It is important to recognise that yesterday gave the lie to the idea that the financial collapse is just a US problem, or a global problem made only in the USA. The European Stock markets fell by around 5% again, revealing serious problems in European banks. These banks, like their American counterparts, have extended too many loans to people and companies who may not be able to meet the payments. They did so under European regulation, not US, and did so in response to low interest rates set by European Central Banks. All this happened before we learned of the vote in Congress.

The defeat of the Bush plan will force the US authorities to think up a better package. The next one should avoid the suggestion to American voters that Main Street is baling out Wall Street. The weakness of the world banking system and the freezing of the credit markets means we are in for a very serious economic downturn, which will make the position of the banks even weaker, as more people and companies find they cannot pay the bill for the interest on what they have borrowed. If the authorities allow too steep a downturn we will have a company borrowing crisis on top of the mortgage crisis.

There are many options that can be considered. There is the old Brady plan which entailed an element of federal insurance and the swap of assets to get banks through a collapse of confidence to buy them time. There is the possibility of changing temporarily from mark to market for banks assets - as there is no proper market in most of these assets - to an agreed way of calculating longer term value whilst we await a return of confidence in markets. There is a need for Regulators behind the scenes to work with many banks to get them to raise new capital urgently to reassure people banks will have enough cash and capital to do the job. The Central banks have to keep on supplying cash as lenders of last resort. The Bank of England and the European Bank need to cut interest rates to start to combat recession, rather late in the day. The Europeans need to stop thinking of this as a US problem and realise this is also a serious EU and UK problem that needs treatment here as well as in Congress.

I called for Parliament to meet in early September to discuss this and to seek some remedies from the government. The longer we leave it, the worse the problem becomes and the more difficult it is to find solutions big enough to work. The scrappy and late responses of the authorities to a big banking crisis means more lost jobs and bankrupt businesses. There is a price to be paid in lower pensions, damaged savings and lower earnings. The sooner the authorities on both sides of the Atlantic take more action that might restore confidence the better.

More political bickering about bail out just makes it worse. The deterioration has been fast and huge. Remedies that might have worked in early September are probably no longer sufficient. It now requires something dramatic to bring back confidence. That is what Paulson wanted to achieve, but he mishandled the politics, undermining confidence further. He also made both the US Presidential candidates look weak. They backed a plan which significant numbers of Congressmen and women voted against from their own parties. Their authority too was badly damaged by the vote on the Hill, and showed the growing gap between what the political establishment thinks and what the public thinks.

I am not suprised Congress rejected the Bush package. It was always a long shot. The President thought he could buy confidence in the banks with a bumper injection of $750 billion from taxpayers, without understanding the politics of it, let alone the economics. He then spent the next week inadvertently undermining confidence in the financial world to try to make the case that the package was needed - the last thing we wanted the most powerful man in the world to be doing.

Meanwhile US citizens fearing for their own jobs and under great pressure in their budgets rose up against the idea of big bail outs which might leach into Wall Street bonuses or other rewards for the very institutions that helped get us into this mess.

What we need is an alternative strategy which restores confidence in deposits and normal financial transactions but give no cent of taxpayers dollars to once rich and powerful institutions and people.We need Central Banks to lend money - not give it - to institutions needing cash, and we need what money is spent to be spent on insuring the small savers and depositors where the private sector has not done this. Better still is to agree schemes which do give proper support to depositors within the private sector. In the UK we need to improve the deposit protection system urgently. We need the Bank of England to lend against proper security where cash is needed, and we need orderly mergers and take overs where some institutions are too weak.

Many banks worldwide need to raise new capital. The sooner the better, as markets are not keen on financing banks in these conditions, and it is getting more difficult each day. Banks just have to swallow hard and sell shares at prices lower than they are used to, to get the shareholder money they need.

The US authorities should announce Plan B as quickly as possible. Presumably they have a contingency plan for failure to win the first vote. Can they win a vote after some amendment? Can they use executive powers to take some other action without needing a vote? The Fed clearly has wide ranging delegated powers, as its provision of money to markets illustrates.

Regulation has failed in the financial sector, so let’s have more regulation seems to be the popular cry. What we need is not more, but the right regulation that will tackle the issues that really matter – solvency and liquidity. In other words making sure financial institutions have enough assets and enough cash to do their jobs.

I am fed up with Labour’s pathetic attempts to play politics with the issue of the banking crisis. They want to suggest I was wrong and made the problem worse by saying the mortgage regulation Labour brought in should be scrapped. Their extra regulation clearly did not work. Never have mortgages been so regulated and never have we been in such a mess .I am astounded they think a single line recommendation in a long report which they did not implement can achieve anything! What sort of a world do they live in where a little read Report of advice is more important than the many deeds and misdeeds of government? Have they no idea about how they are responsible for the regulation of financial markets in London, have been so for more than 11 years, and should now tell us what they now think they did wrong.

The Report I helped produce said something much more important than the sentence Labour likes to quote. It said the Bank of England had been shorn of important responsibilities which meant it would not be able to cope with a banking problem when one came along. The Report pointed out how the Central Bank had left money far too loose in the good times, and how the next move was likely to be much more painful. We catalogued how the debt was getting out of control. In others words we warned in advance of this crisis and made proposals to start to correct it.

I am delighted that the Conservative party has now taken up the arguments in the Report to strengthen the Bank of England so it can control and help the banks. I am pleased they now wish to put in place ways of controlling the excessive public debt built up in recent years. Of course it all comes down to spending better and more wisely. There is just so much scope to do this after years of poor management. Let’s keep all the teachers, nurses, doctors, soldiers and sailors, and maybe add some more. But let’s get to grips with the rest, where we are overwhelmed by spin doctors, management consultants, unelected regional governments and people taking money off us and giving some of it back to us. Let’s have a simpler and fairer system, and start planning how to get people back to work after all the mounting redundancies of this summer and coming winter.

The ominous news is the pain is spreading from the City to the High Street, from the property developer to the building site, from the estate agent to the small service business. Banks are having to call in loans, charge more for facilities, value assets downwards and take other unpopular steps to try to make some money to repair their damaged balance sheets. People who blog to say falling house prices are a good thing need to pause and think about how big falls in house prices happening too quickly lead to many other people losing their jobs. A lot of our prosperity in the good times depended on rising property prices and property transactions. A lot of grief will now follow from the drops.

The events of the last few days are spooky. Parliament remains on holiday. We learn from the BBC Business correspondent that the Bradford and Bingley share price has fallen a lot and they are looking at “solutions”. We hear that the PM has not ruled out nationalisation, and it is the last resort proposal. Then we learn that they will announce Bradford and Bingley’s nationalisation.

