Sir Alexander Belloc-Brayne reflects on trouble at t’Rock and on how to survive a banking crisis.
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September 2007
Home, sweet home…! Call me an old fussbudget, but an extended stay in Baden-Baden could well have turned out to be more injurious to the finances than any banking crisis in the old country. Not a word, but I think I have foiled Her Ladyship’s plans to adopt a foreign domicile by insisting on a return to the Green and Pleasant to lead the sellers’ strike over the HIP fee that is now bringing the three-bedroom tier of the property market to a halt, if our estate agents are to be believed – and why should they lie? I sense that Nurse would like nothing better than to man a picket line and bellow “Scab! Scab!” at every likely vendor. Fortunately, natural bureaucratic obstacles such as daily local authority search limits and foul-ups on the energy-efficiency assessment front are working just as well. Dans ce meilleur des mondes possibles… tout est au mieux.
I sense the hand of history (to quote one who has since disappeared) in the spectacle of the first run on a British bank since the aptly named Overend & Gurney went belly up in 1866. Word is that the clever money has fled to National Savings, which tells me that the public is responding enthusiastically to Chancellor Darling’s appeal for a return to old-fashioned banking – and with savings rates from 2.6% p.a. to 5.15% p.a. at the NS&I, one doesn’t get much more stick-in-the-mud than that! Her Ladyship, meanwhile, has turned up a decent-sounding Tracker Online number paying 6.1% p.a. and hailed as a leading “easy access” account by a raft of omniscient consumer finance websites. A trawl through the fine print reveals that the provider is an outfit called Northern Rock. I have made a mental note to write to the proprietors of Moneysupermarket, Moneynet, Moneyextra and Moneyfacts, commending them on their attention to detail.
We are all terribly impressed by the deft handling of the Northern Rock crisis, which must surely qualify as a textbook Sisyphean effort. Rumour has it that some sober and benevolent hedge fund will buy up The Rock – no doubt restoring stability but denying the Bank of England the honour of ascending to our fifth-largest mortgage lender at a stroke. If I were BOE Governor King (which thank the Lord I’m not, sir!), I should seize the moment and launch one of those 25-year fixed-rate mortgages championed by our visionary Chancellor. Good thinking, Belloc-Brayne! Your eye for a market opportunity is as keen as ever!
Some pretty nifty footwork on show by the members of our regulatory troika in their tireless efforts to limit the damage and deflect the blame. All credit to Governor King for coming up with that EU Market Abuse Directive argument-of-last-resort after failing to pull off the cover-up – or covert rescue as it is known in banking circles. Caught everyone on the hop – not least our hard-nosed Treasury Select Committee and the European Commission itself, which has since retaliated by branding the King construal “outlandish” and the very rescue of doubtful legality. To Mr Darling an honourable mention in despatches for pledging to underwrite every last penny on deposit – unless your bank isn’t big enough to bring down the whole house of cards. I must say that I am looking forward to hearing the FSA’s case for not getting round to stress-testing the banking system for a shortage in the readies – but it has until October to think one up.
Strictly entre nous, my own position lies somewhere betwixt that of the banking Right-to-Lifers and the monetary Darwinists led by Professor Willem Buiter of the London School of Economics who hold that The Rock is “not too large to fail”. Can’t quite make up my mind, although I now have a fair idea of where the Professor does not hold his life savings. Something in my water tells me that the moral hazard school will prevail and that the financial services industry will stump up the £7bn for Mr Darling’s safety net. Word is that the main burden will fall on behemoths such as HSBC, Royal Bank of Scotland, HBOS, Barclays and Lloyds TSB – which may well be the straw that precipitates the dreaded systemic run on the banking system. National Savings, here we come!
Meanwhile, I have been spending many a pleasant hour watching the Labour Party conference at full bore in Bournemouth. Splendid address by Mr Brown, who seems to have secured an hypnotic hold over the electorate through the endless repetition of a small number of jingoistic words and phrases – a routine that apparently goes down well with the ladies and which may be worth trying out on Nurse, who at last may be persuaded to play Trilby to my Svengali. At any rate, that ploy should ensure that a nation which has endured the slow demolition of its pensions will not revolt over threats to its remaining assets. Incidentally, you will be glad to know that the Belloc-Brayne Model Portfolio has recovered to the extent that I am very nearly back to my pre-crisis equilibrium of fear and greed – a vindication of the principles of Inertia Investing and testimony to the displacement of cash as the haven of last resort.
Lady Belloc-Brayne is much taken by Mr Brown’s natural humility, shown most notably in his (implied) suffering of the little children to come unto him. How agreeable it is to hear echoes of the Good Book falling from the lips our leaders – although promises of ever more money for the NHS, the Financial Assistance Scheme and one-to-one tuition in our schools may require the public finances to manifest some of the properties of the widow’s cruse. The way I see it, Messrs Brown and Darling have abandoned the old triumphal rhetoric celebrating the exorcism of boom and bust from national economic life. How strange! Mind you, one should not write off the Tories, whose pious Blueprint for a Green Economy urges us to dismount from the “hedonistic treadmill” – a credo that we can surely export to developing nations like China and India, and which may regain us the intellectual and spiritual leadership of the world.
I am reassured by the recruitment of Alan Greenspan to our government of all the talents, in an advisory capacity – presumably in recognition of his status as Father of the Credit Crunch. I wonder how his prophecy of a doubling in the inflation rate and twin-digit interest rates is playing in the Treasury and in the spin doctor’s surgery. Word is that our government debt has risen to £19.1bn for the year to August – in defiance of former Chancellor Brown’s well-judged April forecast. Fortunately, the Office of National Statistics has stepped up to the plate and decreed the £21bn Northern Rock drawdown facility to be a contingent liability that will not appear on the public balance sheet. Mind you, we British are a lot more resilient than the French, whose Prime Minister has been telling Corsican farmers that France is broke and cannot raise their subsidies. It doesn’t say much for national morale when a government panics over a trifling liability of 66% of domestic income. Lord knows, the British public sector pension deficit alone amounts to some 92.5% of our 2006 GDP – and see if we care!
And breathes there a man with soul so dead who does not rejoice at the abject EU surrender over our right to an imperial weights and measures system in perpetuity! Well, at least one of Gordon Brown’s red lines has held – one less reason for a referendum on the Reform Treaty and one more for a general election, I suppose. The way I see it, we should not rest until we have seen off the plots to revoke our £3.6bn annual EU rebate and to replace the royal coat of arms and Queen’s message in our passports with “European language” – halting the rot that set in some twenty years ago with the adoption of a common burgundy EEC passport cover. For some must watch, while some must sleep – and who knows what colour (and shape) Gordon Brown’s line will be by Christmas.
Must rush! Lady Belloc-Brayne is petitioning me to lead a national campaign for the restoration of our pre-decimal currency, while the tide runs in our favour. Keep the pounds, shillings and pence! Nurse, however, has chosen to interpret the EU retreat on imperial units as a licence to go out and get “stoned”.
