving money around and placing bets and we have propped up the system with more money then we have for them to keep doing it. In doing so we have not checked the system for flaws or weaknesses or even bothered to understand it - we have just pledged money because they asked for it.

Enough with their sob stories of what they do for us - it's time they paid the cost for what we have done for them. If Turner is finally growing some teeth and claws, then let's hope he has the courage to use them this time around as last time he was just an ordinary guy who failed dismally to do his job, just like all those who pursued in 'socially useless activities' - the investment bankers.

It's heartwarming to know that while we would not give such people the time of day, Gordon Brown pays them £millions for their advice as to how to solve the financial crisis they got us into. Hasn't got us very far yet, has it?

Toxic Flaw

Oh, it was so obvious that I just wanted to scream it at someone. I even pointed the damn thing out on this blog - and believe me, that is not a good thing.

You see, it was obvious that the banks, in the turmoil of the credit crunch, had no idea how much their exposure to toxic debt was - and neither did the Government. So when invited into the Asset Protection Scheme(APS), banks just dumped whatever they could in there, irrespective of its true status. In fact they chucked whatever they could and probably with about as much attention to the whole process as when they signed the debts up. So, in applying for cover of £584bn of toxic debt insurance, they paid scant regard to whether any of the instigators of the debts wanted to restructure or repay them - they just assumed it was toxic and that was that.

They probably didn't even tell the companies affected by their actions. And so, when some of the companies whose debts were ring-fenced as toxic wanted to restructure their finances, they found that their debts were in a toxic quagmire and if they wanted to do anything about it then they had to negotiate with both the banks and the Treasury. It means that many companies affected by this are in 'limbo'. It's claimed that Private Equity houses (what? cast as the good guys) have been contacted by companies who want to write down or repay some of the debts only to find they are in the complete khazi known as APS and so they are just part of the confused mass of steaming toxicity that no one wants or is incentivised to deal with.

I parodied this before but how sad that satire mimics real life as the guardian of the APS is paid a mere £140,000 a year while his fat friends in the FSA, who have increased their borrowings by £200m no doubt to cover the vast salary base and bonuses for staff, who sat by and let all this calamity happen are in fact incentivised to cause financial disaster.

You really could not make this up - the owner of the APS process is not on any kind of incentive to reduce the public's exposure to the toxic debt by renegotiating with those who WANT to restructure or repay. The guardian is merely there to watch over it - I actually joked about this and feel sick in the stomach to find out my joke was in fact reality.

The seagulls in Private Equity are circling the ship as the crap is being thrown overboard as Eric Cantona might have put it. These chaps actually like all this delay and confusion as it means that those within the ring-fence are now seriously devalued and represent an easy target for a fast profit if they can pick them off cheap.

With the executives at Barclays and RBS about to stick their snouts seriously back into the bonus troughs, it is really heart warming to know that the whole toxic debt/bad bank catastrophe has played right back into the hands of the greedy swines who drove us into this mess.

For those private equity pirates, ring-fenced indebted companies represent vast fast bucks at the expense of the biggest bank rolling bunch of mugs in the country - we, the taxpayers.

Where do you look for answers on this or to blame? The Government has clocked up £millions in fees to investment bankers and lawyers to get us into this stupid state where the public bail out banks and then are shafted as fat private equity houses shaft us at our cost by picking off the ripest cherries from the Bad Bank. Brown, Darling, Mandelson and Myners burnt the midnight oil and must have sipped absinthe to have fallen for the slimy tricks of the very bankers who got us into this mess. It is just stupid, ill-thought through mistake after mistake and this one was so obvious that even I thought of it.

That's not the sort of thing Alistair Darling wants on his CV, honestly.

Have We Started The Banking Bubble Again?

The biggest issue with bank bail outs is that there has been little or no reform of the banking and financial system to stop the whole bubble happening again. While it is good to see some recovery in bank performance, the danger is that all the new money is ploughed into exactly the same products as before and we just start the carousel again.

Barclays have just announced a great set of figures with income up 42% and profits at £1.37bn, 15% up on the same period last year. Total income almost doubled, thanks to a strong performance at their investment banking arm, Barclays Capital.

Alarm bells go off.

You do mean that in the last year, the bank has doubled income despite a decrease in the world markets? Ok, so that means they either go lucky or they were investing in something else like share shorting or these lovely products that just produce profit from nothing.

