As Easy As One, Two, Three

Alistair Darling is a formidable politician and a fine Chancellor. His record proves it. Yeah.

So when he tells us that the route out of our borrowing situation - not mess - is as easy as one, two, three then we should believe him and start doing a Jackson Five jive. Like his Lords and Masters, Brown and Mandelson, he believes the prime way out of the mess we are in is to borrow to grow.

Hands up all those people in business who have borrowed to grow. A fair number I would suggest. Hands up all those businesspeople who have borrowed to grow in a recession. Not many. Typically in business we borrow to survive when in a recession as growth opportunities are fewer unless you can find a little opportunity niche that you can exploit.

Granted running a country isn't like running a business but there are only so many things you can spend the borrowed money on to incent growth. So far, we have seen the massive bank bailouts as the main form of spending, hence borrowing. This has been the vast majority of what we have spent. We have also reduced VAT which is due to end but retailers would say this has helped stave off the worst of the economic recession. In business to business companies like mine, VAT decrease make not a jot of difference.

So if we borrow more, we can theoretically invest to produce growth. I would really like to understand exactly what the Government is going to invest in right now to stimulate growth other than to entice consumers to do what they did before which is borrow heavily to fund their spending. Already, people are facing some austere spending cuts as job uncertainty grows. Credit card and unsecured debt across the population is dangerously and unsustainably high, wages are set to not grow and possibly decrease, and taxes are set to increase. It really does not take a genius to work out that growth is really going to have to be 'false growth' in order to stimulate the economy.

The Chancellor's wish list is that we borrow more, try to reduce spending while maintaining priorities and increasing taxes which will all stimulate growth - one, two, three. The growth will produce a richer economy which will make it easier to pay off the debts.

Right. Meanwhile, across the pond Alan Greenspan is warning that US debt is now dangerously high at $1.4 trillion. He warns that there comes a point when the economy runs away from you and you continue to borrow more money just to service the interest on the debt as the growth rate just eludes you enough to need to borrow more just to try to catch it. In 2014 it is estimated our interest bill on our debt will be £60bn per annum which is equivalent to the entire NHS budget at current rates.

There comes a time when you need to stop borrowing and cut your cloth for the economy you are in. That does not stop you from investing in growth - it is just a realistic look at what you can really afford. It means that some of your grandest plans will have to be re-thought, some of your pet projects put aside. It means you have to make a rigorous look at the layer upon layer of wasted management and bureaucracy. It means you have to look hard to gain efficiencies, it means that some services will have to be downgraded and cut. It means some businesses will have to be allowed to whither and die. It is just a fact.

Britain has gone through an unprecedented period of 'false growth' where we believed we were prosperous but we were not as well off as we thought. We have to rein in spending across the board - at a personal and Governmental level. We have to make certain sacrifices which some people will not like - but there is far too much fat in our public sector and we are letting far too many people into our country. That is not a racist remark - it's a simple fact. I have no time for people like the BNP, they are dangerous and a subversive influence with no credence in modern politics. But they will gain a foothold if we do not face stark facts in this country.

13 years ago, Blair and his Government trashed the issue of immigration at election time and swept to power. Like so many other things about that wave of 'Cool Britannia' the issue came back to haunt them in their laissez-faire style of Government. Like so many other issues, like the economy and the banking system, they now look to blame the previous Government for current problems. It really is a time when the reckoning is long overdue.

It would be good to hear from people like the Chancellor the truth about our situation, what he actually proposes to do to in real measurable activities to remedy it and then get started. If he thinks that just talking will solve it as is the traditional method of politics, then it will be as easy as one, two, three but we will be no further forward. However, if he looks a little further afield he will see that countries like France and Germany have got to the very heart of the problems and are now functioning nations out of recession as we still wallow in it. He will learn quickly that applying vast sums of money only pays dividends if you apply it in the right places.

Stuffing it into the pockets of bankers was our biggest mistake and will be the most enduring. As these rich people wave two fingers at us and make vast profits again off the back of our kindness and stupidity, Britain is no better off. Borrowing more money will not help us now - we should have never have blown so much in the first place.

I fear for the situation we are in. As Sir Howard Davies put it recently, we do not have a clue how bad the situation really is. What we do know is that debt is probably the biggest issue this country and its people face. As any small businessman will tell you, there comes a time when your business needs more cash at a much faster rate than it can grow - we call that throwing good money after bad.