We are not told what the problem with B and B is. Many companies experience falling share prices, but that does not mean they have to be nationalised. A bank can carry on trading with little confidence in its shares and a low share price, if people remain happy with it as a deposit taking institution, as people have done with B and B. If B and B needs more share capital it can seek new shareholders or ask exisiting ones to put up some more. If it is short of cash it can ask the Bank of England as lender of last Resort to lend it some, failing other sources of borrowing in the market. It can sell assets or seek a deal with another larger bank or a more cash rich institution. The BBC told us there was no need for any B and B depositor to panic.

Even more curious, we hear this morning from the BBC that the government wants to keep the portfolio of mortgages, the assets, but not the branch network and the deposits from savers, the liabilities. So what form will the sale of the liability side of the bank take? What will the government offer instead of the mortgages to a buyer so they can repay the depositors when they want their money money back? Will this sale take place by open auction? How do taxpayers know they get good value?

And why should the taxpayer have to end up with a £50 billion mortgage portfolio on top of the huge Northern Rock one? Why is government better able to manage this than the private sector? Are there any limits to how much debt the government wants to own? Why do we need another mortgage bank unable to lend anything to anyone at a time when there are too few mortgages? This looks like another very poor decision for British taxpayers, and another bad blow for the mortgage and housing market. Fewer new mortgages means a bigger house price fall, which in turn means more losses on exisirting mortgage books. The taxpayer is in for more bad news.

We do not want them
We cannot afford them
They will not make us safer.

Providing cards for foreigners arriving in the UK is absurd. They need to have passports to come. We can record what details we need on their arrival. Why do we need to trailblaze ID cards through our visitors?

Whilst the PM says he will support any financial package in Washignton before knowing the detail, back at home there is another reminder of that part of the Credit Crunch which is made in Britain. Talk on the BBC suggests some people are seriously considering another nationalisation.

Please give us a break. Taxpayers cannot afford the last bank they bought for us, and we certainly don’t want to go collecting them. Under EU rules any newly nationalised bank would have to stop new lending to avoid offering subsidised competition. It is bad enough to have lost Northern Rock’s lending to the market, without losing another one.

Nationalising is the worst option. It menas sacking more staff, running down the business and sending taxpayers a large bill for all the losses. It means fewer mortgages, lower house prices, and more uncovered lending. It means deepening the crisis. It means debauching the government accounts. By all means strengthen deposit protection. By all means act behind the scenes to help a private sector solution, but do not promise to buy it or take it over.

The Freedom Association/Selsdon Group Fringe Meeting

Tuesday the 30th September, 10.00pm – Freedom from High Taxes

The Selsdon Group, in partnership with The Freedom Association, presents the Rt Hon John Redwood MP, chairman, Economic Competitiveness Policy Group, and Matthew Elliott, chief executive, TaxPayers’ Alliance. Chaired by Michael Fallon MP, the senior Conservative member of the Treasury Select Committee and Chairman of the Treasury Sub-Committee.

TPA/Global Vision Fringe Meeting

On Tuesday 30th September from 5.45pm to 7pm, the TPA will be hosting a fringe event with Global Vision entitled “What next for Britain and Europe?” with a great line-up of speakers. Here are the details:

Date/Time: 5.45-7.00pm, Tuesday, 30th September 2008
Location: Hall 10B of the ICC, not far from the Conference hall.

The speakers for the event include:

Chair: Andrew Allum, TPA Chairman
Panel: Martin Boon, Director of ICM Research
Martin Howe QC, constitutional lawyer
Ruth Lea, Director of Global Vision
Iain Martin, Head of Comment at the Daily Telegraph

So why not come and have some complimentary drinks, meet and talk to the Global Vision and the TaxPayers’ Alliance staff and put your questions to the leading commentators on Britain’s future relationship with the European Union!

- PLUS meet Ruth Lea, John Redwood and the TPA Team

Buddy, can you spare $700 billion? It’s going to Wall Street bankers who are a bit short of a few trillion. Apparently they’ve lent too much to people who might find it difficult to pay it all back. The taxpayer can have some of those loans in return.

We are waiting for details of the package from the USA. It is unlikely the politicians will veto all of it. A deal will probably be done, offering more control over the spending than the first proposals, and offering some help to the hard pressed borrowers to show it is for Main Street as well as for Wall Street. The President and his colleagues are trying to argue that a freefall Wall Street will be bad for everyone. They need to show as well the Treasury support will not leach into Wall Street bonuses and shareholder dividends. If there are any profits to be made, the taxpayer deserves them for running the risks. What is it about modern governments that they have the nationalising instinct?

It was always strange that the Treasury settled on a whopping $700 billion as the right sum. It is small beer beside the trillions of credit in the balance sheets of the highly geared banks and shadow banks. It is a very large sum even by US government standards for a single spending programme. If it is all to be spent before the year end and the change of Presidency it will be a quick fire purchase of many instruments that will be but poorly understood and hastily valued by the taxpayers representatives. It might just work. It might go wrong in either direction, offering too little to stabilise all the financial institutions, or offering too much for the assets bought for the taxpayers comfort.

The valuation problem is not the only one. How do you stop leakage of state cash into bonuses and dividends? How do you define which assets you are prepared to buy so the auction process can work smoothly and fairly? How do you do due diligence on the underlying loans in the debt packages? How do you allow foreign institutions to participate without allowing them to transfer dodgy debts from other places? If you limit it to US institutions, how does that stabilise Wall Street with all its foreign banks?

I am not suggesting there are easy answers, or that an armchair commentator 3000 miles away from the action has insights the real players do not have. We all want the US to get it right, and hope that this large sum if approved will make a difference. It is because it so important that the politicians in Washington are right to want to see the small print and right to want to know if there is an alternative. Meanwhile the rest of us have to watch the gripping drama played out in the markets and on the Hill.

Are there other options, or is the President right to say there is no alternative? Of course there are other options. Some say it would have been better to set up a well governed body to value and buy debt, and started it off with a more modest budget. They could see how well it worked by taking it more slowly.

I think it might be better to develop the Administration’s role as lender of last resort, taking collateral without having to buy the instruments. The system already has the power to lend where needed. It would be less contentious with an American public who rightly do not wish to see hard borrowed taxpayer dollars spent on the Wall Street rich. In the UK when the government foolishly decided to nationalise Northern Rock they ignored the better alternative of lending the Rock the cash it needed whilst taking charge of all the good assets they could secure against the lending. That would have limited taxpayer risk and concentrated the minds of management on the need to find a more permanent solution. Such a policy can be buttressed by a better scheme of deposit protection to reassure small savers.