Barclays are not one of the banks we bailed out but that should not make us any the less concerned. The FSA should be all over these results like a bad rash. How can such profits be generated in such conditions? Barclays has not taken part in the Government's Assets Protection Scheme which allows banks to sideline toxic debt and have the taxpayer underwrite it, so where is the bad debt provision at Barclays?

It appears Barclays is one of the few banks in the world that has been run exactly as it should according to these numbers although they have had around £7bn of new capital injected into them from private investors. So now what happens to this profit?

Yes, you guessed it, it will go into the bonus pool and be shared amongst the executives for vast payslips. The carousel has started again and we just stand back and watch. Brown heaves a sigh of relief that the City will love him again and bank executives across the globe see that normal greedy service has resumed.

Meanwhile, we taxpayers sit here and watch in awe as all the bad debt resides with us, freeing up these greedy bankers to earn profits out of nothing again and their bonuses. How nice of us to be such grateful mugs and we have an awfully short memory too.

Of course, people will argue that Lord Adair Turner's report on regulation is the pinnacle of deep thought on the subject but it appears no lessons have been learnt. Billions will be earned again until the next time the markets freeze and we will have another set of recessions, deeper, harder and more profound each time we stagger, knowingly into it.

As much as I applaud Barclays for not exposing its debt to taxpayers, I am appalled that such profits can again be generated, bonuses paid and we haven't even finished sorting out the last mess. It angers me that the people of this country have yet to get answers to their last questions on how did this happen before we allow it all to start again.

History will prove that while propping up the financial system was necessary, setting it back on the same course will prove to be a cataclysmic mistake.

Time For Pay Back?

Just when we thought it was one way traffic and all the money was flying out of our pockets, the news is that Northern Rock will probably be sold later this year and we can get some of those £ billions paid back committed on our behalf.

Well, it won't actually work like that. You see, Northern Rock will be split into two before such a sale occurs. One half will be a pristine looking, well financed company with lots of new customers going to it and probably sold for around £2 billion which will constitute a net loss to the taxpayer of around £1 billion (oh, and that's a good thing, by the way, as the original forecast was to lose £1.3 billion).

The other half of the bank will be the 'Bad Bank' full of those stinky toxic debts and our erstwhile investment company, UKFI, who manage our portfolio of failed banks, are busily headhunting for a CEO for 'Bad Bank'. What a job that will be - doesn't matter how they do because the losses are so huge they surely cannot get any worse. Sure fire winner - I hear Fred Goodwin is available.

This suits the Government nicely as they can validly claim there is a way to exit all this manifest stupidity of buying into all the banks to save them. The fact that we make a 33% loss on the deal is neither here nor there, at least there was an end date.

Possible buyers for the 'Good Bank' are Virgin Money and National Australia Bank. You may remember that Virgin One had been one of the bidders at the time of NR's glorious failure but the Government rebuffed the idea to handle matters themselves. £90k per month later for Ron Sandler, £ millions on armies of consultants and several bonuses for staff for repaying some of the vast amount of money they owe and the very same company can buy the cleared up balance sheet for a song with no vast liabilities tied around their necks. We are left with all of those as we would hate to get rid of them.

So in summary - we buy a failed bank, pay millions in fees to do the obvious, sell the best part for way below what we paid for the whole lot, then be saddled with the real toxic debt worth £ billions. Super plan, must have been worth all the £ millions of advice paid to the investment back advisers for that one - I could have come up with it for the price a beer and packet of salt & vinegar.

It about sums up Alistair Darling - grade A pillock.

When Governments And Commerce Collide

There is a good reason why Governments interfering in commerce is not a good idea and that's because they generally change the rules or allow it to happen. As we have seen in the past with the Railtrack fiasco, even if companies get into trouble, nationalisation should be a place of last resort.

What we are seeing in this financial crisis is a series of knee jerk reactions which typically end up favouring certain businesses and markets over others and the same can be said for individuals. While people with mortgages have had their woes eased, those saving for the long term have been hammered seeing not only their investments trashed heavily in the stock market dive but to add to their heartache their savings are not getting anything either.

Northern Rock

The same can be said of bondholders at Northern Rock. While it could be said the bank would have gone bust without Government intervention, people who funded it previously stand to lose out considerably as new proposals are forwarded by the Government-paid clever Consultants swarming all over the Rock.