Right now, Britain faces exactly that situation. For every new pound borrowed, we had better know exactly how we will spend it and how much it needs to return and in the meantime we need to find how we can create more money from savings ourselves - long before they raid the pockets of the people in taxes. Because right now, as a taxpayer with a stake in all this, I would really like to know where my next pound will be spent and it had better not be to give more support to rich bankers, support the immigration of more people, fund vast inefficiencies and bureaucracies in Government and the public sector, pay for wage rises to politicians, fund vast allowances for the same people or on wars which we should not be fighting.

It's my money, and I want a say. I think we are all in the same boat.

Where Trains Run Properly

I arrived yesterday from Hamburg and had a hire car booked to get to a small town called Soest some 120km east of Dusseldorf Airport. For whatever reason there was mix up on the booking with Hertz and in a huff I stormed off to take my business elsewhere.

Having made my point, I suddenly was struck with the problem of how on earth I get to the place from there. I looked at my map and it was clear that a car would have been the best option but crawling back to Hertz or having them know I was going to have to get a car anyway from anywhere would have been their victory. The signs to the airport Bahnhof or train station were far clearer than the signage for the hire car counters if you take the baggage-only exit and it directed to me to the Skytrain. This is the space-age suspended automatic train linking all the terminals and car parks. It is a feature of travel in Germany that all the airports have brand new terminals which are superbly laid out, plenty of security desks, passport controls near the jetways so that queues for everything are far less than in the UK and the surroundings are far nicer.

Skytrain took just 5 minutes to get to the Bahnhof and there I saw the sign for the Reisezentrum or travel centre. I waited my turn with nervous anticipation as a similar experience in Belgium last week resulted in me taking an expensive taxi as the staff were so rude, uncommunicative (I even used my best French) and gave far too little information. The station signage in Brussels is awful too. Not so in Dusseldorf. The middle aged gentleman smiled and I asked, in my best German which is actually English as I failed the O Level badly - twice - understood every word and replied in perfect English. Consulting his computer screen, he told me that the train, direct to Soest and bound for Paderborn would leave in five minutes from the platform he indicated and he was already in the process of printing me a ticket with an itinerary. He asked when I would return and which class I needed and First Class was €75 only €20 more than Second and I could return any time the next day but when he asked me for my flight time he suggested two alternative routes back with times. He printed the whole lot out and it had taken just a couple of minutes. Try that anywhere in England and then trt again using German.

The train arrived perfectly on time and First Class was Spartan but clean and comfortable. I was concerned about if I had got it all right – it seemed too simple. So I asked a pretty German girl, again in English, if this was the right train. She spoke perfect English in reply, glanced at my itinerary and said don’t rely on announcements, just stand at the electric doors at precisely the time it said on the itinerary and then press the button to exit. She guaranteed me that my foot would fall on the terra firma of Soest railway station and she was exactly right.

Having stayed a night at a pleasant hotel Bad Sassendorf, watching Bayern v Juventus and enjoying Schnitzel and beer, I attended my meeting in Soest and asked for a taxi at 11.15 to take me to the station. The driver was waiting for me and I got to the station quickly. I looked at the timetable as I was early and couldn’t see a direct train for a while. The station was under reconstruction and the travel centre was in a portacabin. I went in again asked in English how to get to Dusseldorf Airport. The lady replied in perfect English again and printed me off a new itinerary saying the exact times I would need to catch the trains, which station to change at and which platforms the trains would arrive and leave on. And she was exactly right.

The First Class carriages on all the trains are well advertised, very clean, have power sockets, nice seats and are quiet. These are not UK Intercity class but are regional fast trains for commuters. They are very reasonably priced for the trips too considering I was not buying special or discounted tickets.

I contrast all this to the miserable train network and stations we have at home, where the emphasis in ticket offices is to fleece you and not be helpful at all – God knows they communicate enough badly in English, heaven knows what they are like when someone speaks to them in anything else. The trains do not run to time, you are never sure of platforms, signage is often a moving target and carriages are filthy, poorly ventilated and invariably overcrowded at peak times and there is an emphasis to give you as little information as possible so that the probability is that you will incur penalty fares at some point. Oh, and there are 26 franchises just to confuse you even more – and it is entirely expected that a foreign visitor would have sat an exam to know them all before arriving in the UK and so understood one ticket does not fit all, or even more than one of them.

