What a Great Deal?!

You couldn't make it up but I suppose it's to be expected.

Today, our prize investment, RBS, having just got the details of the extra £30bn we are pumping into it, has announced it is shedding around 4,000 jobs.

It makes you stop and think. Recently, there was a lot of controversy in that RBS' investment bankers will be getting fat bonuses this year and, indeed, their CEO, Stephen Hester, is in line for a £9.6m. They may get some deferred but that will really sit well with the 4,000 who will pay for them. In fact, around 16,000 jobs have already been shed from the back room, branches and other places - the sort of jobs that the expensive adverts on TV about NatWest and their push for more personal banking might be lead us to believe have not gone.

4,000 jobs and let's say the average salary is £30,000 per annum - that would be £120m off the wage bill this year. That will probably be less money saved than the bonus bill.

But it gets better. 700 branches of British banks will be sold to other companies in the fire sale of the decade as the EU rules that banks that got state aid must split. Private Equity houses and foreign banks will love this as they will buy already stripped down versions of the banks branches with redundancies already paid for by the taxpayer and because so many branches will be up for grabs they will be sold at rock bottom prices, once again leaving the taxpayer with the mired end of the stick.

It gets better than that. Having given away the jewels of the banking industry cheap and subsidised by us, they will be precisely the same buildings, staff and products as before just owned by someone else who will reap the profit on our loans and mortgages rather than us at least contributing to the value of our 'investments', i.e. the banks we saved. We are told it will promote competition - sure it will. Why would anyone buy the banks and then trash the price when there is so much cash and profit to be made? Prices will remain the same, believe me.

And is it good that Tesco buys into a bank? They squeeze the living daylights out of suppliers and only pass on part of the savings to customers which makes them ever more profitable. We are handing them a cash business to make them more money. Meanwhile, Virgin must be laughing as they offered to buy Northern Rock when no one else would and when it was leaching money - now they get to buy the cleaned up good part at a knock down price with a great deal more advantageous loans from the Government to lend at a large profit.

Alistair Darling kept a straight face as he announced all this. He didn't want to let on that we have all just been right royally shafted. The smiles will come later.

Air Shots

Some while ago I blogged on how many golfers, when faced with an immovable object like a tree blocking their route to the green, will choose to hit through the tree rather than round it in the vain hope that there is more clear space than branch to be hit.

I argued that the reality is that by using a club of a specific loft and length you actually narrow the area of tree you are aiming at and in that 'corridor' of the shot you actually increase not decrease your chances of hitting branches as you increase the amount of space occupied by the branches in the corridor with respect to the total available space in that corridor. When you think about it, you are taking the very randomness of the tree's branch arrangement out of the equation by hitting at it. The logical course of action would be to take the tree completely out of the equation and go around it using two shots rather than risk wasting shots.

I would argue this is precisely what happened on Quantitative Easing (QE) by the Government. In piling a ton of cash at a problem, they viewed the financial crisis as a tree blocking their way to rescue. Their logic was that if you pile so much money at the problem some of it has to get through. But that was the wrong assumption as banks needed an extraordinarily large amount of money to shore up their huge lending gaps - RBS' alone was £161bn and the total QE to date has been £175bn.

What has happened is that the QE has been horded by the banks as free new money which they use to play casino banking or just keep. Very little of it has got into the wider circulation as the recent M4 figures on money supply has shown. In fact, the money measure M4 decreased despite QE.

This was the equivalent of a golfer hitting a ball directly at the tree and hoping they hit a gap to get through. If only someone had stopped and thought what the real cause of the banking crisis was then QE would not have been the best measure to deal with it or at least they could have thought of a better way to introduce it. In fact, by buying bonds in our own debt, they played right into the hands of the very banks that caused the entire problem who had been commanded by the Government and FSA to do precisely what QE allowed them to do - increase their capital to lending ratios without lifting a finger.

In hindsight it was obvious but it has been the modus operandi of the Government in this whole crisis. They have paid millions for duff advice from bankers and think they did the right thing. Now all the real measures of our economy like GDP and money supply show that what they did was either wrong or wrongly executed. You cannot argue with the figures, our management of the crisis was sheer panic measures.

Now we have the great bank sell off bonanza to come. The proposal is that new high street banks will be created in the new market conditions free of encumbrances. Investors are going to have a field day as we split profitable businesses from bad ones and sell them off nice and cheap and just watch how much profit foreign and private investors will make on our business. You can feel exactly what will happen and a few years down the line we will find every single one of our High Street chains of banks will be owned by foreign companies profiting out of our mortgages and lending needs.

You don't believe me? Our utilities have already gone that way in water and power, many High St banks are foreign owned already like Alliance & Leicester, Abbey, HSBC and the Royal Mail will be sold to a foreign company. In each case, the dirty end of the stick will be held by tax payers as we pay the profits of our mortgages to foreign companies.

You could not invent a better strategy to waste tax payers money by constantly leaving them with the bills while the profitable bits of the businesses they bought are sold off. But that is the key to the Government plan - the taxpayer is there to fund the rubbish.

As a quick for instance, the good part of Northern Rock will be sold for £1bn and we will still be owed £27bn when that happens plus the liabilities. Great deal, eh? Just watch the rest of them.

Meanwhile, us would-be golfers have learnt our lesson - it's better to hit round the tree than at it.

'At Every Point, We got it Right'

Gordon Brown must prepare for bed each night mumbling this simple mantra to himself and perhaps he sleeps with one of those nighttime self-help tapes playing the same message from under his pillow. That way when he wakes up each day he has actually convinced himself that what he has done in the face of the economic obvious has been right.

It must come as some surprise then that despite all his evening preparations that the reality each morning is somewhat different. I mean, take away the spiteful snapping terriers in the other Parties who constantly fail to appreciate his economic genius, there are those daft sets of figures that just doggedly won't seem to tell the truth.

