Cloud Cuckoo Land

Almost every day I walk from our flat to the Tube station over Hammersmith Bridge. I'm often listening to the radio news, marveling not only at the beauty of the Thames but also at the economic improbabilities I hear emerging from the mouths of government ministers. Day after day, billions upon billions of pounds in headline-grabbing initiatives are being promised to the voters in the runup to the next general election, which Prime Minister Gordon Brown must call before June of next year. Meanwhile, the British economy, like the global economy, is contracting, unemployment is rising and the government is going deeper and deeper into debt. Short of ratcheting up income taxes beyond the 50-percent top band that was recently imposed, is there any way in the world that what I'm hearing on the radio makes any sense?

No. Just look at the broad outline of Britain's predicament. Banking is absolutely crucial to the UK economy, more than a quarter of which is made up of financial and business-related services. London and New York are for all practical purposes equal in size as financial centers, but of course London's importance to the domestic economy is maginified because the population of the UK is one-fifth of that of the US. Three of the world's five biggest banks (Royal Bank of Scotland, HSBC and Barclays, measured by assets) are headquartered there. As a result of bailouts, the British government is the proud owner of about 70 percent of RBS, whose assets of nearly $4 trillion are much higher than British GDP ($2.7 trillion in 2008). What wrong with that? RBS - "too big to fail" - is a sick bank; that's why it needed to be rescued.

No wonder Bloomberg today is running a story about the possibility of a sterling criss. How's this for sobering news to accompany my radio listening? Bloomberg quotes the British economic historian Niall Ferguson, author of "The Ascent
of Money: A Financial History of the World," which is essential reading for those of us who are not economists and need to know how we went from 15 years of prosperity to where we are today so seemingly abruptly: "The probability of a real sterling crisis is around one in three, and the probability of major tax hikes and cuts in public spending is roughly one in one." Quoting Bloomberg now: "Ferguson's concern stems from the deterioration in the UK's public finances, which prompted Standard & Poor's to warn on May 21 that the country could lose its AAA debt rating. The firm estimated the cost of propping up Britain's banks at 100 billion pounds ($166 billion) to 145 billion pounds and said government debts could double to almost 100 percent of gross domestic product by 2013."

I emailed somebody who knows much more about of all of this than I do. This is what he had to say: "The [financial] crisis has ended thanks to extremely aggressive government intervention. The banking system [in the UK] did not collapse only because the government extended a colossal insurance blanket over everything: it assumed the banking system's worst risks as its own, which of course means that British citizens have taken on the banking system's risks. There really was no choice but to save the banks. Now there is an assumption that, since the British government will do whatever is necessary to save the banks, that all is well; the economy will gradually recover and the risks will just wither away. Banks rallied very strongly during the third quarter (the price of Barclays more than tripled from the bottom), reflecting the market’s trust that the government’s insurance policy is Warren Buffett quality and not AIG quality. But as Ferguson implied, there is the serious risk that the financial world will start to see UK financial insurance with an AIG stamp and will suddenly stampede, dumping pound assets. Government debt and deficits are truly eye-popping, and we have yet to see how well the market will absorb the massive government bond issues in the months ahead."

Checkbook Journalism, Checkbook Politics

You will be familiar with - and no doubt appalled by - the story of the MPs allowances scandal in Britain. To refresh your memory have a look at the post below, "The Manure Parliament." The scandal broke after the Daily Telegraph and the Sunday Telegraph paid something in the neighborhood of £100,000 for the data about MPs' expenses - data which the Telegraph has said was copied and not stolen from the parliamentary authorities who were reviewing all the paperwork.

Yesterday the official version of the story finally emerged when more than a million pieces of paper — bills, receipts and claim forms — were posted on the House of Commons website. The contrast between the official story and the Telegraph version could not have been more dramatic, or disheartening. Thousands of the documents were indecipherable: much of the information was blacked out as the MPs, helped by the authorities, censored incriminating material, citing security and privacy. By "redacting" addresses, for example, it was impossible to tell from the official version which MPs “flipped” their second homes to maximise returns from the taxpayer or changed the designation of their homes to avoid paying capital gains tax.