Of course, the Government would tell us that this is entirely the fault of the Conservatives for their right wing fundamentalism which has got us into this ludicrous state which, if Labour were in power, they would change to make more efficient, cheaper and integrated. The fact is, it takes 12 years to ease your feet under the desk, spout rubbish, get to know how you can personally make money, line up your knighthoods and peerages and after-Ministerial non-executive director careers. Doing something about it is something you might get around to should you be re-elected after the Conservatives have caused all this mess.

Britain remains a joke when it comes to transport and the railways and associated travel is an absolute mess. It has been for so years but someone has had 12 years to devote some time, and money if need be, to have addressed even the basic issues. But that was far too much like hard work. Prescott was far too busy lining his pocket, shagging his secretary, getting freebies from lottery bidders, playing croquet and punching people. And the rest have been no better.

Integrated transport policy? My buttocks.

Different Strokes

China will spend around 2% of GDP on Fiscally Stimulating its economy this year and the same next - USA exactly the same this year, dropping to 1.8% next while Germany will spend 1.5% this year and 2% next. Britain will spend 1.4% this year and zero next.

Germany's biggest issue is that the money it has pledged to stimulate the economy is not being used fast enough, as much of it is for driving renewable energy into public buildings, building more, refitting old buildings and other projects. Such projects are big public spends and their laws mean that tenders have to be written and due process observed. This has bottlenecked public spending and so they have introduced ranges of laws that say spend of less than €100,000 does not have to go to public tender, just a few quotes while some projects up to €1m can avoid the old tender process. In just 14 months, they need to spend €10bn in education alone and the rumour now is they will spend that money on anything that disperses the cash quickly meaning that German schools could become showcases for interactive learning for all Europe. The main thrust is that instead of just a few large construction or IT companies benefiting from the spend, literally thousands of small firms will benefit from the spend.

Along with direct Government subsidies to firms to pay wages in the recession, Germany has deadened the impact and unemployment has not risen appreciably despite spectacular insolvencies like Arkandor. Britain, meanwhile, has seen unemployment rise to over 2.4m and it continues to rise with predicted peaks at over 3m. In the same breath, we have seen tax receipts drop 20% in the last quarter, 3 times the level of drop predicted by the Chancellor, meaning higher borrowing again - rumours abound about Britain's ability to pay for all this debt which could see our credit rating moved down.

For Britain, it was all about saving the banks and stimulus has come only from the VAT decrease which is temporary. Credit was seen as the major issue and so it had to get flowing again. Instead of seeing more Fiscal Stimulus going directly to save jobs, we have seen new money pumped into the banking system via Quantitative Easing to the tune of £175bn and precious little has got down the line. In fact, credit has never been so expensive and hard to get with banks missing their lending targets consistently, loans at multiples of base rate not points above, fixed rate mortgages at a huge premium and loan criteria at their most stringent in years. Yet banks are awash with new cash from taxpayers and money markets again at the cheapest price in years.

What has happened? Why isn't the money getting into the economy at the points where it is needed? The answer is simple - banks are at their high risk games again, with cheap money and an unlimited guarantee against losses underpinned by the taxpayer - they cannot fail to make money, so why give it to us where they would earn comparatively less?

While even Adair Turner is now mooting a windfall tax to prevent excessive bonuses, and bonus schemes are getting a bit tighter but no one is regulating new salaries and inter-bank headhunting of new 'talent' with lavish guarantees and other perks. The fact is that while bonus schemes may look more difficult to attain the old heights on what is certain is that clauses defining that traders MUST get paid even if the banks are making losses are being set in stone. We actually will come out worse, not better thanks to the lack of thought being into the process by non-bankers.

The end result is that technically France, Germany and Japan have all exited the recession while we suffered a further 0.8% shrink in the same quarter. It seems Britain is more focused on fining and locking up music downloaders than tackling unemployment or real crime - it seems we are more keen on bank rolling the real criminals in banks who robbed us of billions to support their high risk gambles and we have allowed them to do it all again with impunity. Meanwhile, the money getting to the parts of the economy where it is needed is minimal, expensive and late.