Maybe changing accounting rules from mark to market (part of the problem when there is no effective market in many of these instruments) to valuation based on estimates of repayments in due course would be an important part of a solution. Some say this would be quite wrong, as only the true doctrine of mark to market gives you reliable accounts. I would normally take that view myself, but what can we make of accounts based on market values that reflect the absence of any kind of buying owing to the squeeze? The banks cannot sell all this debt at the very low market prices being proposed for the accounts anyway – there is no market price if they are to sell lots more of it. Maybe we need an interim solution of a value based on sensible, even on pessimistic estimates of how much of the lending will be repaid over the next five or so years, which would be higher than mark to market in current conditions for some of this debt.

The whole crisis has been made more dramatic by the intervention of the electoral politics of the US Presidential contest. John Mc Cain, struggling behind Obama in recent polls, sought to turn the tables on his rival by demanding a bi partisan approach to the crisis. It looked like one of those unsettling moves Mc Cain has enlivened his campaign with. It broke the rhythm of the Obama machine and left Obama looking more defensive. However, it has two big weaknesses. It has reminded people of Mc Cain’s connections with the Bush Administration. If it results in Mc Cain support for a large Wall Street package it will upset much of Middle America who do like the idea of so much cash going to bankers. Mc Cain would not be wise to duck the Presidential debate. Obama’s best jibe when it was suggested the debate would be cancelled was that a President had to be able to handle more than one thing at a time.

Whilst the politicians for once raise good questions and seek to negotiate a settlement in response to the Treasury Secretary’s challenge, banks on both sides of the Atlantic have become even more safety conscious and interbank lending rates have risen. Interest rates charged to lenders are on the rise, whatever the Bank of England and the Fed may want. Banks are desperate to make more profit to increase their reserves, and keen to cut their lending. They will soon become even more unpopular, as this communicates to the real economy as less available for company and individual borrowing at a higher price. That is why this Credit crunch is also deflationary and recessionary.

Banks need massive capital injections. To persuade investors they need to be more profitable, and to bolster their capital they need to make more profit. They have reported big profits in recent years, but we now know this was at the expense of their balance sheets. There are going to be further big write offs from balance sheets, as banks acknowledge that what they thought was very profitable business was loss making business because not all the loans will be repaid.

If the US package brings relief, and markets rise, that will limit the downturn. It’s not going to stop it. Enough damage has been done already. Even after $700 billion of purchases of assets banks still need to raise lots of capital, and need to retrench on the lending.

Meanwhile the German Finance Minister thinks this would be a good time to demand that banks hold even more capital relative to their loans than they have been asked to do by regulators so far. This is not a case of bolting the stable door after the horse has gone. It is a case of shooting the horses that have bolted after they have been recaptured. Or changing the metaphor, this is the ultimate scorched earth approach, that would turn a downturn into a depression. I assume the Fed and the Bank of England are not up for that. His numerical suggestion of capital required would greatly increase the amount of money banks needed to raise simply to sustain their existing loan base. It is not helpful to hear EU politicians crying “We told you so” when EU banks have been under pressure just as American ones have been. Northern Rock, after all, was a UK/EU regulated bank lending money to people in the UK that had nothing whatsoever to do with US sub prime or the US regulators.

This is a global problem. It needs global solutions. Failing international agreement, it needs intelligent central banking on both sides of the Atlantic. Intelligent central banking entails making difficult day to day judgements about how much liquidity to supply, careful behind the scenes work to help the private sector repair ailing banks, and sensible use of the lender of last resort power. There was never just 5 days to save the world banking system, and never a single policy that would sort out all the problems. If the US is to go the route of buying up the debts they need to answer the detailed questions about how it would work. It might be better to stick to doing what Central Banks should do – regulating banks and organising orderly money markets. They are going to have to do that anyway, and not just for a few days. Buying up the debts of course will give a boost, that will last until the money runs out. Only if it is enough to restore banks confidence in banks will it have worked as intended. Maybe we are going to find out.

The departure of Ruth Kelly has been delayed, owing to the wrong kind of political rows on the line. According to some newspapers her departure is bad news for Gordon Brown, more evidence that the Labour government is falling to bits. For once I am prepared to believe what Ruth Kelly tells us - she is finding the demands of the Transport job too much to combine with her family commitments.

Some staffer may have briefed that Number 10 wanted to get rid of a Blairite and she is going before she was pushed. That just shows you how much damage staffers can do, and how you need fewer of them of higher quality to run an orderly government. Prime Ministers should only share their inner thoughts on who they want in their government with a few people who can be completely trusted. Prime Ministers should never tell the media before they tell the Minister what is going to happen to them, but all too many have done just that and created more rancour as a result.

What is more interesting about the departure of Ruth Kelly is the state of British transport and her failure, like her predecessdsors, to make any of the big decisions the UK needs to have a twenty first century system. We are short of train capacity, airport capacity and road capacity. It is very difficult to undertake the simplest of journeys, or even to travel efficiently on the most popular of routes. There are very few trains from my constituency, 37 miles west of London, into the capital when you need them, owing to lack of track. There is also a shortage of good motorway capacity. Despite requiring a large number of new homes to be built to to the west of London, this government has made no additions to the track and road space going west out of London.

On Monday I had to attend a meeting in Paris. My heart sank at the thought of the travel, even though Paris is not that far from Southern England. It meant writing off the day for a single meeting.

I checked out the trains, the government’s preferred way for me to travel. I discovered I needed to be at St Pancras to catch a 5.25 train to get to Gare du Nord by 8.50, to leave me a sporting chance of making a meeting around 10 elsewhere in central Paris. I worked out that I would need to take two trains to get to London, two tube trains to get to St Pancras, one train to get across the Channel, and two metro trains in Paris. I began to worry. Was it likely that all seven trains would work and be on time, allowing me to make the meeting? I also had to allow twenty minutes to walk to the station.

I soon realised that all meant there was no train option for me. I needed a train from my local station before 4 am to be sure of getting to St Pancras on time. There is no such train. I turned to the government’s worst form of travel, going by air. I found I could catch a 6.35 flight which meant leaving home by car at 5 am. It meant cutting down on the risks of delays and cancellations if I did two car journeys and one flight. Despite a delay on landing at Charles de Gaulle which cost me half an hour thanks to the lack of proper terminal capacity for the home carrier Air France I just made the meeting on time. Coming home there was another delay taking off from Paris but the rest worked quite well. It was not a good experience, because the Western European transport system is at stretching point and cannot be trusted. The total journey took four and half hours, even though the flight itself was under an hour. I always knew that hoping to do the journey in four and half hours was leaving me at risk of not making it, but leaving home earlier could not solve that problem as there was no earlier flight.

No wonder people find it difficult doing more with the continent when such a crucial link as London-Paris is so poor. Unless you live on top of St Pancras or are prepared to go out the day before you cannot use the train to have a normal morning meeting in Paris. On both sides of the Channel it is difficult getting to main train stations to join trains and difficult getting from main airports to central city destinations, owing to a lack of capacity on main networks. Ruth Kelly, like her predecessors, has failed to take decisions to expand network capacity.

