I’m not sure where go from here. The stock market is down a lot since the (relative) optimism about a share recovery around the New Year and fear in general just seems to keep on growing. Not much tlak of how stock markets are a leading indicator of economic recovery now. Yesterday’s Observer had a two page spread about the likelihood of various economic disasters coming to pass.

Lloyds Bank’s takeover of HBOS has –apparently – turned into a disaster. It seems as if Eric Daniels and Sir Victor Blank knew much less about the HBOS liabilities than anyone imagined – except, maybe, the government. The size of the Lloyds – HBOS insurance plan makes Lord Myners’ failure to stop Sir Fred Goodwin’s pension (the HBOS takeover and the government rescue of RBS were happening at roughly the same time) understandable.

These schemes for the government to insure the toxic assets of the banks give some more pointers to the scale of the economic crisis. The insurance scheme for Lloyds/HBOS alone would be enough to rehouse a city of 3 million (by buying them houses not by building them).

There are important questions that are not being answered such as how much of HBOS’s bad news was known by the bank when it asked it’s shareholders for more money in a rights issue last summer. Presumably, the bank must have had information to hand about how many of the bond issuers of bonds it held were defaulting on the interest payments. Clever people were saying as far back as 2007 that regulators and central banks needed to know more about the toxic debt situation and that pressure should be brought to bear on bankers to make them divulge it. But as far as a large part of the media is concerned toxic debt might as well be the Bermuda triangle or some kind of freak storm.

Clearly, the Treasury and the Board of Lloyds have been doing some hard bargaining and it looks as if the bank has had the worst of it. Does this mean that Eric Daniels and Sir Victor Blank will be forced to resign?). What made the government negotiate so hard when their very success looks like a failure – the public is even more convinced that HBOS is bad news and Lloyds has been virtually nationalised. The most likely answer WAS that the government thought that it needed to look tough. However, now that it’s acquired a controlling shareholding in Lloyds, it looks as if it was only being tough with itself.

In fact it looks as if Eric Daniels and Sir Victor Blank will stay. The shareholders they let down (if they let them down) are no longer in control. Why they wanted the merger to go ahead is a puzzle. Granted that events moved so quickly that Mr Daniels didn't have tome to go through the accounts as thoroughly as he would have liked but they must have realised that HBOS was on the table because it was in dire straits. So the argument that they didn't realise that they needed to do their homework on HBOS all over again seems unconvincing.

Whether the government was a tough negotiator because it needed to look tough or because of the danger of the toxic assets breaking Lloyds, the only conclusion to draw is that these are desperate times for the government. Coupled with the comments on quantitative easing to the effect that it’s the last throw of the dice for recovery plans, it looks as if we could be closer to a political crisis, as well as an economic one, than we yet realise. In a few months’ time we may look back on Lloyds’ talks with HMG and be amazed that they received so little coverage.

In fact, to return to the detail of the Lloyds asset insurance plan, the Chancellor of Exchequer did say something along the lines that the plan was a vital step in clearing up banks’ balance sheets and getting them lending again, so maybe the worst of the crisis is over. Unfortunately, not many seem to have taken up that tune.

Perversely, it may seem, I wouldn’t particularly blame the government if there was a political crisis. Gordon Brown and Alistair Darling are, as it were, attempting to fly when air pressure is very volatile, so some turbulence is to be expected. The Conservatives don’t sound as if they would be happy or prepared to take over the government tomorrow and a lot of the business and financial comment reads as if no one has any ideas save a return to normal at some unspecified date in the future. That Observer feature on the crisis getting worse talked about the effect of slumping share prices on pension funds and a lost decade for shareholders – meaning that share prices (and unit trusts) are back where they were 10 years ago. This seems like sloppy thinking, though. Investors will have lost out if they hadn’t sold any shares before the price fall last year but a lot of shares will have been sold – that’s why the price fell. Of course, a lot of the selling was done by the undeserving super-rich but some of the shares would have been sold by more ordinary people paying for weddings, special holidays or annuities (so hardly just money down the drain).

There are two points that follow on from this. Firstly, the sell-off of 2008 must mean that there are substantial piles of cash sitting around, waiting for investment conditions to pick up. Secondly, and more importantly, societies that have seen real destruction, can climb back relatively quickly. To take an extreme example, Germany in 1946 was in ruins literally and ideologically but within the 25 years the situation had been transformed. Moreover, in some ways the journey towards wealth was probably better than the arrival. Likewise, the current situation needs creativity; just bemoaning financial losses is exactly the way to see the problem to ensure that solutions won’t come to light.

Now that the G20 summit is getting close, it’s beginning to look as if the best policy would be to expect nothing, so as to leave some space for a pleasant surprise. Apparently, the US government and regulators have indicated that they don’t think changes in regulation are the top priority. This makes sense but the Europeans may decide that the US (and Chiina) can do all the kick-starting and they’ll come in later.

If the US and the EU are going to try to close down the tax havens, they might get around to trying to re-introduce fixed exchange rates – maybe not in April but further down the road; that really would be the end of globalisation as we know it.

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I’ve been on one excellent walk since last posting. This was a walk around Brook more or less, including using the only footpath to cross the Witley Park estate for the first time and a walk across Holmen’s Grove. Apart from a stretch on the A286 it makes a good round walk – if rather long. that was 10 days ago.

Last week I had a short walk at Tilford – after very tasty asparagus and goats cheese risotto at the Barley Mow. This walk runs parallel with the last stretch of the northern branch of the River Wey to Tilhill House before turning back towards the village.