We have paid the best part of £100m in fees to numb skull bankers and lawyers to plot a way out of trouble that has put money right back into the hands of those who broke us, and they are keeping it to spend on their lavish high risk derivative gambles to earn mega-bucks to lose again later.

It is anticipated that Angela Merkel will breeze the forthcoming election in Germany and she has around 83% of the anticipated votes in polls. Gordon Brown may take real note as she fought him hard on Fiscal Stimulus and bank bail outs at the G20 as did Sarkozy of France. They have been proved to be right, Brown wrong despite his belief he 'saved the world'. They thought about specific programs and directed spend to stimulate the economy and get money into all businesses while we focused billions on banks and the financial system which are failing us yet again as we did not set rules and regulate properly.

Despite the smug, self-congratulations, Brown has been proved to be lacking in real skill in economics and Britain will pay a very high price as a result.

Putting Money In The Right Places Not Where Your Mouth Is

A study by IAB labour market has concluded that Germany will not suffer the same scale of job losses as the UK. The main reason is that Germany pumped money into wage subsidies which supported employment.

It's more than that. I sit here having spent this and the last few weeks in Germany and it is clear there is a profound difference to the way in which Germany has spent money to stimulate its economy and how the UK has. There are obvious things - Germany and France are pulling out of recession and there are signs that it is sustainable. Germany put money into wage subsidies for firms to help stop widescale, automatic redundancies which has been the first port of call in the UK in response to the recession. Germany and France put around €5bn into the car scrappage scheme to stimulate sales rather than dither over helping mothball factories and then go to scrappage in the UK at a paltry £300m. Angela Merkel pledged €6bn into the wage subsidy scheme but she fought, along with France, the wholesale and unlimited bail out of banks much to Gordon Brown's annoyance in the G20 meetings. The results have been impressive with no huge increase in unemployment and an early exit to the recession while Britain reels at 2.4m unemployed (some say the real figure is 6m) and this will peak at over 3m before the year ends - as yet there is no sign of the end of the recession for the UK.

Germany got it right - we didn't.

Don't React, Think

Another of my New Scientist articles caught my eye. Notice how Government's over react to situations rather than think them through - the soundbite is better than the diligence in most cases as it sustains or wins votes. But you only have to look at Britain's reaction to swine flu to understand we have committed huge resource to try to cover something which could have been contained far more easily and with less cost, and we have simply saved no more lives by doing so. That is one example - another would be how, in the face of a rail disaster we pour millions into rail safety. The result is that we have no more rail disasters in 2008 over 2007 saving a few lives. Meanwhile around 279 deaths happened as a result of trespass and suicides on the rail network in 2008, around the same amount as 60 years ago.

In other words, we tackle the headline, not the real problem costing far more.

We could get onto road saftey but that is its own nightmare deserving far more airtime while all the heightened security, a war with Iraq and spend after 9/11 did not stop 7/7 occurring under our noses. There is now clear evidence that George W. Bush actually got briefed on a threat to hijack US planes just a month before 9/11 and his recation was, 'You have covered your asses, now go.' The subsequent spend on two major wars has got us no further in making us safe - if anything, we are far worse off.

So back to the point. While Germany put specific money like €10bn into education which has to be spent by the end of 2010 on refitting schools or new interactive learning techniques to lay a foundation for the future, Britain chose to put huge sums into bank bail outs without any idea how much was required or when it would stop. In fact, we knee-jerked into taking Northern Rock into public ownership before we had even time to think and then plunged incredible sums into banks and a further £175bn into Quantitative Easing without any idea what the real results would be. Germany and France were right on their game - specific sums for specific effects and no wanton bail outs with incalculable effects.

Guess who is in the better position.

But there is far more. Eminent economists like Kenneth Rogoff argue that we have thrown money at the problem of the banking system with little thought, especially when it comes to regulation. You do not have to be a genius to realise that banks worldwide are now using easy and cheap loans from Governments to fund incredibly high risk debt swap and the likes as they did before but now under the umbrella of taxpayer guarantees should they fail again.

What does it do? Obviously, it will bring vast, short term profits which banks will want to pay high bonuses on - and guess what we have got? Rogoff goes into far more detail but basically he highlights the knee jerk reactionism by the US and UK over Northern Rock and Lehmans as examples of reacting without thinking which has caused a cascade of similar, more profoundly expensive mistakes.

