A banker writes
DEAR Treasurer: Thank you for your letter of 5 November, in which you notify this bank that your borough intends to default on its obligation. You had freely entered, at your own request, into a swaps' contract, governed by what hap- pened to interest rates. Your expectations proved ill-founded, no doubt because they were based on what ministers were then saying, and as a result your borough owes the bank £14 million. You now inform me that you will not pay. You rely on the provisional opinion of the House of Lords, announced last week in the Hammersmith and Fulham case, that local authorities acted illegally in entering into swaps con- tracts, which would therefore not be en- forced by the courts. I pause to observe that their Lordships need their wigs ex- anuned. How can the courts find, as they have, that a bet on the FT Index is enforceable but a professional swap trans- action is not? How can they reward a litigant for acting illegally? But even if your version of the law is correct, that does not begin to excuse your conduct. Can you imagine this bank, or any reputable com- pany, reaching a contract with you based on free will and full understanding, and then dishonouring it? Can you imagine our lawyer being set to look up the articles of association, in the hope that they will show that we acted illegally? It is too easy to tar us, or any financial business, with the brush of City scandal, and then to call for tighter public regulation. (I heard one of your councillors sounding off, only last week.) The most disgraceful scandals, though, and those most costly and damag- ing to the City, originate in the public sector, if it is not the Tin Council, it's the town council. What a pool of sharks. Yours faithfully, R. Grindstone, Manager. PS. A year earlier you got the swaps market right and made f14 million at our expense. I assume you will now pay this back, but to make sure, the bank will deduct it from your balance with us or add it to your overdraft. See you in court.