This week has been yet another bad one in a long succession but the news that Britain still wallows in contracting quarters GDP-wise was bad enough, then there was the news that Italy's economy is now bigger than ours while they are also set to announce the end of their recession, then Brown's good mate, Barack Whatsisname, has prevailed over a US economy that did not just emerge from recession but actually grew at a very acceptable 0.9%.

Britain remains in the dunce's corner.

The saving grace is that no one seems to think that the policies followed by our Government were wrong. From the day Northern Rock was saved, Brown seems to think every subsequent event was met with the right action and that Britain benefited for it. And guess what, it seems the public have agreed. True, there are those annoying issues like bankers earning stunning bonuses having caused the whole crash and the Postal Workers seem to defy all best advice to surrender their jobs, but on the whole the disaster of The Sun not supporting Labour has been averted and Britain believes Brown is the best man in a crisis.

Well that's what the tapes say.

What perhaps was not part of the script was that this week Brown had to go to Europe and start campaigning for Tony Blair to be EU President when patently he would prefer to sit in a bath of hungry piranhas with bovril smeared on his private parts. That was certainly not part of any script but it is the price you pay when you have been 'rescued' by Peter Mandelson. It's almost as bad as having to repay £12,500 on expenses for dry cleaning and such while McNulty, Smith, Blears et al get away scot free in the expense bonanza affair for selling houses.

That's the trouble with reality - it tends to be, err, reality. We could all like to keep saying the same things over and again to our bosses about how well we have done and how things are just around the corner, but there is no arguing with reality. If you do your job badly, reality says that the outcome is rubbish. For all the PM's self-help mantras and tapes, the fact remains that our economic position was nothing like how he described and has not responded to the stimulus he gave it afterwards.

Quantitative Easing (QE) is a classic example. The economic patient lay critically ill on the bed and intravenously money was fed in. Sadly it never got to the vein as an unforeseen valve led the money away to different bank vaults who have just used the money to go play 'casino banking' again and shore up their balance sheets as the FSA wanted them to do while hardly any of it has got into the real world where it was needed. Indeed, this week the Broad Money supply called M4 showed that the amount of money in the country is falling, showing QE has effectively gone down a drain. It has propped up our Government Debt market and that could be equally dangerous when the whole thing finally ends before we descend into being a banana republic.

Our real stimulus money for the wider economy was VAT decrease and scrappage plus a few minor things. Loan Guarantees are a mess because the Government has used the same criteria to lend as banks and the decisions still lie with banks anyway. Reams of form filling and economic data has meant many businesses have just given up on it. Oh, numbers look fine with some 200,000 businesses allegedly going for it but again reality says it was banks just getting the Government to underwrite existing debt - nice fiddle.

Meanwhile Toxic Debt has been the biggest winner. Thanks to our loans, guarantees, insurance and capital, banks have been able to write down debt positions to the point where it all looks cheap again. Guess what? Reality bites and all the banks are making hay by trading in them once more and bonuses are up again.

Our whole strategy was to save the banks and that's what we have done making rich people richer on the back of their failure. The rest of the country has suffered. Meanwhile heroes in Afghanistan die as we equip them poorly while fighting our wars, don't give them enough of the right transport and propose to send untrained reservists.

It's a script you could have been hard pushed to write as it was so patently wrong. Yet that's what happened and our PM still claims he was right. Despite the 47% rise in coffee houses in Britain in the last year, he still can't smell any.

Perhaps the whiff of Government Bull is too overpowering.

'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.

The Hardest Love

There comes a moment in everyone's life that in order to get a reward you have to bury the hatchet and at least make the pretence of getting along.

I used to find this hard enough as a child when someone would say that in order to have a game of football you had to include the class dolt who couldn't play the game even after lessons by Bobby Charlton - but because it was their ball you had to let them play. As you grow up you often get into situations where you have to hold your tongue and try to get along with someone because the boss says so. I suppose with politicians, it just comes with the territory.

But how slimey it must feel to stand up in front of a couple of thousands of people and the cameras of national tv and, without gritted teeth, stand there and bare faced lie to say how much you think of someone you inwardly despise. Once finished, and you have eulogised some idiot for the sake of your career, you get off the stage after tumultuous applause by those who seem quite convinced by what you say, then find the nearest toilet and vomit violently. Just for good measure, I would find the nearest confessional and plead for forgiveness and thank God for not sending down a thunderbolt when you were actually talking, so heinous was your lie.

Well now you know how Gordon Brown must feel, and for that matter, Peter Mandelson too. Yesterday, they did the equivalent of 'taking one for the Party' and buried their hatchets in shallow ground as they will have to find them again next June when they lose the election, and they talked of each other in glowing terms.

Mandy talked of his pledge of 'undivided loyalty' for Gordon Brown. It was clever wording, as he could easily say at a later date that while his loyalty was undivided there wasn't much of it. Equally, he talked of how Gordon Brown had 'gripped' the financial crisis when other leaders had made mistakes. He was also careful to say that Brown had not caused the crisis by his mistakes but at least, in his opinion, he had done something when it all unravelled in front of him. I think the electorate may have other opinions, frankly, but I susppose what else could he say? Peter Mandelson is the consummate political operator and it is why his own Party dislike him more than the voters - which believe me is saying something - but even he could not talk with any great affection about what Brown has done. You can bet your bottom dollar that in the aftermath of an election loss, Mandelson will be the man to to deliver the coup de gras to Gordon Brown's career.

You have to remember that Mandelson is fabled as having said that when Brown had asked him to borrow 10p to phone a friend, Mandy had replied. 'Here's 20p, phone them all.' Faking love, is the hardest love of all.