Time and again, we see that Governments react with short term thoughts that have major effects in the long term. Germany and France campaigned against some of the stupidity Britain went for and they have been the quiet, unassuming winners because they put their money into the exactly the right places to get the desired effects.

At the time, Merkel was seen as the ditherer while Brown was seen as the superhero flying from country to country to save the world even if he did inexplicably go through Brazil. Merkel has proved to be right, choosing the thoughtful and precise approach. Brown has a dog's dinner on his hands thanks to his knee-jerk responses to crises. The difference being is that Merkel knows pretty much how much it has cost to get out of the recession - Brown has zero clue and we will pay yet more as banks behave in the same way as before the crisis.

Regulation and reformation of the financial system was the key if £billions were to be thrown at it. We have none and we are faced with the sight of banks paying a thin layer of superstars bonuses that make it look as though we are rich again. Instead we are paying off debts that will last until 2032.

This is not an issue between employer and employee as Darling would have us think, this is about what banks are really earning, what they can sustain and what we have paid them to survive. We are the 'Masters of the Universe' but we need politicians to enforce it. It's our money, after all.

Why Germany And France?

We could bore ourselves silly recalling Gordon Brown's fateful, progressively more desperate, words of how robust our economy was, how it we could out-run a recession, how we would handle one better than others and why we would recover first. The fact remains pretty much all the clap-trap he gave us was complete horse manure - and not the sort bought on MPs' expenses.

Rather than labour the point, let's just say he called just about every point in the credit crunch and recession wrong and that his understanding of economic matters was not as cerebrally enlightened as he led us all to believe. So much of all that leads to ask, well if he called it all so wrongly did he get the cure right? If not, have we spent all those £billions correctly or were they all wasted?

Two things this week brought this question into sharp focus. First, there are now doubts over whether Quantitative Easing (QE) is having the desired effect of getting us all spending with abundant credit again - as I blogged yesterday, there is now evidence that between banks missing lending targets and their hoarding of new money there is little stimulus reaching the likes of consumers and small businesses in terms of increased credit. Secondly, France and Germany have announced that they have, technically speaking, exited the recession. It must come as a hard blow to Brown's fallen economic ego that these two countries, who have typically led Europe in terms of their consistent economic sense and who fought him so hard on the issue of unlimited bail outs, have broken free of the grips of the financial chaos well ahead of Britain.

In fact, as France and Germany announced growth in their economies, Britain enjoyed a further significant decrease in its economy. So why did Gordon Brown call it so wrong and how little did he understand the pillars of sand upon which he had built what he thought was a robust economy?

Relative Cause and Effect

There is no doubt that the US and the UK had built much more unstable economies over the 10 years. The French and the Germans had struggled in relative terms over the same period, Germany particularly with the post-wall integration issues while France seemed to constantly wrestle with demons from within. We, meanwhile, enjoyed a bonanza pretty much built on thin air. Property prices began to rise on both sides of the Atlantic at alarming rates and many people dipped into their new found net worth by leveraging the equity increase in their mortgages - we effectively became our own banks. It caused a credit bonanza on an unprecedented scale as each new debt taken out was traded and traded again for incremental commissions each time and there seemed an unlimited supply of money.

What this illustrated for Britain was how important the finance sector is to us. Many assume that as it is contributes just 9% to our GDP it is not significant but the reality is that it was the pillar on which our whole system and people depended. As a society we saved negative amounts of what we earned and over the 10 year growth period our average household incomes had actually decreased in real terms - we were supplementing our incomes with our equity gains and that was purely finance driven and at the heart of which were our houses. As the world frenzy for cheap and unlimited money continued, the gamblers in the finance world thought they were cleverer than logic - they traded any old debt and in fact, there was no need to check the worth of an asset as while values rose if a repayer got into trouble they could just leverage more borrowing on each increase in asset value.

It was an upward spiral based on flawed thinking.

So when the bubble popped, US and Britain felt it hardest as we had been by far the most stupid. The other countries like France and Germany had stumbled and nearly lost banks but the reality was that their exposure to the whole 'scam' had been less due to their more conservative approach to simple things like mortgages, where in Germany around 60% deposit is required.

The cause and the effect of the credit crunch were much more exaggerated in the US and Britain.