All well and good. But it's interesting to note, whatever your point of view, that this story is unlikely to have broken in the same way in the United States. Under their ethics codes, mainstream American media would almost certainly not been able to pay for information the way the Telegraph did. Note this from the New York Times company policy on ethics in journalism: "We do not pay for interviews or unpublished documents: to do so would create an incentive for sources to falsify material and would cast into doubt the genuineness of much that we publish." Having said that, the ethical boundaries in the UK are by no means sacrosanct. Though both are so-called "quality" dailies, The Times of London turned down on ethical grounds an offer to buy what the Telegraph did.

Finally, the pall that this story has cast over politics in Britain is remarkable, and a bit scary. Voices of reason have had a great deal of difficulty cutting through the angry static. One that has belongs to Peter Riddell who says today: "Rough justice is no justice. The flood of disclosures about MPs’ expenses has led to a haphazard mess in which there is no obvious reason why one MP should be forced out but another survives."

When Television Rocks

If you're in the States, watch this timely piece of work by the acclaimed documentary-makers Brook Lapping Productions. It airs on the National Geographic Channel on Monday, June 22, at 9 pm EST. (A 3-hour version aired on the BBC in February. The British version uses subtitles when necessary. The U.S. version is 90 minutes long and is dubbed by actors with presumably appropriate accents. God bless America... The series producer, Norma Percy, tells me the BBC version is available for purchase .)

Here's part of a review that ran in the Daily Telegraph (London) in Ferbuary:

Iran and the West was made by Brook Lapping, the Rolls-Royce of political documentary makers. The company’s past achievements include The Death of Yugoslavia and Israel and the Arabs, landmark analyses of their respective topics; past interviewees include Bill Clinton, Slobodan Milosevic and Yasser Arafat. Iran and the West should prove no exception. Saturday’s opener included contributions from everyone from Jimmy Carter to Queen Pahlavi, the Shah of Iran’s wife. They’d been so thorough I half expected them to have disinterred Khomeini for the purpose of a few quotes.The documentary required, throughout, the kind of concentration very rarely demanded of us by television programmes these days. There were no sensationalist repetitions of the bloodiest moments of conflict; there were no patronising historical reconstructions with bad British actors speaking in funny accents. There was simply narrative, as impartial as seemed possible, very tightly told. It was told partly through fascinating archive footage from the time, and partly through the words of the film’s interviewees. Interviewees that included a former head of state, but also the figures whose part in history had less to do with their status than their being in the right place at the right time.

This Is the End II: The Sarah Factor

The second Cabinet minister in as many days has just announced her resignation from Gordon Brown's disintegrating government. The decision by Hazel Blears, the Communities Secretary, comes not even 24 hours after Home Secretary Jacqui Smith said she was standing down. Also yesterday two junior ministers in the government announced their departure. A pall of such grim despair is settling over Westminster that it's becoming hard to imagine that the Prime Minister can withstand this battering for much longer. The usually well-informed London Times Political Editor Philip Webster says he's hearing from senior Labour MPs that one more high-level resignation will tip Brown "over the edge."

I suspect that at this point the key voice in the downward spiral is that of Sarah Brown, the PM's wife of nine years and mother of their two young boys (and of their first child, a daughter, who was born prematurely and died when she was only 10 days old). A 45-year-old former public-relations executive, Sarah (nee Macaulay) may well have a clearer view of the circumstances surrounding her husband than he does. He's hanging because he can, frankly, and because, from his vantage point, the only thing worse than what he's going through now is the utter disgrace of resignation after less than two years in office. Sarah, focusing on Gordon Brown the husband and father, may see it very differently, if not already, then soon. And she will let him know.