What the speech showed was where the power lies in this country. The twice disgraced Mandelson was recalled to Government by the only method allowable via a peerage and then given effectively the leadership of the country as atrade to help save Labour from total annihilation. How it must have gagged in Gordon Brown's throat to accommodate the man who had effectively held back his career for so long by standing behind his arch rival Tony Blair. How it must have hurt his very soul to know that in order to survive he had to resurrect the career of a man he loathed so much. I could call Gordon Brown a lot of things but I would have guessed that he harbaours a grudge with a great deal of passion. But that's politics.

The impression of Gordon Brown in his 10 years of day-counting to the time he would be Prime Minister in 11 Downing Street, was one of a deeply principled man who would not do things just for political sensationalism unlike his predecessor. But we have seen the other side of him. We should have known that he would connive and behave like a spoilt schoolkid who thinks it his turn to have a go on the bike as he sent his bully boys to snipe away at Blair to get his go at the helm of the country. He was like a moody teenager or the school bully who sent others to do his bidding which did not bode well for us. We all thought that even if he did behave like a spoilt brat at least would hold true to some of the traditional Labour values.

Nope, when it came to it, he was stroking the backside of a Gadaffi too for oil deals, willing to trade a mass murderer for a few quid. When the whole financial crisis unravelled in front of us, while he seemed to protect the interests of the common account holder at places like Northern Rock, all he did was save the necks of a few rich people who had lost billions that he was happy for everyone of us to pay for. Even now, as Darling talks of curbing City bonsues, we are long after the event and it has not cured the basic problem of a flawed banking system as Brown depends on unbridled profiglacy in money making to get the kind of growth back in the country to stand a snowball's chance in hell of reducing debt by a single pound by 2015 let alone halve it as he is manically talking about. He allowed his old chum, Fred Goodwin, to walk away with millions when tellers at the same bank were sacked with nothing because he did not care enough about the right people but loved the rich.

Now Gordon Brown has had to swallow all his pride and tell us, straight faced, that his Party should be 'proud' of Peter Mandelson's contribution of the Party. It stopped well short of backing the guy, of saying he liked him or even that what he has done was any good but it still was a complete lie and we all know it. Mandelson's contribution has always been to deeply divide his Party and it is only in his rehabilitation to power as he ever achieved anything of note - and that only is to have a title he does not deserve and that makes a mockery of the whole peerage system.

But after all these years, the man (Mandelson) who architected the whole New Labour Project is still his own biggest fan. He even had the audacity, in his recent speech, to say that, 'Tony always said that the New Labour Project would never be complete until the Labour Party learned to love him. Well maybe Tony set the bar too high, but I am trying my best.'

I think the whole concept of the New Labour has long since been condemned to the muckpile as Britain wallows in the mess it created. That's the lack of reality that Mandelson and Brown have. The rest of the Labour Party may enjoy Mandelson's showmanship but they know that the election is already lost and just vacuous self congratulations and mock love-ins are not going to convince the electorate that a) anyone knows what they are doing anymore and b) that any of them can be trusted.

Well that's show business and politics, I suppose. It remains to be seen whether anyone outside of the Brighton shares the same sentiments of the man who has made politicians one of the most distrusted breed of people in Britain.

The Lost Generation

Evidence shows that in the record unemployment figures released just a week ago of approaching 2.5m and rising, that the young have been hardest hit by this recession as unemployment figures of those leaving school or University is rising faster than any other sector.

Many commentators believe this will lead to a 'Lost Generation'. As if we did not have enough problems with youth disaffection leading to what appears to be a sharp increase in crime, and violent crime at that, amongst the young, it now appear that prospects for their future are getting bleaker.

You might think that of the Government priorities that have to be juggled to be produce the kinds of savings required to decrease our budget deficits and massive borrowing requirement after the incredible sums spent on bank bailouts, it should not be the time to make life harder for young kids.

But in the world of number crunching and accounting, strategy goes out of the window. So this week we have seen two extraordinary announcements. First, Ed Balls, former Treasury Minister and now in charge of Education, has volunteered to slash £2.5bn off the budget for Education, then we get the Director General of the CBI, Richard Lambert, suggesting that students should pay increased tuition fees. In fact, it appears that the Lib Dems are going back on one of their most important Election pledges on tuition fees.

Perhaps it is because the Government now feel with record pass and top grade levels at GCSEs that the job is done - we no longer have to invest in the education of our children as they are born more intelligent in the UK, perhaps. What a banner that would read at the next Election for Labour, 'Brighter kids under Labour'.

The fact is that as we propose to de-invest in schools having invested instead in stock markets shares of companies like RBS, Lloyds, Northern Rock and Bradford & Bingley instead, the prospects for our young are diminishing. And even if they want to weather the storm and go to University to apparently increase their prospects for the future, they will leave University with a millstone of debt around their necks, the likes of which non generation has seen since the introduction of the Welfare State. Oh, and their job prospects will be the worst for generations with that level of qualification as the top companies decrease or even stop their graduate intake schemes - BT has led the way on this.

Only last night, there was a program on TV which showed that some 9 million people will reach retirement age with the prospect of a pittance of a pension as we are never encouraged at the right age to set aside enough money for our future. In fact, only 4% of the population will leave their jobs with the nirvana of two thirds of their final salary income and - you guessed it - the vast majority of those will be Public Sector workers on superannuated fantastic pension schemes. My argument here is that as a nation we should be setting out from the earliest age the conditioning and discipline of saving for retirement as the young enter the job market, instead we have our brightest talent weighed down by debt. And there is to be more of it.

There will be a point when going to University will be the domain of foreign students and rich kids - how un-Labour will that be? Already back in the 80's when I was at University and Polytechnic, there was as many as 25% of my colleges' students from overseas and one class shared students from Iran and Iraq whose countries were at each others' throats. The campus was regularly picketed by students of both sides raising funds for weapons back home and at the Poly of Wales I entered the Junior Common Room where they were lobbying for a quorum on a vote to send aid to the South Moluccan terrorists.

