The striking aspect of last week’s news was the swift switch from financial crisis to economic crisis – crisis on ‘Main Street’ as the Americans call it. Of course, so-called ordinary people are experiencing bad effects but I’m suspicious of the media’s change of focus. Firstly, people have been being impacted by severe economic problems for months now without receiving a great deal of attention from the media and, secondly, it seems as if the consensus of opinion, having realised that this is the most serious financial crisis since 1929, has leapt to the view that an economic crisis will be its automatic corollary.

No one can be entirely sure that it won’t be worst than a recession. Nevertheless, there does seem to have been a degree of scare-mongering. This isn’t surprising; the public has become used to high octane scares since Mid-September (and the queues of Northern Rock depositors haven’t been forgotten); the media couldn’t just tell us that we were going to have to wait to see if the worldwide government rescues were having the desired effect of re-starting inter-bank lending. So, to fill the gap, we were given a sneak preview of what might be on the menu for pudding.

The media had a host of gloomy statistics to draw on to paint the picture but we’ve had some surprises in the recent past with statistics turning out to be more encouraging than was expected. The most surprising factor was the continued volatility in the stock markets. However, this seems to have been due more to panic than a realistic assessment of what a recession – even a fairly long one – might be like for large companies. The other cause of share price falls is the need for financial institutions to liquidate investments in order to pay back other institutions what they owe. This isn’t really panic selling but it’s not difficult to see that it can have a panic effect. Thankfully, now a new consensus seems to be emerging that the sell-off has gone too far because we (or some of us) know what needs to be done to stop the recession turning into a slump.

The one area where a real danger of financial catastrophe still festers is the credit default swaps market. But it appears from their nature that swaps cancel each other out so at first glance it would seem that all that is needed is some mechanism to prevent a chain reaction of institutions going under because they have claims made against them before they can reclaim what’s owing to them. Some kind of register of all these obligations ought to stave off disaster but really frightening sanctions are needed to make the bankers and hedge fund managers own up to everything they owe.

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It looks clear that David Cameron has made an error of judgment in deciding to go on the offensive again against Gordon Brown’s record of economic management. True, the Prime Minister’s claim that booms and busts would no longer occur looks foolish now – and it was a surprise to realise how often he’d made it – but it was equally foolish to believe him. The real flaw in the Conservative’s argument is that they simply didn’t make the case for tighter financial regulation and reductions in government spending in the last 10 years.

My guess is that most people aren’t quite ready to start laying blame for the financial crisis and are more concerned to see intelligent measures to ward off a slump. If the government can orchestrate fuelling investment in the real economy at the same time as finding what people would really like the investment to be in, they may yet recover some ground by the next general election. My vote would go for improving fuel security, reducing carbon emissions and upgrading the rail network. I’m not sure about schools building. They could do more to re-start the house-building industry, too.

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Before starting my next topic, I should own to being a small Lloyds TSB shareholder, attracted by the nice, big dividends in 2007. Also, I confess to not being too cast down when the news of the takeover of HBOS first broke in September. Maybe this was a poor assessment on my part, allowing the rosy picture of a secure mega-bank (with me as a shareholder still) to outweigh the doubts people were beginning to express about the effect this mega-bank would have on competitiveness between UK financial institutions. Now the prospect looks a lot less inviting; not just directors’ emoluments are up the creek but dividends, too. Given that the government actually wants Lloyds, characterised as a boring, cautious bank (until very recently) to take over HBOS, with its capitalisation problems, the terms of the government support seem rather harsh. As I understand it the Treasury had to have a rethink at the beginning of last week because the harsh terms were themselves creating a greater need for government capital.

Although the long-term prospects for the mega-bank look rosy still, I’m beginning to have my doubts. How long will Lloyds TSBOS last? What happens if there’s some shocking Terminal 5-style muck up and the Competition Commission say they want it split up.

Professor Tim Congdon was arguing last week that the government was treating shareholders very unfairly but, with shares changing hands so quickly, it’s easy to understand that the government doesn’t worry overmuch about shareholders’ rights of ownership. They just see a lot of speculators who used to play a vital role in keeping the pot boiling but no longer seem willing or able to do so.

Maybe, HBOS should be nationalised (and maybe the Halifax and Bank of Scotland parts should be demerged) and Lloyds TSB should carry on as before.

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I took a walk on Thursday, another beautiful day. This walk started at Winkworth Arboretum going south westwards through Busbridge Woods to Salt Lane. From there I walked to Little Burgate Farm (this is mostly familiar stomping ground) across the road into Hurtwood where I picked up the Greensand Way to make my way down (very steeply) to Hascombe. There’s a series of lanes and footpaths past Hascombe’s Victorian church and village pond that take you roughly parallel to the road on the east side and take you back to the road (the Horsham & Brighton road) opposite a steep path going up and back towards the arboretum.

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I was going to post on more but it’ll have to wait until later in the week.