One of the problems with Ministers in this government is they do not allocate the time that should be given to doing the job of being a Minister. There is a lot of reading to do, to be up to speed on all the issues and laws Ministers are responsbile for in their own department. There are many cases to consider, letters to amend and sign, meetings to chair with officials as well as with outside interest groups and affected individuals. I do not think Ruth Kelly is unique in this government in finding the time pressures diffficult to handle, but she is one of the few honest ones who has concluded she cannot spend enough time on the job of being a Minister.

All too often in the Commons we hear Ministers who have not read or understood the brief they have been given, who clearly have not engaged in the details of the policy they are presenting and who do not have control of the regulation or law they are introducing. In many cases it is because they have not spent the time on preparatory reading and meetings to master the detail. No wonder things work so badly, and no wonder they find it impossible to get the things done that they say they want done.

If a government that rightly wants more railway travel cannot even find a way to allow many commuters to get to work in a civilised way by train or get to a morning meeting in Paris, it should be no surprise we need yet another transport Minister.

If proof were needed that many politicians and some political commentators live in a parallel universe, the response yesterday to Mr Brown’s speech was conclusive. Yes, Mrs Brown appears to be a very nice lady, and supports her husband. Now there’s a surprise!. Yes, Mr Brown can weave more of his personal story into a major speech, if his advisers and presentation team help him to do so. Yes, Mr Brown has always says he wants more fairness in society, and may well believe that. Yes, Mr Brown is serious and hard working.

None of this should have been in doubt. The issue with this government is not what they say, but what they do and what the results of their actions and inactions are.

Gordon may well have wanted to end “child poverty” and “fuel poverty”, but his flawed analysis, seeing these as different from poverty overall, and his failure to lift more than 5 million of working age out of benefit dependency are what matter. He chose to stop poverty by offering hand outs rather than hand ups and it has not worked.

Gordon may well have wanted to end “boom and bust” as he constantly told us, but he has ended up by presiding over an excessive credit bubble of a boom, and is now taking us into a bust, with mounting unemployment and falling asset values. One bank is already nationalised and another is seeking a rapid merger with a partner with a competition policy override. The falling house prices, lost jobs and bankrupt businesses will follow this winter.

Gordon may have been misguided enough to think he made the Bank of England independent by taking many of its crucial functions away, and may well have thought he had created a new low inflation stability. Time has proved this to be wrong, indicating yet another major misjudgement.

The sad truth is Gordon still does not get it. Far from being the man to lead us through the troubled financial waters, he is the man who does not understand why we are in the mess, let alone have policies to get us out. In his first three years as Chancellor, when he followed inherited Conservative spending plans, he did a good job as Chancellor (leaving aside the raid on the pension funds and the odd sale of gold). He repaid debt, the economy strengthened and we had low inflationary growth. In this century he turned to spend and borrow as his strategy:things started to go horribly awry.

Listening to him over this troubled summer, he still seems to think that spending more can buy him popularity. He seems ignorant of the extent of the government deficit, and the big increase in borrowing he is now presiding over. We saw the £2.7 bn package for the 10p tax band error, the North West transport package and the Aircraft carriers. Now at this conference we have free tickets for young people to go to the theatre and free computers with internet connections for 1.4 million households. These are all worthy ideas, but they show an underlying inability to understand a simple political truth - people will not vote for him to say thank you if they are losing their jobs, under pressures in their businesses and watching their house prices tumble. Knowing you can go to the theatre on the taxpayer does not make up for the inability to get a mortgage to buy your first home. It’s even worse to know that your ticket was bought with borrowed money you will have to help the nation repay in future.

He’s not even good at the politics. All of the carefully crafted spending packages that just happened to occur near the time of elections did not buy a single victory. Why can’t he get it? We need sound economic management, and that has to start by curbing the deficit, getting value for the money spent and controlling the borrowing of the state.

So today I add one more soundbite to the dustbin of history, to rot alongside “No more boom and bust” and “We made the Bank independent and created economic stability” - “Gordon Brown is the man with experience to see us through difficult financial times”.

Last night I heard David Cameron speak. He did see the need for fiscal responsibililty, for greater Bank of England powers to supervise money markets and the banking system and for progress in getting the Uk higher up the league table of competitiveness instead of slipping further down with the lost jobs and lower incomes that entails.

Mr Milliband’s incautious remarks in a lift are important political news, proving that the government fiddles whilst Rome, Wall Street and London burn.

There is one thing worse than Mr Brown in Number 10, and that would be Mr Miliband. He is completely sold out to the European project, and would hustle us into even more power give aways.

His enthusiasm for the Euro shows just how little economics he understands and how he would subordinate the UK’s economic interests to EU demands.

All those who heralded last week’s move to stop short selling of financial shares on both sides of the Atlantic wanted to believe that short sellers were responsible for the market fall, and thought a regulatory change could stop it.

Yesterday showed how wrong that was. Wall Street plunged another 3%. Markets can and do fall because holders of shares lose confidence in the financial world and want to get out. Markets can fall because holders of cash see no reason to invest it in shares. Those forces were always the main ones driving these Stock markets down this year, and they remain the main ones following the regulatory bans.

There is no quick or easy regulatory fix which will stablise the markets. The markets now are mainly driven by the actions of governments and Regulators, especially those of the USA. It was the decision to save Bear Stearns, Fannie and Freddie which limited declines. It was the decision to let Lehmans go that undermined confidence and started the big further falls. It was the decision to bail out banks with distressed debt which led to the huge rally - along with some short covering following the regulatory change - and it is worry over the bail out package that led to yesterday’s sell off.

The world’s financial markets are dependent on the US Treasury Secretary and on what Congress makes of his Bill. In that sense government is very important. What markets are waiitng to hear is how much money will be committed and on what terms. Until they know that it is difficult to establish sensible values for shares.

Jealousy and anger are powerful emotions. When mixed they make a Labour conference.

The Democrats have a point when they say they will not vote for a massive bailout if some of the money rewards shareholders of the banks in trouble, and if some pays large bonuses to the executives who got it wrong. Many in the UK have a point when they say some bankers bonuses are too large and not based on success.

So let’s consider some possible bonus payments. I would welcome your views on the following bonus awards.

Mr Canny, the Hedge Fund Manager, bought lots of oil shares as the oil price surged, made much bigger profits than most funds, and sold out near the top. He earned a large bonus based on the year’s performance to June 2008.

Mr Lucky, the Hedge Fund Manager, also made super profits in oil shares in the year to June 2008, and also pocketed a large bonus for the performance. He continued to hold them in the fund, losing a lot of the gains over the next few weeks. He keeps his bonus.