Recession leads to all sorts of daft things but what is most stupid is that the priorities of yesterday become far less important when people start studying the bottom line. Yet, if you looked in the Appointments Section of this week's Sunday Times, you will not see a single Private Sector job advertised - just about everyone was advertising fat salaried positions at the head of some Quango, NHS Trust, Government Think Tank or other Government Department.

I can't say that the Tories are right about their cuts but starting at the top is a great idea in my book. Less layers of bureaucracy will bring into sharp focus who we want to keep in high Government positions and who we don't - plus what flunkies and mandarins are also due for the scrap heap. Personally, long before I got the knife out on education, I would sit down and look at the money being wasted in these administrative departments that have grown up in the last 12 years like The Department of the Deputy Prime Minister or the Department of The Business Secretary - things that did not exist until this Government arrived. As much as a few countrymen of mine might think a devolved Wales is a good thing, frankly we cannot afford the salaries, expense accounts and opulent new buildings of the Welsh Assembly when so few people were actually interested enough to vote for it. It is a layer of Government that is entirely superfluous.

It may not be the time to start thinking about what is important to Britain so far ahead of an election but if we do not do it, the idiot politicians who led us to financial ruin will get their knives out instead. At a time when prospects for young people have been at their worst for years, the last thing we need to do is to take money out of the system and make them pay more for their higher education. It's a double whammy that lays the seeds for another dirth of talent in Britain at a time when we need the best to come through an innovate to make us competitive again.

But, as with so much of the policy of the top echelon of people, the focus of this future is the same as the last 12 years - Britain's only real growth industry was finance and once again we see the emphasis has been to save the careers of people who nearly ruined us. For them, we could not have bunged more money down a drain without any questions as to how much was needed and why and what modifications to behaviour we would mandate. Everyone is afraid of these rich goons who think that raising £9bn of someone else's money with only a tiny amount of their own risked to buy a drugs store chain is great business acumen. It does nothing for the wealth of this nation. Having knights who take £1bn in single dividends and not pay a bean in tax and revering them as business gurus is just sick while kids cannot get a job or a decent education.

The strange fact is that I am not a Socialist and am all for free enterprise but I am not for thin wedges of society using our tax money as their bank and I am not for Governments allowing super rich people and companies to avoid paying their way in tax.

There are a ton of ways that £2.5bn could be saved or raised long before we get anywhere near the Education budget or adding on extra debt for graduating students. The lack of thought put into is pathetic - then again, Ed Balls was a finance man and he has had his education all done and paid for. So no surprises what he really thinks about the kids of today.

In the coming months, we are going to get a lot of stupid decisions made which will wipe years off our progress. In the meantime, the bankers we saved will be taking us enthusiastically forward to the next crisis thanks to our money and lack of constraints. Now is the time to enter the debate on what is important to us all - after all, it's our money they are using.

Scam After Scam

The reason we put up with it is because we have no say in how our own money is spent.

What the hell am I referring too? Of course, it is our 'investments' in UK banks amongst other things - the sort of investment that needs to be managed by some cerebral high-brow who can watch when the cursor gets above the value 'bought' and press the button to 'sell'. For that, one of the top headhunters have snaffled a former RBS banker to lead the intrepid search for the person who has the right sized digit so that they don't press 'buy' - the same headhunters who the TCCB paid a fortune for in order to select the acting coach of England's cricket team to be the coach - the one and only Odgers. Money well spent, indeed.

Well, you may be happy to know that as the banks gear themselves up to do ever more risky deals with our cheap money and then pay themselves massive bonuses like the one I reported on at Barclays on Friday, the scam works equally well with our money at the opposite end.

Let me explain. You see we bailed out the likes of Lloyds and RBS, the former having bought HBOS, has 28% of the UK mortage market. Now we injected some £70bn into them in new capital, guaranteed a load of debt, ring-fenced a load of toxic debt, gave them loans at virtually no cost and walloped a load of Quantitative Easing money down their gullets too. You might possibly think that might be good for us. Well, if you want a mortgage, it isn't.

Last week, the Bank of England voted to keep interest rates at an historic low of 0.5% for the fifth consecutive month. The cheapest mortgage you can get today, even with 40% deposit is 4.95% - that's nearly 10 times the base interest rate. If you wanted a five year deal with RBS or Lloyds, then you are looking at shelling out on their new, 'highly competitive' deals of 7.49% at Lloyds or 7.25% at RBS - some 15 times the base rate. The shrewd people amongst us would note that the current superb mortgage rates are now higher than prior to the credit crunch. The best rate you will get on a 10% deposit mortgage in the UK is 6.19%, a whopping 12 times the base rate.

There aren't many industries where you can charge such rates. And this is at the time when the public owns a share in at least 5 High Street banks, two of which who offer mortgages we own outright (the Rock and Bradford & Bingley). For all the blustering and piffle from Cabinet Ministers and Gordon Brown himself, we are being racketeered by the very companies we so very generously were proxied to bail out.

If you sat down and tried to try to write the worst case scenario for a financial mess, you could never have got to within a million light years of the khazi we are in. You could also never dream of writing some of the guff we are told about how well off Britain is in this scenario by the idiots who run this country.

As taxpayers were are being royally shafted at all ends - and the shafting has only started as the cuts in public services and the higher levels of tax to pay for our own largess has not yet kicked in.

You couldn't dream it up - we bailed out our banks so that they could absolutely shaft us to make massive profits on their lending while they continue to take mega-high risks to pay themselves huge bonuses. And it's our own money they are using.

I've said it before and I'll say it again - we must be stark raving bonkers.

Where Has All Our Money Gone?