Northern Rock has now revealed it is to create a 'Bad Bank' of its own to park its 'Toxic Debts' as a spin off so that it can start relending in the mortgage markets where there are lucrative rewards to be made in a new risk-clear legal entity. How very convenient.

Of course, in the real world of commerce such a thing could not happen and certainly not without some recourse in law. However, creditors who hold the bonds fear they will get dumped into the 'Bad Bank' and the Northern Rock bond prices have slumped on the news. It will not have escaped their notice that around £12bn in bonds were held and the new mortgage funding Northern Rock will release will be £14bn.

Bonus Bonanza

In the bizarre world of the bank bail outs and Credit Crunch fiascoes, despite announcing a £1.4bn loss, Northern Rock will be paying its staff and 100 executives a nice chunk of bonuses, principally as they hit their deadlines of paying off £18bn of the £27bn we loaned them. Of course, we as taxpayers get no bonus for helping them out as the buck stops at us but while we hand out money, companies can do what they like with it. I don't suppose we have a great deal of sympathy for the holders of the £12bn of bonds but it must gag in their throat to see what is going on here.

Having clapped themselves on the back for paying us back on time, there is a catch to be heard. Naturally, now that Northern Rock has fulfilled part of its obligation, it can change the rules. It has now decided to start relending in the mortgage market to make fat profits again and therefore it will pay us the rest of the money back at a much slower rate, which means they can pay themselves whacking bonuses on the profits to be made.

We must be mad, but that's what we agreed to.

Government Interference

This all started when the Government took over Bradford & Bingley. They unilaterally rewrote contracts which would delay capital repayments and reduce interest - see, it's easy when you are not subject to the law. This affected what is known as the sub-debt market where these bonds are traded and spreads became far wider as creditors started to panic.

It's fine to do it right now but of course this has long term repercussions. The sub-debt market is a vital area for all companies to raise money by issuing bonds upon which interest is paid at an agreed fixed rate. If the Government is going to start playing God in these markets then potential creditors will just walk away. While that may be a viable risk in the short term to get banks out of the mess they are in, going back to it in the future will be difficult. This has a potential spin off in the equity market where nationalisation plays havoc anyway. In reality, the City is very dependent on what the Government does today to ensure it is a long-term viable centre for capital raising. At this moment, the prognosis does not look too good.

Losses & Losers

Gary Hoffman, CEO at Northern Rock, whose puppet strings are pulled by the Consultant Ron Sandler, confirmed the taxpayer would not be paying anything further than the £3bn of capital we promised in August claiming this was enough capital to manage good and bad assets.

However, capital is being used pretty quickly there. Northern Rock suffered £1.4bn in losses in 2008, writing off £900m of bad debts and they are expected to make significant losses in 2009. The FSA has already had to waive its rules again with Northern Rock on its capital levels, you might have thought now was the most important time to be very hard. The fear is that the £3bn new capital is already blown and that creditors will be the ones holding the new losses.

Never Mind That - Lend!

Northern Rock, under the original plan, was due to return to profit and be free of our generosity by 2012 - which seems long enough, quite frankly. However, Hoffman has now confirmed that the strategy has been 'suspended' to allow it to lend the £14bn over two years at up to 90% loan to value. How nice of them to consult us before informing us they are re-inventing the rules. In fact, it is no longer apparent when Northern Rock will once again be a private company as the executives seem to see a great opportunity to have 'the best of both worlds', i.e. to make whopping profits on loans and capital they have unrestricted access to on their own terms which they can change as and when they like. It's too good to be true - but it is. How a private company would love to have such wonderful terms to raise funds, yet banks are having this luxury.

In fact, having paid back £18bn of its £27bn loan from us, it plans to slow its repayments in order to borrow a further £10bn to support the new lending while its bonus payments are a mere snip at just £9m although senior staff may get deferred bonuses in the form of loan notes - slightly dangerous as Norther Rock now has a policy of changing loan terms whenever it wishes.

We are a generous lot, we taxpayers, you know. We have also granted Bradford & Bingley the right to pay £1.7m in bonuses and a further £1.3m in deferred bonuses to senior managers who busted the company.

Wake up - the coffee smells great!

Bad Bank plc

This week, Alistair Darling announced yet another strategy within the broad range of strategies and guesses with which the Government intends to fight the recession and it is the creation of a 'Bad Bank' which will contain the mountain of 'Toxic Debt' it believes to be blocking the flow of credit in Britain.