Other Dependencies

Brown's frustration must have been that if there had been no credit crunch, then Britain was actually well set in terms of handling a recession - in theory. Germany, in particular, and France are the heart of the manufacturing engine in Europe. Their fortunes depend heavily on exports and so when the global economy dipped sharply, they were hit very badly. So much so that at the start of the year, while the British economy dropped 4.9%, the German economy dropped 6.7% and correspondingly, the fall in output was far greater too.

But any economist would tell you that as a recession ends, there is much sharper gains to be had as restocking occurs. Also, France and Germany quickly turned to within to stimulate demand and they introduced scrappage schemes immediately for their car industry that ensured that home sales never really dipped and so they weathered the storm more sensibly while Britain dithered.

Britain, meanwhile, more heavily dependent on the finance sector, saw a much slower recovery and this week we see that this recovery is merely banks recharging their batteries at the expense of taxpayers while the stimulus intended is absorbed by wounded balance sheets rather than getting money into the economy. It was really flawed thinking to believe that pumping so many billions into banks was going to mean an automatic resumption of the 'good times' but this has been the hallmark of the response to the whole crisis - wrong assumptions and undesired outcomes which seemed all too obvious from the amateur economists' armchairs and front bars.

Were The Bank Bails Out a Waste?

Individually, it is easy to identify that the knee jerk saving of Northern Rock was an unmitigated disaster and still is. For banks in general though, we had little choice but to act. However, the sheer quantity of money and immensity of the guarantees and loans required showed just how completely defunct our system had become purely because banks had strayed so far from the basic formula upon which all banks are founded - liquidity. It was as if the whole banking community had lost the ability to add up or to spot the obvious - the whole system had to collapse because it was trading on air not solids.

But getting back to how the countries tackled the issues they faced, Britain really did little more than Germany in terms of stimulation. We decreased VAT and this accounted for around a 1.6% of GDP stimulus while Germany pumped in around the same with around 2% next year while France was less bullish with just 0.7% of GDP. Our boost stops next year while Germany continues to recognise that it has to be a sustained boost.

In an odd quirk it is reckoned that the German and French social security systems helped consumers more than in the UK. As Britain sought to get glamour in loud shouts about how it was 'saving the world' and the PM was shuttling across the world on a fruitless journey for publicity, his continental counterparts just got on with the job logically and quietly. They became Brown's combatants at the G20 by forcing through toned down bank bail outs and wholesale squandering of money and they proved to be, annoyingly, right.

But here is the rub - as Britain pumped £billions in to save the banks, the Germans and French pumped some €5bn into the car scrappage scheme against the paltry £300m we have, of which, only £180,000 has been used to date. Meanwhile we have spent an estimated £1.5trillion bailing out the banks and this is the massive difference in approach in terms of % of GDP used.

Germany and France focused defined sums of money into specific key areas while protecting consumers well while Britain squandered £billions saving the necks of the very people who ruined us while umming and ahhing over whether to save any industries which would have provided direct stimulus to the economy and consumers.

It Was The Economy, Stupid

The problem stems back to Brown's belief that the British economy was in good stead and stable. It simply wasn't - it was built as a house of cards and every corner was a potential weak point as each depended on the unlimited supply of money which relied on no one questioning underpinning asset values, in simple terms. It was so obvious that it makes you scream but more gifted people than me seemed to think that all the great mathematicians of the past clearly had no idea how to add up - they knew best.

And they knew best because they were getting incredibly rich and the nation appeared better off. Indeed we seemed to be - every new gadget was bought voraciously, we bought second even third properties here and abroad, we holidayed more lavishly, we ate more at restaurants, became coffee and wine snobs foregoing staples like beer and tea and we shopped more avidly - like there was no tomorrow. And that was the formula - tomorrow never came. No matter that our wage packets were diminishing, there was always an endless supply of credit, loans, mortgages - all cheap at that and easily accessed thanks to the increased value in our homes. If the debt get on top of us, we simply took a little more money out of our 'banks' and postponed the whole thing.

Tomorrow was never going to arrive, was it?

Our economy had been bolstered alarmingly by all this to an extent that it could handle a recession, even higher interest rates but as long as property values rose, we were laughing. Nothing could stop that - except of course the money tap being turned off. The credit crunch was the 'Black Swan' in the system, according to apologists. The concept that a single, rogue and random event entered the system and proved to be the one thing that would bring it down. It wasn't a black swan at all, it was pure logic. The moment just one person questioned the value of underlying assets and then asked who was doing the due diligence and the whole thing imploded. It was simple accounting, adding up and logic - nothing more.