Wandering through St Albans market yesterday on a lovely September afternoon, I couldn't help noticing that the stalls, the shops and the restaurants seemed far busier than they have been for a while. Now that Lord Mandelson has decreed it, are we really out of recession?

There does seem to be some encouraging signs and we should be thankful that we may be through the worst of things even if 'The Dark Lord' and other like Stephen Hester of RBS warn that we should not assume that everything will be rosy from now on. Even so, perhaps there are signs that we are getting a little more confident and spending more.

Perhaps different to the last recessions when there were similar effects on jobs and industry, this time around we are left with an incredibly large bill as a long term legacy of the crisis we have been through. Some stark facts reveal the cost of the credit crunch and recession combined has been around £1.5 trillion which was the total amount we spent, collectively, on bailing out our financial system.

We recapitalised and provided loans to the banks to the tune of £289bn which included the nationalisation of Bradford & Bingley and Northern Rock as well as our shareholdings in RBS and Lloyds Banking Group - we are still around £10bn to £20bn down on this but the shares in RBS and Lloyds have recovered significantly and we may get our money back soon on those particular deals although the other two may take a good deal longer. We gave a further £200bn in general liquidity support to banks - which prevented those we rescued and others vital support to stop them going bust.

We spent a further £400bn in purchasing and lending money to buy assets. It is unclear how much of that money can be recovered. Then, of course, we have guaranteed a further £650bn to banks to cover their losses. In theory, we should get a good proportion of that money back providing banks remain solvent and there are no disasters ahead. Alan Greenspan, former head of the Fed in the US, recently said we would get another crisis at some point so we should still be wary that all this money is certainly at risk. It does make you wonder why we continue to condone and aid the machinations of the financial system when we know it has such inherent risk if it is not properly reformed and regulated as the last thing we need is for the whole thing to happen again - then the money would have truly been lost and we would require a great deal more to perform another economic resuscitation.

The £289bn of loans to risky banks is equivalent to £11,500 of liability for every household in Great Britain.

That's an awful lot of money for a society that already has around £1 trillion of unsecured debt, masses of mortgages, diminishing household income and more uncertainty on jobs. I certainly don't have the money lying around if it was required.

National Debt was around £466bn in 2007, £526bn in 2008 and we thought it was really bad when it would rise to £609bn in 2009. But by 2014, debt is forecast by the Treasury to rise to £1.37 trillion - and remember, we have revised these predictions every month so far as lower tax returns and higher benefits pay outs due to greater unemployment has affected the wishful thinking calculations to date.

In 2014, we will pay £60bn in interest on that borrowing alone.

£60bn in the context of the total bail outs does not seem much. But to put into proper perspective, that's equal to the entire Education budget for the year or just over half the budget for the NHS. It is that huge and it is why the world's formative credit agencies are beginning to believe that Britain's ability to service and repay the mounting debt will get progressively harder. As we borrow more and more, confidence will get lower and lower as there is only so much that everyone of us can afford to keep up with the repayments, particularly as we are all affected by the fall in the housing market and the uncertainty in the job market.

For us as individuals, our household net income has dropped over the last 10 years. We supplemented our earnings by a rich source of money - the rising equity in our homes. Sadly, in this crisis as much as 15% has been wiped off the value of our homes which is equivalent to around £422bn.

It means that we are collectively worth around 10% less in terms of our personal wealth or around £393bn has been wiped off our collective value. Finally, between 2007 and 2008, around £815bn has been wiped off our value in total.

That is equivalent to about £31,000 less wealth per household in Britain in just two years. Given that we are liable for £11,500 per household too, our actual drop in wealth is closer to £42,500 per household.

I don't suppose those milling around the market had actually thought that through as they started spending again as if there was no tomorrow.

Bank Rip Offs

Is it comforting to know that although we may now be significant shareholders in several major High Street banks, and paying handsomely for some time to come and for all the other things we have 'agreed' to, that the banks themselves are ripping us off too. Such gratitude.

Of course, if we were big institutional or private investors, they would be treating us very nicely with possibly big lunches, promotional events or even a few 'sweeteners'. But at the grim end of banking, we non-institutional investors are being ripped off right royally.

My knowledge of this came about by a unilateral move by my bank, who I shall call to save their embarrassment, HSBC. Oops. A couple of years ago, they welcomed me with open arms after I finally got so cheesed off with Nat West after 30 years, that I changed. Along with my Business Account, HSBC, make a fine penny out of me. On arrival, they rolled out the red carpet and gave me Premier Account status as I had the Gold Account with NatWest, which in fairness to them gave you a number of good privileges one of which was a £10,000 preferential rate overdraft facility and another was a £10,000 credit limit on the Gold Card.

HSBC offered none of that mumbo jumbo but told me this account used to cost £25 per month and was only for 'high value customers' only which in hindsight was anybody swapping from Nat West. Well after a few disasters on the Business side, which have not been addressed for over 3 months, I got my Premier Account statement yesterday to find that they had started charging me £25 per month. I looked for an anniversary or something but none existed. I looked for a letter - nope, none had arrived. I had received a sales call the week before but I had sent them away with a flea in their ear. No, this was something a clever bank manager had thought up and unilaterally decided to charge Premier customers with.

My feverish mind went into action and wondered if the £25 per month gathered from all the customers would in some small way got to pay for the vast bonuses at the investment bankers end while the consumer customers rotted as usual. I also scoured my new booklet to see what fantastic new privileges I received on top of the lack privileges I already had - but there were none.

So I called the number on the statement and went through the reams of security, not knowing my PIN as I rarely called people and just used the internet. The helpful chap in Northern Ireland told me that all Premier customers now had to pay £25 per month - had I not been told? Right, so what did I get. There was along pause - it appeared I got nothing, except the 'Premier' logo on my card, remembering the things I got at Nat West. The only way he could waive the £25 per month charge was if I earned over £100,000 a year in salary and bought one of their Wealth Management products or I had to have a minimum of £50,000 in their deposit account which pays naff all interest (note the stock market has risen 40% in the last few months).