I can now reveal that the Bank will be called Bad Bank plc and I was granted an exclusive interview with its new CEO, Sir Giles Snoutintrough, a former senior executive of a famous Investment Bank.

Job Creation

"The great news is this," beamed Sir Giles, sipping a small champagne cocktail and straightening his silk tie. "We are forming a new corporation which will require a massive new office building and we need new staff - approximately 5,000 new staff immediately and of course there will be plenty of employment for foreign building workers who can help build it for the lowest bid. We plan to be open for business to take on our first debt next week and we are just having a new vault installed."

I pointed out, that debt was in fact negative money so a vault was not needed.

"The vault is not for deposits, old boy," smiled Sir Giles. "It's to hold my bonus payments, the first of which is for accepting the job whilst sharing it with my duties as a non-executive director of several banks and the part time Director at the FSA. Of course, the City has had its wings clipped rather severely and so Bad Bank plc will be the only bank paying massive bonuses this year. The bonuses will be based on performance and so the more bad debt we can create and store, the more money will be paid to me. It's not stupid money anymore, just a few million pounds, one has to tighten ones belt, you know."

How Will The Bank Function?

"Pretty soon we will be opening branches in every major town in Britain plus a call centre in India," replied Sir Giles. "After we have handled the initial wave of Corporate 'Toxic Debt' we will be open to the public in order to handle more debt at a personal level. The public will be able to pop in and deposit their debts with Bad Bank plc and we will issue them shares in the bank in return. As the debt grows and becomes more valuable then they will share in the returns. We are forecasting that the bank will be trading its assets on the exotic-derivative markets within a few months and the price of the shares in the bank should sky-rocket."

So any debt can be deposited?

"Absolutely - that's the function of Bad Bank plc," he continued. "You see it is vital to get credit flowing again into the markets and specifically the housing market. This will clear the decks so that Bank Executives can clearly see once more how they can create new scams in order to rack up billions in apparent profits and therefore pay themselves enormous bonuses and re-buy corporate jets that unfeeling politicians take away from them. The house market is critical in all this. It is important that Joe Public and The Plumber get back to spending money they simply don't have and borrowing trillions on credit cards with zero security - and they can't do that if they have appalling debts hanging over their heads or decreasing property prices so that they have no apparent equity in their homes."

"The strategy is simple. Bad Bank plc will take a cash for negative equity swap in any household that is struggling. That way we will effectively give the householder a load of money for a stake in their debt. As we all know, debt is crucial to the functioning of modern society and so we will in turn deposit that debt into the 'Toxic Debt' area of the bank and everyone can forget about it, especially me as I will be taking my family on the Corporate Jet to Mexico for a well earned holiday."

So When Will The 'Toxic Debts' Have To Be Repaid?

Sir Giles looked at me dismissively. "You really do not get it do you?" he said. "The whole point of a Bad Bank is to take away the worry of the debt so that executives can be completely absolved of any blame or accountability in the future - the slate is wiped clean. As for the public, well as they are funding the whole thing through the tax burden, they still get to repay their debts but with a little help from all the other millions of generous taxpayers, so it's very cost effective for people in debt now. You really need to understand - Bad Bank plc is the where the buck stops."

How Do You Know What Is A 'Toxic Debt'?

Sir Giles took a moment to stop laughing before taking a gentle swig of his champagne. "You really make me smile - I thought the public were stupid but I didn't think they were that stupid," he laughed. "Look if we knew where and how much the Toxic Debt is then we would not be in this mess, would we? Then there would be no need for Bad Bank plc. You see, the whole point of the financial system was to just keep trading the debts in ever more complex ways in order to cash in on the bonuses and then let someone else make the numbers add up as clearly it was never sustainable. But everyone knew that."

"So what we do is this. Banks just come along and we take a few stabs at guessing their toxicity of the debt mountain and then we haggle a bit before I accept their highest guess. That way, if we are out by a little on the positive side, they can pour it back into their profit mountain in the future and earn a fat bonus on it. Meanwhile, as I am goaled on debt, I readily accept their highest estimate and try to get them to add a bit more. There really is no point in coming back to Bad Bank plc a second time as most of us will not be here, we will be on conventions, freebies and endless paid for holidays as there will be zero requirement to do anything while the taxpayer assumes all the responsibility and liability. It's a superb plan."

Sir Giles is an economic adviser to the Government and is paid £400,000 per minute for his part time role as CEO of Bad Bank plc.

