We're lucky not to be caught in the toils of a manic-depressive currency
et us greet the new year with an olive. 2004 may yet be the year of the two-dollar martini, with our chances brighter and the dollar cheaper than at any time tor a decade and more. (£1=$1.77: less than a quarter to go!) For two delirious days in 1992, the pound touched $2 and I urged my readers to fly to New York and drink while stocks lasted. We were caught in the toils of the European monetary system and this was one of its bizarre side-effects. This time around we are luckier not to be caught in the toils of the euro. Every day seems to set a new record for Europe's fledgling currency amid cries of pain from Europe's exporters. Somehow we hear less from the boardroom blowhards who used to tell us that if we had joined the euro, their lives would be happier and their companies better able to compete. How nice it would be, so they thought, to have a stable currency and not to need to worry about rates of exchange! They would not see that they might simply be trading old worries for new ones or that worrying was part of their jobs and they were paid for it. By now they can see that this supposedly stable new currency has proved to be manic-depressive. Launched four years ago with champagne and balloons, it took to the air and immediately nosedived, losing about a quarter of its value. Then it bottomed out and started to climb. until Europe's stability and growth pact, supposedly the flip side of the euro coin, developed political fatigue and came apart. More structural problems may follow. We are well out of it. Hang on and hope for that martini.
When the brick falls
You are the chairman of a High Street bank. Its shares have fallen below their nominal value and it is rumoured to be bust. Do you (a) assert that it isn't (11) ask for a gesture of confidence (c) keep your head down? The chairman of National Westminster opted for (a), which may not be the textbook solution, but goes to show how frail, behind their imposing facades, the banks' structure can be. Just 30 years ago a rotten brick of a bank called London & County Securities fell out of the wall and threatened to bring the whole building down. The Bank of England improvised a rescue party, coerced and cajoled banks into propping one another up, let some go, kept others going, and on one long evening left a board of strictly Jewish bankers sitting in its basement, staring at a plate of ham sandwiches. When it was all over, Margaret Reid wrote its history — The Secondary Banking Crisis, a minor classic, now reissued (at £15) by Hindsight Books. The cycle comes round and turns hindsight to foresight.
Where the buck stops
Could a banking crisis happen again? Of course. Bricks, and walls, too, are like that. Who would mount the rescue party? Wait and see. After you, the Bank of England may say when the next bank founders. You chaps at the Financial Services Authority were supposed to supervise it. No, after you, snaps the FSA: the Bank is responsible for the stability of the financial system. So who decides, they ask each other, when a bank is a threat to the system? Oh, dear, now look what's happened. In New York, when the Nobel prizewinners at Long Term Capital Management racked up debts that ran into trillions, and again when terror stuck on 9/11, the Federal Reserve Bank took charge and sorted things out. Could the FSA do as much? David Kynaston, the City's historian, doubts it. In a new preface to Margaret Reid's book, he wonders whether its regulators could cope, lacking (he says) not only intimate familiarity with the key players in the financial markets, but also the moral authority that a Governor can exercise. The buck. he expects. will stop on the usual desk. Its tenant needs to be ready.
Hard cheese
To see what can go wrong. visit Parma, home of cheeses calcifying in dim cellars, where Parmalat, the local dairy produce company, now looks more like an Emmental. There are holes in this cheese where £7 billion was supposed to be. The predictable suspects are assisting the police with their inquiries, but the money has flown. Indeed, Parmalat has been a distinctly Italian type of financial disaster, complete with multiple sets of books, some for use, some for inspection, and money tucked away offshore, out of sight, out of mind, out of reach. Cargoes of fictitious powdered milk, supposedly destined for Cuba, seem to have trickled through the fingers of an intermediary in Singapore. In other companies, modern financial technology has allowed dubious parcels of derivative contracts to be passed from hand to hand without having to be opened. New ways have been found to expunge inconvenient exposures from overloaded balancesheets. Gordon Brown uses some of them. Caveat creditor.
Gricer on the line
An SOS message reaches me from my railway correspondent, I.K. Gricer, stranded after Christmas in a substituted bus somewhere near Tamworth (Low Level) and waiting for the West Coast Main Line to reopen. Tom Winsor, the railway regulator, wants to delay the work between Rugby and Stafford for two years, to save money. Shan't, says Richard Bowker at the Strategic Rail Authority. Must, says Mr Winsor, my decision is final. This, as my correspondent notes, would be the first project in history to have been brought in more cheaply by making the contractors take longer. It would make more sense, he argues, to stop work between Preston and Glasgow, and concentrate the fast trains to and from Scotland on the East Coast line, as happens now. Sometimes I think that his new post as one of Network Rail's eight dozen public-interest directors has gone to I.K. Gricer's head.
Sell with Sam
Retailers learn to look on the bright side. They had been looking forward, so they told us, to a splendid Christmas, starting in October. 'Can't wait?' asked Marks & Spencer, hopefully. Then, with the shops strangely quiet, they counted on a late rush. Now they have high hopes for the January sales. Indeed, they, too, couldn't wait. Ask them how business is and they will give you Sam Goldwyn's reply: 'Business? It's colossal. It's stupendous. It's unbelievable. But it's picking up.'
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