I would have laughed but he was being serious. My response was, and what if I didn't comply - oh, I could be downgraded to a normal bank account. Asking what the difference was, he couldn't actually think of any. When I pointed out that if I was to shop around and see what new account I could get for my simple needs, what would stop me from changing banks? He offered to refund the £25 that had already been taken from my account without authorisation, which got me back to where I was at the end of last month. I asked if a manager could call me to explain all this, as part of the Premier package is a mysterious relationship manager which sounds more like a marriage guidance counsellor. Again a long pause - it may difficult to get someone to call me. I have to admit I offered a financial inducement - a bribe if you like. I said I would send him a cheque for £1 if a manager called me back today. I knew my pound was safe and sure enough no one has called yet.

Call over, I have looked at the web to see what bank accounts are available and my goodness I was shocked. Most now have some kind of monthly charge even for internet banking, either implicit or hidden depending on what you want. But here is the incredible part - most are offering overdraft facilities at around 19% (some more, some less).

Read it again - 19% APR. The current base interest rate has been pegged at 0.5% for the last 4 months and banks have repeatedly missed their lending targets. Here is a good reason - getting credit costs and arm and a leg. Meanwhile, they offer only 0.1%, if anything at all, if you have money in your account or some offer deals of up to 6% if you have an unreasonable sum in your current account. Suffice to say, HSBC comes well down the Moneymarket.com list of 100 ranked bank accounts with a punitive 19.9% should you go over the agreed overdraft limit at any time, for however long, as I have found out.

For the mathematically challenged this is nearly 39 times the base rate that they are earning. In some cases, like Nat West, RBS, Northern Rock and Lloyds they are actually charging us extortionate rates using OUR OWN MONEY.

It really makes you think, as we sit aghast watching the whole debate about bank bonuses, high risk investment strategies, regulation and the like, that the whole world relies on our utter stupidity and ignorance. We bail the banks out and they sting the consumers who did so by charging us ridiculous mark ups for borrowing back our own money that we gave or lent them, and they also want to pay excessive sums to the idiots who caused the whole problem in the first place.

Who is to blame? Well the daft idiots who decided on a bank bail out plan that just gave banks money without a single caveat on how it was to be used - the Government. It could not be a worse scenario. Take credit cards, loans, mortgages or overdrafts, the minimum multiple on the base rate is at least 6 to borrow our own money back. Banks are having it easy at every end of the spectrum as they have us by the short and curlies, make no mistake. We are damned without them and we are damned with them - and we missed the one opportunity to get more favourable terms, when they needed us more than we needed them.

I am still not sure how the heck I solve my problem with HSBC, but the one thing I learnt in my short research today, is that there isn't a bank out there who is offering a fair deal. It is such a pity that none of us had a say in the more than fair deal we gave them when we bailed the swines out.

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.

Rock Unsolid

Here's a conundrum. The Government stepped in to save Northern Rock in February 2008 by nationalising it. When they did so, they assumed the bank was no longer a going concern and so severely wrote down its value.

By doing so, they offered to pay far lower compensation to shareholders than they should have done. Those shareholders have now run the matter through court and their appeal against the Government's actions and for higher compensation has been defeated.

The Government's argument is that the bank had been loaned £45bn prior to the nationalisation, without which the bank would have failed and therefore the shareholders would have seen their investment reduced to nothing. The Government, therefore argues that they were doing the shareholders a favour.

It is a difficult situation. The Government did indeed rescue Northern Rock but at the time there were other avenues that could have been explored. When nationalised, the entire liabilities of the bank were assumed by the taxpayer, some £100bn and we are by no means clear of danger although the Rock has been paying back considerable amounts of its loan. Danger was unjustifiably increased when the interim CEO, Ron Sandler, somehow allowed the Rock to continue to hand out 125% mortgages, the very product that nearly killed the bank, for a good 6 months after nationalisation. Then Sandler and is team almost unilaterally renegotiated the terms of its loan facilities from the taxpayer in order to offer around £14bn of new mortgages.

There were two alternatives at the time. One was that Northern Rock was sold as a 'going concern' albeit with its liabilities effectively underwritten by the taxpayer for a period to someone like Virgin One who argued that the Rock brand was defunct and that Virgin would revive it by offering their own branded products. The Government argued that the Virgin plan did not inject enough capital into the Rock and therefore it was not viable. The second option was to let it go bust in the same manner as the Fed did with Lehmans and let others pick over the parts of the business which were viable.

In many respects what happened gave the worst of both worlds. The taxpayer ended up covering the entire liability anyway, we gave the loans, we were exposed to the stupid extra 125% loans, we paid the bonuses to the Rock staff just for repaying some of the debt, we pay the vast bills for Sandler and his army of consultants, we allowed the Rock to renegotiate the deal to save itself and the juicy assets of really nice mortgages were tied up in a vehicle called 'Granite' which we do not own. Meanwhile, the shareholders got shafted whereas, arguably, with Virgin's management and skills they could have shared in some future profit as part of the Virgin brand and you can bet your life Sandler, the daft mortgages and bonuses for loan repayments would not have featured in the equation.

There is another aspect to this case, though. As the Credit Crunch unfolded and major bank after major bank revealed their stupidity, the Government actions veered markedly from its action on the Rock. Almost as if they realised they were stupid to have nationalised the Rock, they tried a variety of other methods to save the other banks such as HBOS, Lloyds, and RBS.

