As global stock markets bounce back up after the announcement of a £37billion bail-out for some of the UK's most well-known banks, followed by similar efforts in Europe and the US, a Nobel Peace Prize winner for economics has wondered "has the Prime Minister saved the world financial system?".
Rather than dithering, as many have accused Gordon Brown and the Chancellor Alistair Darling of doing, Nobel Prize winner Paul Krugman wrote in the New York Times yesterday that the British politicians "went straight to the heart of the problem — and moved to address it with stunning speed", and others followed suit.
A week in politics is a long time, and yesterday the FTSE 100 recovered almost half of last week's losses, closing 8.3 per cent higher – its second-biggest percentage rise ever in one day. In New York, the Dow Jones rebounded to close up seven per cent, also its second-biggest one-day percentage rise in history.
After the Prime Minister revealed details yesterday of the
Treasury's £50billion plan, announced last week, other European countries were quick to follow its example, with Germany, France and others announcing comparable plans to provide capital to their financial markets.
Even interbank market lending – which has been largely frozen since the credit crisis broke last summer – showed signs of thawing.
As a result of the rescue plan, the Government is set to become the country's biggest mortgage lender; the UK taxpayer could potentially become the owner of a 60 per cent share in RBS, with a 43 per cent stake in Lloyds TSB, which is currently in talks of a take-over with HBOS.
Consequentially, several banking executives are quitting their posts, among them, Sir Fred Goodwin, the chief executive of RBS, HBOS chief Andy Hornby, and chief executive and chairman of HBOS, Lord Stevenson of Coddenham. Between them, they will forego total bonuses of £3billion.
Banking bosses were raking in as much as £17billion a year in bonuses, it has been revealed, while lenders were handing out
mortgages like there was no tomorrow and risky debt was being sold to financial markets all over the world, setting the scene for the current financial situation – the collapse and nationalisation of some of the world's biggest banks, and what some analysts argue is already a recession in the UK.
Administrations around the world have been struggling with how best to deal with the financial crises befalling their economies, while at home the Prime Minister has been criticised for not acting quickly enough to halt the collapse of the UK financial system, a number of eurozone countries obviously felt differently when they announced they would be adopting similar solutions to Gordon Brown's plans, boosting both his confidence and his global image.
It could have been Churchill, but it was Gordon Brown who said yesterday that "In extraordinary times, with the financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about…We must, in an uncertain and unstable world, be the rock of stability on which the British people can depend."
©
Fair Investment Company Ltd