Sub-prime was just a manifestation of the whole banking flaw, it was not the cause.

Subsequently, we have the FSA squeezing out Independent Financial Advisers and making 30% of them leave the industry as they fingered bad guys but it was the clever people in the financial system who, unchecked, just traded anything for profit with no questions asked and became unfathomably wealthy in the process.

Britain's problem is that our over-reliance on that financial system to underpin our economy was our downfall and it is also the reason why it is taking far longer to recover. Unemployment has yet to peak and is already at 2.4m and the Fiscal Stimulus money will end next year - the pot is then empty. The danger is that if the German and French experience is a false dawn and they lurch into negativity again then the news is very bad for us. We need their recovery to drag us out of the mire too.

People who argue that our GDP is not dependent on finance as a contribution know little about how the economy works. The flow of money affects everything and so our economy became like a clogged engine, unable to operate without the financial lubricant. All that money came from the wrong sources and these are lessons we should have learnt, understood and applied new methods to avoid the problem in the future.

The problem is that in our blind, knee jerk haste to patch up a broken system, little thought was put into what caused it an so how to avoid it again because we had so little understanding of our own economy. Just take a quick glance at the renewed call for bonuses in banks here and the US and the soft regulatory response and you will see that little has been learnt and far less has changed.

We may yet recover, but we just have primed the system for the next fall.

Putting Your Money Where Your Mouth Is

In the month of the year, March, when the car industry usually sells 17.9% of the total annual car sales in the UK, sales dropped by over 30% from the same month last year. There is no point making cars if you can't sell them and so this was about the worst possible news for the car industry - even these figures were around 5% worse than expected.

The Government will troop out the excuse that this is symptomatic of a global slump caused by the recession. That is not entirely true.

In Germany, there was a corresponding 40% increase in sales while in France it was nearly 10% up. So what is the difference between these countries and the UK?

Bail Out, Schmail Out

Business Secretary, Lord Mandelson, announced a £2.3bn bail out for the car industry back in January. By March, companies were already moth-balling production lines, putting workers on less hours and there were talks of widescale redundancies. For some peculiar reason, the bail out was stalled, according to Mandelson, in negotiations with the Bank of England and The Treasury, presumably after he had washed his hands of it.

It is very vogue to talk of big numbers as they impress everyone and by mentioning them it seems the problems, or at least the public scrutiny of them, will go away. However, as I have blogged of late, it is all very well conjuring up these ideas with vast sums of money but it is all about how each penny is spent - that will determine how effective these plans are.

In this instance, a cursory glance would suggest that both Germany and France have gone to the very heart of the problem. Instead of trying to preserve production or help tiding car makers over, Germany and France have gone directly to the consumer and given a direct incentive - a scrappage deal. This, coupled with aggressive offers from the dealer network and vendor in unison, good credit deals and plenty of direct advertising appeal, has effectively dispelled the consumer gloom and not only kept sales going but, of course, kept production going.

Instead of pointing fingers at others, these countries sought to directly solve the problems with deals that they can account for every penny for to the taxpayer. The British Government response to such a deal was that they a were not sure it was the best value for money.

Cutting Through The Bull

The UK response to the car industry plight has been to not just dither but grind to a halt - blaming other factors and saying it's a global slump issue. Germany and France saw no such obstacles and issues - they addressed the problem with a carefully calculated plan that was instantly executed and the result was spectacular.

In contrast, we look at the bank bail outs which seem to grow daily by small or large billion amounts and we have no idea how the money is being spent or whether it is working or not. Interestingly, it was both France and Germany who balked at the US and UK lavish bail out plans and managed to curb the senseless, ever increasing bail out funds being lobbed down a financial drain.

I have no idea whether these two countries are right but there does seem to be a stark contrast between the British approach and theirs. Time will tell but each day the clock is ticking for the British car industry - I have a suspicion that if it does take a beating in the next year as the recession really grips due to lack of constructive action, then it will never recover to the same levels again in this country. There is simply too much competition elsewhere for the work and we own none of it to influence it.

That will be right at the doorstep of the Business Secretary, in my opinion.