Two major cases are very prominent. First, events triggered the Government to virtually force Lloyds to buy HBOS against all anti-competition rules and all good advice. Immediately, both banks came cap in hand to the Treasury and we had to save the entire new group to the extent that we now own nearly 50% of the new Lloyds Group. What the Government did was to fund an anti-competitive takeover that now gives the new Group an unhealthy 28% of the UK mortgage market. The shareholders of both HBOS and Lloyds, in the wake of one of the most ill advised takeovers you could imagine as Lloyds discovered the extent of the HBOS situation as it was not allowed to do full due diligence and pay the right price thanks to Government intervention at the highest level, they also stepped in to save the skins of Lloyds shareholders so that they may benefit in the future from any rise in the market. The Rock shareholders were afforded no such luxury.

Secondly, as Bradford & Bingley sank, the Government allowed Santander, a Spanish bank, to increase its share in the UK market after already buying Abbey and Alliance & Leicester by letting it buy only the bits it wanted - the juicy ones of course. On top of this, the Government later proposed the Asset Protection Scheme which allowed banks to ring-fence their toxic debt and have the taxpayer 'insure it' by paying a premium.

If any or all of the above options had been allowed for Northern Rock, it is arguable that while the shareholders would have lost out in the short term they would have reaped some benefit as the markets recovered as the shareholders of all other banks will. The argument here is that the nationalisation of the Rock was a knee-jerk reaction that cost us all a great deal of money, it was mismanaged and there were alternatives, particularly after the Government sat down and thought about it.

Personally, I was in favour of the Rock going under and then bought for a song by some other bank who would have done a better job than Sandler, who for all his excessive fees has only done the obvious. I do not have a great deal of sympathy for the shareholders in the Rock, even now as it was a bank that had traded on a substantially flawed model that was cruising for a disaster. However, in the light of the actions to save other banks, the shareholders have a very good point. All other banks offered loans, guarantees and capital were effectively saved by the Government and respected the interests of shareholders. The Rock was a fiasco that benefited no one - least of all the British taxpayer.

I dare say, the 'rescue' of the Rock will feature in future Economics lectures, although hopefully long after they have rewritten their text books and fired the lecturers. They got it all so horribly wrong, after all.

Again, Why Did We Bail Out The Banks?

Alistair Darling is on the war path. Watch out, as he is a mean, hard and dirty SOB. And the banks are in his sights.

I am sure the CEOs of the banks are quaking in their Italian-made suits and shoes. As they gear themselves up to start doling out massive bonuses again, the Chancellor is about to start hauling them over the coals about their lending policy to small businesses which he reckons is too low and too expensive. They really couldn't give a flying Frisbee what he thinks as they are making serious money again by playing the old games we wanted them to stop and they have their pockets ready to fill.

The banks will claim that they have lent approximately treble the amount of money they did in May last month at around £366m. Given they have received over £100bn of our money in terms of new capital, it doesn't sound a great deal.

Well, what did Darling expect? The panic button was hit and money was handed out to banks at a furious rate. The Treasury is already estimating that we will lose at minimum £25bn via the Asset Protection Scheme which is the insurance policy for toxic debts we all underwrite on behalf of the banks who lent stupidly. The Enterprise Guarantee Scheme for small businesses means that we also underwrite 75% of all new loans to companies so, theoretically, there should have been a great deal more lending to small businesses who have been very badly affected by the recession and credit crunch. And it should be based on the 0.5% interest rates we have - but perish the thought, according to banks, as they get that money from the wholesale money markets at double the price.

So what happened to the money we gave them?

The problem really is that the Government did not think all this through in their panic to save the financial world. There was the stupidity of Goodwin's pension, presided over two NXDs and a Minister, all of whom still have their jobs; there was the fact Northern Rock not only carried on lending out 125% mortgages 6 months after going into public ownership, they then handed out bonuses just for paying back part of the debt and then unilaterally re-wrote the terms of the deal; bonuses will be paid in the City this year after thousands lost their jobs in the back room and branches while the big-hitting, overpaid traders and their colleagues kept their jobs. Oh, and the banks were allowed to continue playing their games with potentially toxic assets in the forms of derivatives, exotics and whatnot plus shorting goes on unabated. In the midst of all this, the FSA is still 'drafting' its policy on Macroprudential Regulation (a euphemism for the same again) as the same donkeys man the senior positions who cost us billions.

It's a script you would have been hard to have imagined because you would have been guffawed at for being unrealistic, but the magnitude of our collective stupidity is pretty incalculable. And it goes on.

Darling will be hard pushed to get any change out of the banks. They are back on the gravy train thanks to his largesse with our money, for which we will pay the price for another 20 years in tax and much more in terms of jobs and cuts in Public Services. If he thinks the banks will pay much more than Mandelson-style lip service, then he is badly mistaken as he has been for some time about the whole situation. They will pluck out statistics and use the same joke on him that the Government use on us - big numbers. By mentioning large numbers it sounds as if something is being done. But let's face facts - small businesses collectively make up over 97% of the UK's businesses, they employ over 70% of the workforce, and they pay a disproportionate share of the Tax in terms of the revenue they create compared to large corporations like, say, banks who have the ability to offshore some profits, and pay big accountants to find plenty of loopholes.

Small businesses are the backbone of British industry and the largest pool of the workforce. £366m in June in terms of loans was nothing when a private Equity Firm can get £9bn of loans from banks to take over a single company and reap the profit. When it comes to lending to businesses, there is no profit for banks in lending to small ones as the BIG MONEY is in lending to like idiots to the likes of Private Equity firms or Philip Greene.

We had a chance to reform the banking industry and stop these top levels games which gamble with our money. But we have done nothing but saved the necks of a bunch of greedy people who could not wait to get their hands on our tax receipts and pledges to go kick start the gravy train again.

