Morning:
9°c
GORDON Brown was able to deliver some positive news when he faced MPs today for Prime Minister's Questions. The announcement of a half per cent cut in the Bank of England base rate - a day earlier than usual - was exactly what business had hoped to hear. And he was robust in presenting the case for today's historic bailout of the banks, in effect, their part-nationalisation.
The deal, negotiated overnight and concluded at five in the morning, means the Government will buy a stake worth £50 billion in banks' equity - half of it upfront - if the banks ask for it. Their funding gap will be bridged, which means they will be able to pay up when their bonds come to maturity. In other words, the Treasury will act as guarantor for their borrowings. It also means a huge, statefunded increase of £200 billion in liquidity, or the ability of banks to turn assets into cash - probably the most significant element of the package.
The move is a response to the banks' demand for decisive action from the Chancellor. It remains to be seen whether it will be enough to restore confidence but as Anthony Hilton says elsewhere in the paper, this is financial history in the making. The reaction of London traders to the news has been cautious - with an early dramatic fall in the FTSE followed by recovery as the market digested the implications of the deal.
For the state to acquire substantial equity in banks, at the banks' request, there must be some trade-off in the way they are run, even though the Government will not be managing them directly. Both the Prime Minister and the Chancellor made clear that salaries and bonuses in participating banks are being curbed, though they insist that the terms will be decided on a case by case basis. Taxpayers would undoubtedly take a dim view of institutions whose imprudence and bad judgment brought about their plight paying large salaries while accepting state cash. But restrictions on dividends to shareholders would be double-edged. Some of those affected would be the institutions that look after pensions.
Both the Chancellor and the Prime Minister have gone out of their way to make clear that the taxpayer may not lose out in this colossal rescue deal - yet it not only involves a significant level of risk but a massive commitment in spending, which will mean higher taxes or lower spending or both. And although this is a British solution to a British problem, it is also part of a global financial crisis. Mr Brown will attend a G7 meeting on Friday and there will be an IMF meeting on Saturday. Heads of government will discuss their response collectively but it is increasingly clear that each government intends to work out its own solution.
This extraordinary rescue package was probably the best that could have been achieved in the circumstances, indeed, it may have been inevitable. But only time will tell if it achieves its ends.
Gone mad
THANKS to the workings of the Local Housing Allowance, an Afghan immigrant and mother of seven, Toorpakai Saindi, is living at taxpayers' expense in a seven-bedroom house in Acton worth £1.2 million. Her private landlord is getting £12,000 in rent a month from Ealing council.
Authorities are legally obliged to provide housing for homeless families with children. But a separate bedroom for almost each child? A grand house? The same rent in Acton as in Westminster? This is a benefit system gone mad.
Art for free
TODAY Charles Saatchi's new gallery of contemporary art opens in the Duke of York's HQ building on King's Road. It is a remarkable new project by one of the most influential collectors of the age. There have been mixed reviews for his opening exhibition of modern Chinese work but the gallery itself is a fine exhibition space. A new showcase for modern art at no public expense is welcome in these straitened times.