Mr Sharp, the Hedge Fund Manager, made huge profits out of selling financial shares short over the last year. He is now banned by law from doing this, so his fund has banked its profits and gone into cash. He was paid a large bonus for the performance.

Mr Nice, the Mortgage Manager, made a lot of mortgages available to first time buyers 2005-7, responding to government encouragement to make more long term mortgages available. Because he sold so many more mortgages, he was paid a large bonus in each of those two years. Today he sells very few mortgages. When he sold his mortgages to people his bank thought all but 1% of them would be to people who carried on paying the interest. They now think it might be 5% that go wrong. This will mean the bank loses on the mortgages he sold. Mr Nice’s bonus did not relate to how well the mortgages do in the longer term, but just how many he sold. Mr Nice himself was not responsible for assessing credit worthiness or risk.

Mr Chancer, the Investment Banker, packaged mortgages up into funds and sold them on through securitisation. He was paid large bonuses for all the fees he earned the bank by doing this. Unfortunately his bank decided to keep some of these securities on its own book. They are now worth perhaps only 25p for every pound they originally paid for them, meaning the bank has now made an overall loss on this business. Mr Chancer keeps his past bonuses.

The problem with several of these cases is one of timing. In the year of the sales achievement or the rises in the shares owned, the accounts tell everyone that something good has happened and that the employees should have a share in it. Subsequently, in several cases, losses are made that offset or wipe out the profits or revenues that were earned in the earlier year. Only two cases represent more permanent profit – the cases of Mr Canny and Mr Sharp. Both were doing things many people dislike. One was helping fuel a boom in oil and energy prices. The other was making profits out of helping push the price down of leading banks.

There are several ways a bank or other financial institution can deal with the timing problems of the other cases. They could offer the bonus in an escrow account, which only pays out sometime later if no problems emerge with the business written that involves the bank in loss. Alternatively, the bonus can be issued in the form of shares or rights to shares, and again there would need to be a holding period to see if all was well with the business.If the busienss did lose then the shares would go down in value.

The government has held out the possibility of regulating bonuses. The FSA are right to say they cannot undertake to review every individual’s bonus and decide whether it is fair and reasonable or not. It is too much work, could divert people to offshore centres, and would be subject to clever devices to get around the letter of the rules. Banks and financial institutions have to be responsible to their shareholders for this matter. Shareholders and some Directors have been remiss in allowing the bonus culture to become excessive in some cases.

We hear that the regulator may counter bonus schemes that it judges to be too generous by demanding more capital. That may be the least bad way to be involved, given the current political mood.

Would you regulate bonuses? If so, which ones? And how would you regulate them? The devil is in the detail.

Gordon Brown tells us he is the man able to pilot us through the financial crisis and the economic downturn. So what should he do?

1. Interest rates. The US slashed rates which ran at 5.25% through most of 2007, to only 2% today. In the UK Brown’s MPC (all his direct and indirect appointees) kept interest rates below 5% from 2nd August 2001 until 9 November 2006, in order to stoke up inflation, and have now held them above or at 5% ever since, to intensify the downturn. Will the PM sort out the MPC and try to make it counter cyclical instead of reinforcing the pain of the cycle?

2. The government deficit. Yesterday’s newspapers at last examine the huge drift in the deficit which readers of this blog will be acquainted with. Many now agree that this year could see an overshoot of at least £20 billion in borrowing. Some think next year will be far worse, and have gone further than me in forecasting up to £100 billion of deficit in 2008-9. Will Gordon Brown start to get a grip on the public finances, and reassure us convincingly that the deficit will not go up by these huge amounts?

3. Transparency. The PM urges the private sector to be more transparent. Will he at least adopt the same degree of transparency in compiling the government’s balance sheet as all large companies have to adopt by law? This would mean putting the pension liabilities and the off balance sheet borrowings onto the UK government balance sheet, revealing that we are around 3 times as much in debt as the official figures suggest. If he is right that confidence comes from transparency this will help!

4. Preventing another mortgage boom and bubble. Is he going to propose detailed regulation of individual mortgages, with the Regulator having a view on multiples of income and proportions of value? If so, how will he prevent banks and Building Societies issuing top up loans in addition, or sending the loan request offshore?

5. Tackling the bad debts in the system. Is he going to follow the US and offer to buy up poor performing loan packages to relieve the banks? If so, where will the money come from, and how will he price what he buys? If not, how will he respond to the US treasury Secretary’s request to other jurisdictions to follow his lead?

6. He tells us he has been presiding over markets which need to be cleaned. Will he specify in what way they are dirty and how he intends to clean them. Is he happy with current bonus payments in the banking sector? If not what can he do about it? Is he happy with Hedge Funds that follow short as well as long strategies, or is he going to ban them, forcing them all offshore? Is the ban on short selling financials just temporary, or does he wish to extend it?

7. Does he think recent large sums put into markets to improve liquidity have been well spent? Does he intend to offer more?

8. Will he give the powers back to the Bank of England that he stripped away in 1997, so they can do a better job of managing the money markets/? Does he agree the money markets have been mismanaged in recent years? Does he now regret how loose money policy was in 2004-6? Does he regret the change of inflation target he pushed through?

Some of you are bound to ask me again what I would do. I have set that out on many occasions as the crisis has unfolded. To summarise,today I would still cut interest rates, take action to curb wasteful and undesirable spending and to control public sector costs, give the powers back to the Bank of England, and ask them to keep markets more liquid. I would seek talks to ditch the current Basel II regulatory structure for banks, and seek to negotiate a regulatory framework that considered liquidity as well as capital adequacy, and which tried to be counter cyclical rather than pro cyclical. If we don’t do this we will just start another cycle in due course.

A few years ago when the Conservatives were stuck in the low 30s in the polls it became fashionable for the party hierarchy to try to copy everything Blair had said and done in the late 1990s when he was so popular. It did not work as a strategy, for people thought to themselves if even the Conservatives think Blair is right we might as well stick with him, or abstain from voting as there is no real choice. Subsequently it emerged that Blair had wasted his golden economic legacy and frittered his high standing with the public in the early years.

Now that Labour are wallowing in the mid 20s in the polls they are following a different strategy - hitting out against the Conservatives. It is an even more absurd strategy than the old Tory one. They create the Aunt Sally of a Conservative government, as if some parallel government existed in the UK, and then condemn it. Hence this weekend we are treated to the criticism that David Cameron has not done enough for single parents! How can David Cameron do anything for anyone, as he is Leader of the Opposition, unable to win a single vote in the Commons?

Labour figures on TV and radio programmes must also have been briefed to criticise the Conservatives for calling for an end to mortgage regulation. This according to the BBC and Labour Ministers is proof we are unfit for office. Clearly none of them who make this criticism have either read the Policy Report from which a single sentence has been extracted, nor have they any serious interest in trying to sort the unholy mess in the money and mortgage markets which they have created on their watch.

