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Gordon Brown is engaged in a dizzying high-wire act. He's weighing up whether to guarantee all UK bank deposits as a slew of other governments have done or he could take shares in the banks in the hope recapitalisation will provide the boost banks need.
It's at times like this it pays not to be the Prime Minister. The upside of the first is that the electorate can heave an almighty sigh of relief. The downside is that it's a potential £2 trillion liability.
With the second, the advantages are that he could exert influence over bank bonuses and if it does get banks lending to each other again and frees the credit squeeze, then the Government could end up owning equity in what were, until very recently, extremely profitable businesses. Heavens - the taxpayer could even end up making money out of this.
But the gamble is that it might not do the trick - in which case, Brown will have written a cheque for many billions of pounds to buy shares in the banks for nought. The omens in this respect are not good - banks in the US received investment from the super-rich sovereign wealth funds of the Middle East and Asia and they still had to rely on the Paulson lifeboat.
With the public finances already facing a deficit because of the economic downturn and the decline in tax receipts, Brown is playing with funds he urgently requires - get this wrong and he will blow a major hole in the Treasury coffers. His model is the move by Warren Buffett, the legendary US investor who put $5 billion into Goldman Sachs. He receives the benefit of the dividend stream and has the option to buy more stock at a knockdown price.
But while the Buffett approach has creative merit, it also displays the shrewd, money-making genius for which "the Sage of Omaha" is renowned. First, he can easily afford $5 billion and, second, he's only going into one bank and at that, the one which has not had to write-down billions on sub-prime losses. If any bank is likely to be in a position to bounce back quickly from the liquidity trauma it is the hitherto imperious Goldman.
What is under consideration by the UK Treasury is of an altogether different scale. They're talking about all banks and unlike Buffett, are not in the happy position of being able to write off the cash they spend.
However, there is an argument that says that if Brown does commit the cash and it doesn't work, the money lost will appear tiny by comparison with the bill the Government could ultimately face.
That is what is going through Brown's mind - to spend now, in the hope it will ease the blockage or announce a promise to spend later if things don't improve. Soundings from banks will, presumably, have told him what they think they need.
But whatever he decides, with the financial markets in the condition they're in and banks continuing to reel, one thing looks increasingly certain: he must do something.
Reader views (2)
Where are the experienced safe pair of hands gone? The only man who is capable of guiding Britain through this economic turbulence? Only a little while ago Gordon was blowing his own trumpet to the shivering deadwood of the Labour Party in Manchester? You caused the problem. You are the problem. David said he would help you but No 10 and the Treasury cocked a snoot at the idea. Now the ball is in your court. Dither away.
- Albert Hall, Hove England, 06/10/2008 17:38
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It's becoming abundantly clear to all that bother to look, the market makers in the city and wall street are cleaning up. Tax payers money at this stage are just being eaten by greedy dishonest lying spivs and the politicians are creaking in their shoes.
£13/£14billion in 2006/7 just in bonuses in the square mile from a smaller and smaller pot, was just thieving! You lie down with dogs you get up with fleas.
- Mike, London, 06/10/2008 16:00
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