Last night I went to bed rereading Galbraith’s The Great Crash and felt for the first time that I understood the financial manipulations behind it all. This morning I looked at the papers, briefly. The two policy wonks I quoted last week about European banks being both too big to fail and too big to save, so that the ECB must rescue them, have had second thoughts in the FT. They don’t think even the ECB can manage it without some swift, decisive reforms.As for the FT itself, in its leader column, it has this to say about Swiss banks:
“it is hard to draw much general reassurance from the Fortis rescue. The Benelux governments have their own shared economic union and some shared institutions; co-ordination between Greece and Ireland would not be so seamless. As for Switzerland, home to UBS and not an EU member, it is easiest just to hope no problem arises.”Nor would I invest in Ireland, which has been having a bubble of its own. Last Christmas, after the Northern Rock collapse, the Anglo Irish bank featured briefly in the Guardian‘s money pages because it was offering nearly 7% interest on a year’s bond. Today it is in the FT as the specialist property lender, whose shares plunged 45 per cent; the Irish government has just upped its guarantee to cover the first £100,000 of any deposits held by anyone in an Irish bank, which is good news for those who took the Guardian‘s tip.
Good news, that is, providing they don’t actually read the Guardian, and wonder whether this money really exists: “The FSCS [the body which pays this compensation] is funded by the financial services industry and has just £5m in its kitty from last year’s levy.” The money will of course be borrowed from the government, which means us, if it is ever needed. Yet another illustration of the way in which all banking relies on confidence and that money has no more reality than god (discuss). Buried in Nils Pratley’s post-crash analysis is the most extraordinary sentence: “The immediate challenge for the central banks is simply to keep the banking system functioning – ensuring that payments are processed and that companies can continue to pay everyday bills, such as wages.”
I’m still haunted, though, by the phrase “specialist property lender”. Without knowing anything about the Irish property market except that it is a hideous bubble, I note that the English market has more or less entirely disappeared: Mortgage lending slowed to a near standstill in August as approvals for new home loans hit a record low, according to the Bank of England. Net lending was £143m on a seasonally adjusted basis, down from £3bn in July and from £9.1bn in August 2007, the month when the credit crunch began.