The Policy Report was a serious contribution to the debate about how to regulate and supervise markets. It warned that the removal of powers from the Bank of England would leave the Bank unable to handle a banking crisis, as time has proved to be true. It recommended giving the Bank the necessary powers to control markets in times of easy credit, and to make more liquidity available at times of stress, the very things this government has failed to do. It went on to say that this government’s extra mortgage regulations which they introduced were all cost and no benefit, as again time has proven. If their mortgage regulations had worked we would not now be facing too many people with negative equity struggling to pay the mortgage.

This was a balanced report. It said where we needed to strengthen control - in the money markets where huge mistakes were being made - and where we could cut out needless costs where regulation meant bureaucracy but no grip on the underlying risks and dangers. The events of the last year have more than vindicated the analysis of our Report. We warned that things had been too lax and were now too tight. We warned about sloppy public finance, and the lack of Central Bank power to handle credit creation and money issues.

Labour’s deliberate misrepresentations of this Report just make them look silly. Their technique of bashing the Tories may get them through a party conference, but it will not wash with the electorate. Voters expect them to grapple with this crisis and come up with some answers. This crisis was not caused by a single line in Conservative Report. It was caused by Brown’s bungled reforms of the Bank of England and by the way the world regulatory system was regulating the wrong things in the wrong way.

It is currently fashionable to argue that because there is a mess in the banking world there needs to be more regulation.

We need first of all to ask how this most regulated of industries got into the current difficulty? Why did all the regulaiton we already have fail to stop the crisis? Indeed, did the regulation itself in some ways allow the crisis or make it worse?

People want there to be easy answers. Let’s look at some of the suggestions:

1. Ban short selling. Most of the selling which has driven down share prices has come from owners of the shares selling. Banning short selling will not stop sharp falls in bank shares if people lose confidence in those banks.

2. Stop mortgage banks lending people more than say 90% of the value of a property. That looks like a good idea and would represent prudent banking. However, if Central banks decide to create very loose money with low interest rates again, as they did in the 2004-6 period, such a ban will not work. Offshore banks will be able to lend more than 90% and will steal some of the business. Onshore banks will obey the rules about mortgages, only lending up to 90%, but will encourage people to take out a personal loan at the same time so they can lend them more.

3. Raise the capital ratios for banks, to limit the amount they can lend. That would work, but is best done during the upswing. Doing it now will intensify the downturn. Today’s problem is banks do not want to lend very much at all, so making it dearer for them to lend makes that worse.

4. Offer a public sector bail out for difficult loans. This may be necessary to prevent worse damage to the system, but it sends out a dreadful message to banks who now know they are all “too big to fail”. Shouldn’t there be some financial penalty on the shareholders of banks who issued all those poor performing loans in the first place, if they need to take advantage of any subsidised public bail out?

5. Try to develop counter cyclical intelligent central banking. The errors of the last few years are errors of the whole banking system , led by the Central Banks. We need a new generation of Central bankers who raise interest rates earlier to choke off excess, and cut rates earlier, to prevent too steep a downturn.

Poeple should stop thinking there is a black box regulatory answer which will prevent another boom-bust cycle in the future. Indeed, it is more likely that action taken eventually to stimulate economies out of the present downturn will in its turn sow the seed of the next boom. Meanwhile, there is no way of appointing brillliant banking and mortgage regulators who will get the decisions right when the bankers and their clients are getting them wrong. There will always be mortgage excess if central banks allow money to become too easy, and there will always be a house price crash and mortgage default if central bankers make money too tight.

This morning we learn from government sources that the PM has taken the action necssary to see us through the crisis. Did I miss something?

I heard the US authorities announce large extra liquduity for markets, and heard them announce a buy up plan for unloved mortgages. The US Congress, which is allowed to meet, will be passing emergency legislation next week. The UK Parliament has been prevented from meeting throughout this summer’s crisis and remains uninformed of the government’s latest forecasts and thinking.I saw the US slash interest rates some time ago to only 2%. I have not heard a thing from the Uk authorities, other than to say they will waive the Competition rules to allow a merge of a couple of UK banks, and are banning short selling for a few weeks.

The truth is that the UK version of the Credit Crunch is a particularly bad one, and has been made worse by this government’s actions in recent years. Far from helping solve the crisis, the government has helped the banks create a UK crunch through bad central banking and bad regulation. The main regulatory mistakes have been:

1. Taking crucial powers away from the Bank of England to run and understand the money markets in the 1997 reforms.The Bank needs to be the daily regulator of the main banks and needs to manage the government debt.That was always a disaster waiting to happen.
2. Appointing people - and reappointing - to the Monetary Policy Committee who kept interest rates too low in 2003-6 and are keeping rates too high in 2008. We need an MPC with better judgement.
3. Setting a new target for inflation control prior to the 2005 election which encouraged the Bank of England to keep interest rates too low - that was obviously a dangerous mistake at the time.
4. Abandoning Prudence after 2000, building up huge deficits in the public sector during a boom, instead of taking some heat out of the binge by cutting the growth rate of spending and by reducing borrowing.
5. Accepting and negotiating Basel I and Basel II regulatory systems for the banks, which encouraged banks to put as much borrowing as possible off balance sheet, and encouraged securitisation, selling loans into less regulated funds. Far from controlling the banks, the global regulatory rules encouraged the type of excess which brought the system down.
6. Introducing expensive and elaborate mortgage regulation, giving the impression that it would make things safe, when it had no beneficial impact whatsoever. Never have mortages been so regulated in the UK as today and never have we had such a big mortgage mess.
7. Showing the priavte sector how to use off balance sheet borrowing on a huge scale, through the big PFI and PPP schemes to buy extra public facilities on the never never without putting them properly into the public accounts.
8. Failing to put enough money into the money markets in the sumnmer of 2007, allowing the run on the Rock to develop.
9. Nationalising Northern Rock - so the taxpayer has to pay all the losses,and so one of our once largest mortgage lenders can no longer lend any new money!
10.Making foolish statements at crucial times for confidence - ln the summer of 2007 telling everyone there would be no bail out which encouraged a run on the Rock, just before announcing the bail out, and more recently telling us the conditions are the worst for 60 years whilst failing to give us any hard information about what that means and what the government’s forecasts are.

That was quite a week in financial markets. The US Administration has been trying everything to get the money markets and the market in credits to work again. They decided that they could draw a distinction between financial institutions that were too crucial to allow to go into Administration - Fannie. Freddie and AIG – and those that should be put through bankruptcy or creditor protection to force them to restructure and revalue their assets – Lehman and maybe others to follow.

