Confidence lost on Black Friday

What is needed now is easier money, within a co‑ordinated international framework — including Chinese participation — to manage the effects on currencies. That must be the priority at this weekend's meetings of the International Monetary Fund and World Bank. Here, it is time for a cut in interest rates beyond the half-point ­reduction to 4.5 per cent earlier in the week.

Rate cuts helped shares recover after the 1987 crash and 9/11. They are needed again now. With energy and commodity prices shrinking, policymakers must realise just how much the outlook has changed and accept that deflation, not inflation, is at the top of the worry list.
In the City, there are doubts over how far the major banks will make use of the £25 billion offered by the Treasury on what are expensive terms for existing shareholders. However, even if government stakes are limited, national debt is bound to rise sharply. Gordon Brown made much of wanting to limit the figure to 40 per cent of GDP. Now, even the Government's statisticians are ­puzzled about how to treat the new level. And although the Chancellor, Alistair Darling, likes to emphasise that the taxpayer has purchased assets that may yet yield a good return, the risks are considerable. The wider impact of recession on tax revenues, particularly from the City, and on welfare spending is still to come. The immediate political challenge for Mr Brown is to manage the impact of the Icelandic bank crashes, which have left £800 million of local councils' assets in doubt, £200 million of them belonging to London town halls, along with many charities' funds.

There were plenty in the City asking questions for years about the origins and sustainability of the Icelandic banking boom but only a few in these town halls seem to have noticed. Whether John Prescott's rules for council investments, highly paid finance directors or the ratings agencies are to be blamed has still to be thrashed out but as a bare minimum, the ­Treasury will need to lend to those local authorities with an immediate cash flow problem.

Muscular government intervention is what Mr Brown likes and these are circumstances in which it was called for. But his own London minister, Tony McNulty, is now admitting that Britain is in recession. Credit for making a necessary ­intervention may be forgotten as the consequences of a severe downturn begin to hit us. Today's promise from Mr Brown to intervene with OPEC's leaders is merely a reminder that the oil price is far outside his control. His admission that the fiscal position rules out further extensions to the winter fuel allowance demonstrates that his hands are tied, thanks to already high borrowing levels.

While Mr Brown likes to castigate the "irresponsible" policies of easy credit that led to the crisis, it was an era that he presided over. Indeed, the regulatory system that was found wanting in supervising the banks and monitoring debt levels was brought in by him in 1997, despite the ­warnings of the then Bank of England governor. Markets are not convinced politicians have the answers now. That is the challenge for Mr Brown and the world's leaders.

Heaven sent

THE CHURCH of England has supplied a special prayer for those alarmed by the credit crunch. It notes that "we live in disturbing days", with rising prices, increasing debts, job losses and collapsing banks, and calls on God to "be a tower of strength amid the shifting sands". It's reassuring to know that our spiritual leaders are focusing on Mammon as well as God.