Don't lead first-timers astray

That sideways movement also seems to last an age. Indeed, it is only when most people have given up on the idea that house prices will ever rise again that the gloom begins to lift and they do, in fact, start to edge upwards.

At any rate that was how it worked in the house-price recessions of 1974 to 1979 and again from 1991 to 1996. And while there is always the possibility that this time it will be different, that is probably not the way to bet.

House prices are already falling and they are quite likely to continue to fall for the usual three years given that there are already more sellers than buyers in the market and the economy has not even begun to slow down yet.

This being the case, it is quite astonishing that the Prime Minister Gordon Brown and his Chancellor Alastair Darling both seem constantly to be urging banks to free up the mortgage market and start lending again to first-time buyers.

Absolutely the last thing first-time buyers should be doing at the moment is rushing to buy - if they wait, their dream house can only get cheaper. Government should leave well alone. It is madness to try to re-inflate a bursting bubble.

RBS should have seen this coming

It is not really good enough for Royal Bank of Scotland chairman Sir Tom McKillop to say, when seeking to justify the bank's rights issue, that his board could not have foreseen the turmoil in world markets when they were buying ABN Amro last summer.

"Looking back, we purchased ABN at a point when bank valuations were way higher than they are today," he admit-ted...but then asked: "Who would have known what was going to happen?"

Well, while the full extent of the downturn could not be accurately forecast, it is nonsense to suggest the board could have had no clue about the general direction in which things were headed. The credit crunch began in early July, and by early August had got bad enough for Northern Rock confidentially to alert the Bank of England that it had a problem.

Throughout that period the markets were getting worse, financial sector share prices were falling, the Bear Stearns hedge funds had already imploded and there was ample concern expressed, including in this column, that it was the wrong time and the wrong price for such a deal.

All this going on before the date in August when RBS sought shareholder approval for the deal. It was also months before it actually secured victory in the autumn, and it could have pulled out at any time up to then citing deteriorating market conditions. Sir Tom, Sir Fred Goodwin and the rest of the board chose to press ahead anyway, as is their right. But to say they could not possibly have known how conditions were deteriorating is nonsense.

The signs of trouble were everywhere. They just chose to ignore them. If the board is still in denial on this fundamental point, it does not give one much confidence in its ability to cope with the months of turmoil and write-offs that are still to come.

CDO confusion squared or cubed

Legendary American investor Warren Buffett has a gift for cutting through the rubbish to express risks and problems with great clarity - which is probably one reason why he is so good at what he does. Interviewed recently by the US business magazine Fortune, he explained as follows why it was that purchasers of the credit derivatives at the heart of the subprime meltdown had no understanding of what they were buying.

The prospectus for a mortgage-backed security - a pool of several thousand mortgages, and the starting-block for a CDO - would run to about 300 pages, he said. This pool would be divided into perhaps 30 tranches, and one of these horizontal slices would be combined with a similar tranche from 50 other mortgage pools to create one CDO.

To understand what is in that CDO, the investor now has 50 prospectuses of 300 pages to read - in other words, 15,000 pages. A further derivative, the CDO squared, repeated the trick. Using CDOs as the building block, it took tranches from 50 CDOs to create one CDO squared. Therefore, to understand what a CDO squared involved that investor had to read 750,000 pages - which of course absolutely no one did.

For the record, there were also a few products called CDO cubed. The under-lying prospectuses for them would run to 37.5 million pages.