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Bear necessities

As I enjoyed a couple of weeks R&R, far away from the problems of the credit crunch, the near collapse of Bear Stearns almost scuppered an article I had prepared in anticipation of my absence. The day was saved by satellite TV, the internet and an unusually understanding wife. I was grateful that I had bought her some jewellery on the flight to our destination.

A similar situation had arisen last summer when an article written in anticipation of an absence abroad had to be comprehensively revised because of the Northern Rock prob-lems. It set me thinking about the contrast between the Americans heading off trouble and how we handle a similar crisis at home.

Our performance does not stack up well against our transatlantic cousins. Northern Rock has dragged on and on while the Americans leapt in with a solution which involved government support. JP Morgan is on the hook for any initial losses but if the situation is really dire, it can rely on support from the US taxpayer, who is underwriting exceptional losses. Arguably, British taxpayers will collect any upside from Northern Rock, such as from flotation or a trade sale, but you cannot help but feel that we dragged our feet. The FSA has already declared mea culpa. However, with Libor touching 6 per cent last week, it is clear that the damage done to confidence has been significant. No wonder Mervyn King is distributing olive branches.

It much amused the presenters in a radio studio last week when I declared that all banks were technically bust. It is almost certainly easier for those that lend them money to withdraw it than it is for them to achieve repayment of those loans their depositors are facilitating. Confidence is everything when it comes to sustaining the banking system.

Banks are core to the capitalist system. They supply the grease that make the wheels turn. This is why investors are nervous. More collapses, tighter credit and we are all in trouble. Central banks understand the situation well and that is why I refuse to be too pessimistic over the likely outcome of this crisis.

Globalisation is a highly charged word. There are those who believe it is the principal cause of a greedy, insensitive society, anxious to pursue profit at all costs and to exploit labour to achieve an end that will serve a self-seeking minority. Others see it as the means of spreading wealth and ensuring rising prosperity around the world. Whatever the motives, it is the glue that binds us together.

The interdependence of economies, governments and business is now at a level where ploughing your own furrow is no longer an option. I would be naive if I did not expect further carnage en route to a resumption of global growth but we have to work it out between ourselves. In the vanguard will be those financial institutions that have arguably been the architects of our present discomfort. Guessing the turn on the banks will make more than a few managers’ reputations.

Brian Tora (brian.tora@centaur.co.uk) is principal of The Tora Partnership

brian.tora@centaur.co.uk

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