I guess it was worth trying. Unfortunately, the markets reacted very badly to the collapse of Lehman. Instead of market participants learning the lessons of past excess and coming to sensible judgements about risk, it invited two reactions. Firstly, everyone looked around to find out which large company might be the next to go down. Secondly, everyone decided to play it ultra safe, and only buy government backed securities, for fear of making a mistake.

It is another example of how important the work and words of the regulators are, and how they can have perverse consequences. The US had taken action to control short selling, but that didn’t stop big falls in shares of financial institutions. People who owned the shares decided to get out, seeing how a large and important institution like Lehmans could tumble in just a few days of reappraisal of their worth.

Now in the UK we have a ban for a few months on short selling shares in financial institutions. The general response of the press has been to say “shutting the stable door after the horse has bolted”. That is a false response. The experience elsewhere shows that banning short selling does not bolt the stable door. Doing it in one market still allows it in others, whilst the share movements in recent weeks where shares in some financial institutions have collapsed have been caused primarily by the owners of the shares wanting to get out. I speak as someone who never short sold a share all the time I was a professional investment manager, partly because your potential loss if you get it wrong is unlimited.

At the heart of the problems in the banking markets is fear of what the assets of each financial institution are truly worth. Normally markets are quite capable of putting a price on anything – that is all they do and they are usually quite good at it. Today market professionals who created large quantities of cleverly structured paper based on traditional mortgages or loans seem no longer able to come to a rational view of what it is worth. They no longer trust each other, and no longer want to hold all this paper they made a lot of money creating. As a result, instead of trading packages of mortgages or loans between themselves, one needing the money and the other prepared to take the risk to earn a better return, they will only buy bits of paper secured against the government revenues of a major country. Short term loans to government are now very highly prized, whilst loans to anyone else attract a low value.

It is curious that no new consensus emerges from the wreck of the mortgage securitisation movement about how to value all these loans in the new conditions. Packages of mortgages which were valued at 100 pence in the pound 14 months ago must be worth something today. It is true that people now think more of those taking out the mortgages will be unable to pay the interest, and true that in more cases when the home is repossessed to repay the mortgage there will be a shortfall because the house price has fallen. Even allowing for all that, most of these mortgage packages will still be worth considerable sums of money., especially the senior packages that were designed to avoid the worst of those two risks. The high risk packages may well be worthless, but people who bought them should have understood that could occur.

Meanwhile on both sides of the Atlantic the authorities have been involved as midwives to great new merged corporations that they think will withstand the difficult times better. We learn that Lloyds will merge with HBOS, and that famous Wall Street investment bank names are in talks to merge with deposit taking institutions to widen their capital base. The UK authorities who had been asleep at the wheel throughout 2007, allowing the run on the Rock to develop, are now awake to at least some of the dangers.

Yesterday the main Central banks of the world tried to jump start the markets with a huge injection of extra liquidity. $180 billion was made available. If all that remained was a liquidity problem it should have done the job. All it did was prevent the main share markets falling further. There was no sustained surge in shares prices. It was probably that disappointing response which decided the US authorities to try one more big move. They have now said they will take action to sort out the market in mortgage debt.

We await details of how this might work. For the sake of the US taxpayer, let us hope the people designing the scheme judge the right balance between toughness on those who made bad decisions to own all these packages of mortgages in the first place, and realistic valuation so it unblocks the market. In the longer term there should be money to be made for the taxpayer. The taxpayer can borrow short term money very cheaply, as the banks only want to lend to governments at the moment. There are many packages of mortgage loans and other loans on offer at what taxpayers will hope prove to be giveaway prices. A patient owner could hold them until the markets have come to their senses and are able to value them more realistically, or if necessary own them until all the loans in the portfolio have matured and most repaid. The US government clearly now sees itself as a credible buyer with the capability to get some extra value out of what it buys. This is an operation for professionals with very big pockets only.

I wish them well with it, as the good health of the world banking system currently depends on their actions. If they do it in order to make money for the taxpayer it might work. If they do it to offer subsidies to a banking industry which has got it hopelessly wrong it will stretch the taxpayer too far and create a new problem further down the track. Judging price and security will be most important. Pay too much for the loans and they will lose. Fail to offer enough for them, and it will not restart the markets. During this drama market players are ignoring the deteriorating numbers in government finance. That could become a story later , when the share prices of financial stocks no longer hog the headlines.

What a mess! The financial sector is in meltdown. House prices are falling. People are losing their jobs. Labour MPs are wrangling over who should be Leader.

Spare us the lectures to be united at a time of national crisis, Prime Minister. Weak leaders make speeches about loyalty, and the need for discipline. Strong leaders listen to intelligent criticism or ideas about better ways of handling problems. Strong leaders unite enough followers by doing and saying the right things about the issues. Weak leaders create division by boring everyone with platitudes and silly spin.

We are still prisoners of Labour spin. It is amazing just how long a shelf life New Labour’s simple minded misconstruction of 1990s politics has enjoyed.

In the 1990s the New Labs told the media that a divided party could not govern, and was not electable. They told us the Major government would fall because it was divided.

They also told us an anti EU party could not be elected, and said the Tories problems came from being divided over the EU and for being too anti the EU.

Both these soundbites were wrong.

The Thatcher government was deeply divided, between wets and dries. Their arguments regularly appeared in the press, but it did not stop them winning 3 elections in a row. There were regular threats to Margaret Thatcher’s leadership, with Michael Heseltine wanting the job. The Thatcher governments wrestled with the big issues of the day - Trade Union power, poorly performing nationalised industries, high unemployment - and found contentious but lasting solutions.

The Blair government was deeply divided at the top. The press was full of stories of rows and splits between Blair and Brown, but it did not stop them winning 3 elections in a row. There were pressures for a leadership change, with Brown seeking promotion. The huge political goodwill and the powerful position they enjoyed was frittered away. They failed to control the credit bubble or to run the national finances well.

Governing parties are usually divided, and some healthy debate about the way ahead can be helpful, as long as the Leader communicates a strong sense of direction at the same time as allowing the public debates about it.

The polling throughout the Conservative years showed that Euroscepticism was always more popular than Euroenthusiasm. Indeed, at the nadir of Conservative polling fortunes it was only our Euroscepticism that was popular. Under William Hague we won the European election where we were able to express our scepticism.

The Conservative government fell for one main reason – it adopted the European Exchange Rate Mechanism on the advice of the other two parties and the CBI, and it proved to be a very damaging economic policy. In that sense it was Europe that destroyed the Conservative party in the 1990s – because it was too European, not because it was too sceptical.

If the Labour government falls, it will fall for one main reason - the poor economic policy it has followed, and the way it has made the Credit Crunch worse in the UK.
Its enthusiasm for all EU bureaucracy is a further irritant. Far from helping an unpopular government, its love of the Lisbon treaty and its refusal to honour its promise of a referendum has made it worse.