Next stop will be a further credit crunch and recession and small businesses and the likes of you and I will foot the bill once again. Darling had a chance to do this properly, but that would have kissed goodbye his anticipated knighthood and Non Executive Director jobs for the future. Everyone wants to follow Tony Blair's lead of after-Government earnings that's for sure.

One step Darling could have done was to break up banks so that no retail banks could have an investment bank business so that our money never ever gets preyed upon again and that we do not pay excessive costs on fees and loans to subsidise investment bank risk and pay. Simple thought - and it would have got retail banking focused on its core business of issuing credit to businesses and consumers. It would have also stopped banks culling staff in the retail business to subsidise jobs in their failed investment arms.

The Government could have got simple advice like that from any citizen in Britain but instead they paid some £50m in fees to investment bankers and lawyers to sort out the bank bail outs so it was obvious where the emphasis was going. The bankers even charged us for giving advice on how to sort out the mess they created - the joke was seriously on us, and not a scrap of that advice went on sorting out small businesses but how to kick start the financial world to make sure they all made obscene profits again.

It would have been like asking Hitler to help Jewish families after the War or for that matter asking Tony Blair to be a Middle East Peace Envoy.

But Darling will go with his wilting stick to the banks and they will serve him tea and buns, feign concern, show some remarkable big numbers and then clear him out making him feel he owes them something. Just like we all feel when we have left a bank even though they live on our money.

Welcome to the world he has sustained.

Let it Fail, Let it Fail, Let it Fail

Sing the title of this entry to the tune of the Christmas song, 'Let it Snow' and we have a natty little anthem for the day.

I was pondering, at the beginning of all this banking fiasco, that had the Government stepped in at Northern Rock and just picked up the mortgage book and guaranteed all depositors, just what might have happened.

This was not my idea, no less an economist as Nobel Laureate, Joseph Stiglitz, suggested this some time ago. He was fixed on the fact that a contract for a Credit Default Swap or Collateralized Debt Obligation was in fact a two way contract or bargain jointly entered into by two companies fully aware of the consequences if something went wrong like part of the debt was toxic. Indeed, if they had had any sense, just prior to signing the deal they might have embarked on a bit of 'Due Diligence', that long lost phrase which went out of the window during the Enron scandal to have avoided such a calamity.

Stiglitz was of the opinion that if we had allowed the consequences of that failure to play out, only then could we have teased out what the true underlying liabilities were - not just at Northern Rock but in the entire banking system. True, many banks would have failed but he claimed that we could have used the shell of those old banks to build new ones with more secure procedures and tighter regulations to focus them on their core functions of providing credit and capital.

Further, Stiglitz asserted that the overall cost to the taxpayers would have been less in the long run as at least we would have known exactly what we were paying out for. His claim is that in the current scenario, we are propping up an already failed system, that part of the guarantees and loans that we have paid for will actually underwrite part of the 'good books' because no one is encouraged to itemise the toxic debt as it is being all paid for so why not ask for more and cover current good debt.

Sound wrong? Just look at the Enterprise Loan Guarantee Scheme from the Government meant to cover and encourage new lending - banks are taking existing loans, handing out small increments to qualify for the scheme and then getting 75% of the original debt covered. The amount of net new lending is trivial.

My view, which is with Stiglitz, is that banks should have played this all out. I dare say there would have been more sad cases like Mr. Kellerman in the US as bank executives were troubled with the terrible burdens of their greed, but I doubt it would have troubled them that much. There would have been a terrible loss of confidence in the banking system, have no doubt. That is what has been most protected in all this - banks must never fail, according to all Governments. The fact is that some banks do fail. Lehmans were left to fall and the repercussions were not that huge.

The problem we have bought for ourselves, as Stiglitz has pointed out, is that if all we do is reset the sail to catch the wind again, then all we have done is hidden the problems to manifest themselves again in the future. He now predicts we have set ourselves a course which will commit us to ever shortening cycles of peaks and terrible troughs in our economies with no chance of any kind of sustainable stability. There is no doubt that the alternative would have meant a period of recession possibly depression but we are in a different age now. No more the '30s where people could not eat, the majority would still have had some way of providing for themselves. It would have been a different kind of austerity that would have curtailed our wanton materialism - and would that have been such a bad thing? Besides, it could argued that this is exactly what we are going to get anyway.

As Stiglitz does, I think we have missed a massive opportunity to put this all right and start again, properly.

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.

Some Good News, At Last?

The average price of homes rose 0.9% last month according to Nationwide. Mortgage approvals rose from 32,000 in January to 38,000 in February. It could be signs that the economy has some 'green shoots' at last - or are they?

The measure of Quantitative Easing (QE) as started by the Bank of England last month has yet to take great effect and so the positive movement cannot be put down to that measure. Besides, in a volte face by Mervyn King in the face of unexpected and bad news of a rise in inflation, it seemed this was no longer the vogue idea.

In response, for the first time 14 years, an auction of National Debt failed as the markets got spooked.

As the G20 country leaders get into full swing today, there will be another crucial time in the City as the next debt auction takes place and the markets will be wary of the outcome. To keep the housing market moving, the theory is that some of that cash has to cascade down to house buyers in the form of more liberal lending terms.

The Dangers

While this is generally received as a good thing, we have yet to agree upon a new structure and strategy for the regulator, the FSA. One of the huge problems that we have faced was the crazy and far too easy terms of lending on houses that got us all delving into our mortgage equity to spend. Northern Rock was not the only bank to lend at over the asset value in its 125% Together mortgages and most banks who lent anything over 80% loan to value (LVT) in the last year or so have seen their buyers actually go into negative equity.

Perhaps it is time to set out the rules properly about sensible lending policy at banks like a cap at 80% LVT so that we do not make some of the same mistakes again. It really is time that household disposable income came to the fore as the fuel for lending rather than the hope of equity growth and release.

Or am I asking too much?