Is the Prime Minister the problem?

Gordon Brown, at the time of the October bank bail-out, told us via the Newsnight programme, "You have to got to get a restructuring right. I think people would take exception to a situation when there was a partial proposal...and we had to come back with another partial proposal, and then another.."

That was absolutely right, but he failed his own advice. Last week his spinners claimed that the Bank of Scotland had not told them how much bad overseas debt they had. Others have suggested that Treasury officials never even bothered to inspect the books, let alone enquire into off-book items. He clearly still does not know how many poisonous assets are still in our banking system, to judge from his recent inability to estimate the total liabilities we are being forced to underwrite.

He has belatedly had to recognise that what he has done so far has not worked, - liquidity and lending has not increased sufficiently, and he has even had to take on board a version of the Tory policy of guaranteeing loans.

So what we have is a typical NuLabour announcement of less than fully thought-out policy, - the kind we have seen regularly on penal policy, although there is a difference. In the case of latter Brown statements, while there is still the attempt to convince people that he is in charge and doing something often the main aim seems tobe to hector from a distance. "If the banks do not start lending at higher levels, I...."

Even the "new" lending guarantee scheme, borrowed from the Tories, is work in progress. He does not expect to know the extent of the liabilities he is taking on for some weeks, or even the details of the scheme. (In fairness to him, it is possible that the banks have not been fully able to unentwine the complicated financial derivatives which they bought in packets in their rush to make profit.

Citizens of this country are "trapped" in the situation, - he has already thundered against UK residents who have sent their savings deposits abroad. In some ways more seriously are the foreigners who hold sterling assets. Over the past few weeks they have been cashing in many of these assets, and depressing sterling as a consequence.

If their confidence in sterling is even more eroded, then there is a danger of a failure of the currency, which will make it more expensive for Brown to borrow money from foreigners to finance the vast increase in debt likely to occur. There could even be a further application to the IMF.

Foreign confidence could be restored if we had cross-party agreement on policy, instead of a frenetic prime minister rushing around and proposing a policy a day as he saves the world. There would have to be also a clear plan for the immediate situation and medium term reconstruction.
In this way foreigners might be led to believe that we are on top of the problem as much as anyone else.

Most of all, thee must be transparency and honesty in order to restore confidence. It is clear that the banks have been hesitating to borrow or lend to each other because fears and suspicions about toxic debts concealed in other banks. If they could feel confident by full and complete disclosure, then foreigners ought also. Being confronted by a series of ill thought-out and ineffectual policies based on incomplete information and accompanied by megaphone diplomacy is not likely to increase confidence.

It may prove necessary to use penal threats to banks and their auditors to produce honest and complete statements of assets and risks. I suspect, however, that some "bundles" are very complicated and it will take time and effort to unravel them, but time is somethig we do not have after our months of dithering and inadequate solutions.