I am fed up with all the interviewers challenging Labour rebels with the nonsense that they are making the problem worse by daring to want a debate and a change of leadership. They are not the problem. The problem is the government and its policies. The interviewers should start asking the rebels instead, what they would do to make things better. That’s what the public wants to know.

The depressing thing about the Labour rebels is not that they are showing some life at a time when the government is performing badly, but that they are not yet offering an alternative strategy that makes sense and might ameliorate the economic crisis. We need to have lower interest rates, control over public spending, an end to off balance sheet government financing, and a programme of private sector led works to build us the power stations, energy facilities and transport links we need.

The PM’s belated intervention into the financial crisis is curious.

He tells us he intends to clean up markets. Who exactly was regulating and presiding over dirty markets over the last 11 years? In what way do they need cleaning? Why wasn’t it done before?

From past interventions we know the PM thinks there needs to be more transparency. He should start by cleaning up the government’s act in this respect. The government is currently refusing to give us sensible forecasts of its 2008-9 borrowing requirement, failing to update its revenue forecasts or its spending forecasts, and failing to give us a revised growth forecast.

The government seems to be condemning off balance sheet borrowing on a large scale, yet that is exactly what they have been doing. Does this mean an end to PFI/PPP off balance sheet borrowing? Does it mean we can look forward to seeing all the current off balance sheet finance consolidated any time soon? Do they now regret lumbering the taxpayer with the huge liabilities of Northern Rock, when acting as its bank manager would have more than halved the amount at risk? Will they respond to my estimate of £1500 billion of total liabilities for the public sector, including the unfunded pension liabilities?

The PM went on to say “we don’t want these problems recurring in the future” and told us he would be discussing what to do with other Regulators and governments around the world. What we need to know is how he is going to help us get out of the present crisis. It’s no good saying it is global, when an important part of it was made in the UK under the eye of Brown’s Regulators.

Mrt Clegg will become famous for thinking the basic pension is just £30 a week. He can’t have been doing the shopping recently.

It is also time people realised that Mr Cable made an equally serious gaffe, showing he has little understanding of financial markets. He told us that Hedge Fund managers have made money out of shorting bank shares (probably true), made easier for them by the fact that taxpayers and governments underwrite the banks!

Could someone explain to Mr Cable that the last thing someone short of bank shares wants to happen is an announcement of official support for that bank. That puts the price of the shares up which means the Hedge Fund Managers shorting the shares lose money.

The meltdown in the markets yesterday saw investors give up on buying shares or anything risky. Wall Street plunged again. Fears are now swirling round yet more large financial institutions, just a day after the announced merger of HBOS and Lloyds. Only a few days have passed since Lehman sought bankruptcy protection before selling a big part of its business to Barclays and after Merrill Lynch announced merger plans.

At such times of crisis there is an understandable desire to blame someone, and a wish to find a simple solution. In this case the finger of blame is pointing at Hedge Fund Managers who have shorted bank shares, making money out of the misery. Mr Cable - and others in the UK - thinks the answer is to use regulatory means to stop Hedge funds and others selling shares they do not own.

If only it were that easy. Yesterday Wall Street financial stocks plunged despite tight rules on selling short. Such regulation has not stopped the problem in New York. The truth is many different people are selling, and many people and institutions are selling who do own the shares. No regulator can stop them doing that, sort of announcing that Stock markets have been abolished and everyone is now locked in to whatever they happen to be owning at the time.

This panic is not just the result of some smart operators exploiting bad news and fear. It the result of a deep inner uncertainty that has gripped the world’s markets. Individuals are selling small holdings in savings schemes, some pension funds are cutting their losses, many people are holding off buying to see what happens next. Banks and other financial institutions do not want to deal with each other and prefer financial assets with governments underwriting them.

Just as a few weeks ago at the top of the oil market I wrote that in some senses many people were oil speculators then, so today in some sense the many are selling the share markets or failing to support them now. There has been a huge lurch from fear of shortage of commodities to fear of losses in shares and other financial instruments. The more the markets fall, the more the fear spreads.

So what might help to stabilise the position? In the UK the Conservative proposal to rush through a better deposit compensation scheme would help. If most people knew their money was safe there would be no need to fear a run on any bank.

Offering more cash to the banking system to keep them more liquid is necessary. I am glad the UK authorities are joining in today in a concerted effort by Central Banks to do this.

Facilitating the takeover of weaker or exposed institutions by stronger is a regrettable necessity. It weakens markets in the longer term, reducing competition and its benign effects, but is a lesser evil than another institution going under or being nationalised.

Listening to the Chancellor this morning, I just wished he had shown the present degree of commitment to dealing with the problems in the money markets 13 months ago when some of us first sought aciton from the authorities to prevent a run on Northern Rock. If he had done then what he is doing now, he could have prevented the Rock disaster. Our banking system is weaker for having Rock in public ownership, unable to offer new loans and forced to halve its size.

The big increase in the dole queues today should provide more evidence to all those who think our problem is inflation that our problem is now the downturn.

When are the authorities going to realise they need to do much more to limit the damage and to prepare for the eventual turnround?

It is good today to welcome more campaigners to get the Uk building some power stations to keep the lights on.
In Crumbling Britain on 5th and 6th August I summarised the case for investing in new energy facilities on this blogsite. The download “Freeing Britain to Compete”, the Conservative Economic Policy document, also states the case at greater length.
Not only do we need the power, but we need the construction jobs. So come on government, get on with giving the permissions for the private sector to do the job.

When George Bush emerged from domestic shadows to appear as a serious challenger for power on the Federal and world stage, he was marketed as a caring Conservative. I remember my colleagues studying what he said, as the cross Atlantic bridge between conservative parties reflected on how to “decontaminate their brands” . The phrase used to annoy me. A party should not be a brand but an alliance of people with passions about how to improve their countries. The ideas of personal freedom and responsibility were not contaminated - it was just that on both sides of the Atlantic conservatives in power had made mistakes which had lost them office. In the US a Republican President had failed to cut taxes as promised, and in the UK a Conservative governemt had put them up when people were hard up.

Bush’s words implied that his Presidency would concentrate on domestic issues, and would show how conservative philosophy in action could help the jobless, the poorly educated, the less prosperous district. That part of his message sounded like my kind of conservatism.

Eight years on we see just how buffeted by events the Presidency has become. The so called war on terror has diverted much of the energy and taken many resources, as well as costing America many lives of her young soldiers. The poor regulation of financial markets and the easy money years of Fed expansion have led the administration into three of the largest nationalisations in history within the same month.

Listening to Obama, under the pressure of the campaign he has become a warrior against terror in the Bush way. He seems happy with the idea of more nationalisation and regulation to tackle the Wall Street storm.

Political parties and leading political figures today look powerless before the force of events. None of the main contenders are engaging with the big issues of the threat of recession or the banking crisis.