Morning:
8°c
Phew. If we didn't know our banking system was in crisis, we certainly do now.
In its rescue package finally announced after hours of haggling late into the night, the Government is throwing pretty much the kitchen sink at trying to get the banks back on an even keel and lending to each other again.
Not quite everything is being deployed. Customers hoping for a guarantee of all UK bank deposits something more urgently sought after the freezing of Icesave accounts is not included. Presumably Gordon Brown could not bring himself to contemplate a potential taxpayer liability of £2 trillion.
His hope and ours must be that his £500 billion bail-out will suffice, that the whole system will kick-start again, and in the not-too-distant future we will look back at the autumn of 2008 as a blip on a chart of unalloyed financial prosperity.
Unfortunately, as Mr Brown and Alistair Darling keep reminding us, this is a global problem not one confined to these islands.
We've already seen the Americans try their hand with $700 billion and the indications are it has not succeeded. Other countries have stepped up to the plate with absolute guarantees, nationalisations and forced mergers still to no avail. Now, Mr Brown and Mr Darling are having their go.
The first reaction from the City was positive the FTSE opened down but not as much as it was going to before the deal was revealed. Even the City, it seems, which is used to dealing in large numbers, was impressed by the size of the lifeboat. Nevertheless, the index was depressed. There was no immediate bounce, no instant sign that the City which always looks ahead believes we are out of it.
Ministers have done their level best to ensure the money is not being thrown into a black hole.
If the banks want to use taxpayers' money then they must pay heed to the things that rile taxpayers more than any other as they face bank charges namely bloated executive pay schemes and hefty dividend payouts to shareholders.
The Government is charging, too, if the banks want to use its guarantee on the cash they borrow from other banks. And, if all this pans out and bank shares rise again, there is the possibility of the Treasury making a profit.
When it's put like that, none of today's news looks bad at all.Unfortunately, there is a small but very important word in there: if. Assuming the banks and the Government have done their homework and have been honest and open with each other, there should be no reason why the plan isn't big enough. It must be safe to assume that the figures have been chosen for a reason. It wouldn't pay either, at this stage, to go for half-measures.
What this doesn't address, however, is the impact on the banks of a full-blown recession of credit defaults and home repossessions.
Their profits could disappear completely and their need for capital soar. We haven't seen anything like the level of foreclosures currently being experienced in the United States. That could devastate the Government's calculations.
Mr Brown's nails are not the only ones that will be bitten to the quick in the coming weeks.