The Solution To The Banking Problem - Hire Bankers!

In a unique demonstration of 'blue sky' and lateral thought in order to solve the UK's banking problems, the Government have surprised everyone by hiring bankers to solve the problems.

Cutting Edge Decision Making

"We have been asked to assess the amount of toxic debt and cover required for a 'bad bank' to work," said Sir Giles Flogmorton, Senior Analyst at Investment Bank Bust Bros. "Only bankers can understand the complexity of the problems at stake and have unfeasibly large enough fees to sound as if we know what we are doing."

When asked if he thought that asking bankers to solve the problem was asking the cat to protect the mouse Flogmorton answered, "I don't understand your point. What has a cat got to do with banking? The real issue here is getting Britain back on its feet again, getting confidence in the banking system and get all the lads and lasses earning big bonuses again. You cannot believe the hardship these guys have been through. How would you like it if you didn't know where your next Porsche was coming from or when you can blow £20,000 on a La Gavroche expenses lunch? The last few months have been hell."

Bad Bank - Very Bad Bank

The key issue lies in actually identifying 'Toxic Debt' and assessing it.

"Finding Toxic Debt is a tricky business but we experts know it by its smell and colour," said Flogmorton. "It has a sort poo hue and it smells like an Alsatian's fart. Once we have found it, we ring fence it with the type of long tape you see in police dramas and then stick a small flag by it so no one steps in it."

How do you assess how much the debt is worth or needs to be written down. "We are bankers, you know," snapped Flogmorton. "We can bloody well add up even if the rest of the nation can't. It's simple, once you have identified the Toxic Debt and ring fenced it then you go to the Government and ask for 90% to be insured."

90% of what, though?

"90% of the bloody debt, stupid," replied Flogmorton tersely. "Look, we bankers are very exacting people - 90% is an exact amount of the debt."

But, don't you have to assess each debt and work out how much it is now worth and insure the loss?

"Good God no," sighed Flogmorton. "If we did that we would have to unpick 10 years of hard work getting it all wrapped up in convoluted derivatives, exotics, how's your fathers and what-not. The sensible approach is for banks to just take all their debt and revalue it and give that as the sum to insure to the Government. All they have to do is pay a fee for the privilege and the they can start lending like free spirits again and get the whole show back on the road."

So what's stopping banks over estimating the Toxic Debt and just getting the entire debt written down a bit and insured, letting the public pay for it?

"And your point is?" replied Flogmorton. "It's good business practice. Now we have a bunch of mugs who'll pay for anything to get us out of trouble, why not just make up numbers and tell the Government to insure it. Nice way to get your balance sheets nice and sweet for the future."

Isn't it a conflict of interest asking bankers to advise on this? Won't they come up with a solution that just sorts out banks and not look at the bigger picture?

"The bigger picture, my dear friend" replied Flogmorton, "is that banking is the bigger picture."

So what about this 'Bad Bank'? Who will run it and what will it do?

"Well Bad Bank will be incorporated shortly by changing the name of The Bank of England to 'Bad Bank, Very Naughty Bank Indeed plc'," said Flogmorton. "It will be run by top flight bankers earning fortunes who will guard the Toxic Debts as if they were a pile of jewels to be fenced and they will make a pretty penny in bonuses for it. It will basically ensure that the debt stays put, is ring fenced and continues to smell very badly."

Will the bank pursue the debts and make people or firms pay?

"Who cares?" replied Flogmorton pragmatically. "Now that's it's been ring fenced and thrust into a bad bank, why should we bankers worry about whether its paid or not? That's what taxpayers are for - paying for the stupidity of the last 10 years. Once the debts are off the balance sheet, it's 'up yours and away', old pal. Someone else can clear that one up, but for a nice fat fee Investment Bankers like me can sort it all out. We are the ONLY ones intelligent enough to be able to do it, you know. But, my, will it cost you, old chum."

Finally, how much Toxic Debt is there? Is there a limit to how much the Government will spend on all this?

"Frankly, that's not our concern," replied Flogmorton. "It's far more important to preserve our way of life and our jobs. So I'm off to the office to collect my bonus check and get down the Ferrari garage. I don't want to be left with the last one again."

Sir Giles Flogmorton is Senior Partner at Bust Bros Bank, an Advisor on Toxic Debt and is the author of "Ya boo, it's derivatives, baby", a seminal work on modern banking available in Penguin Books.