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Playing poker and snap with the global economy

US President Barack Obama has a reputation as a pretty cool poker player which may well explain the massive gamble he is taking on turning the US economy around.

On the other hand Prime Minister Gordon Brown’s preferred game would seem to be snap, and that’s with one hand over the cards, which would explain his sycophantic address and obsequiousness to the US President during his recent visit to Washington.

The fact is that the PM’s political survival and the future stability of our banking system depend to a frightening degree on whether Obama is really playing a winning hand.

That came really apparent as we approached last weekend and the government announced it was going to take a majority stake in Lloyds Banking Group in a deal to insure £260bn of toxic assets. Together with a similar deal with Royal Bank of Scotland, that brings the UK tax payer’s exposure to toxic funds to a staggering £585bn.

I suppose we at least should be grateful to the Toxic Funds Task Force which surely has been working day and night to identify the size and exposure to these sources of mass toxicity, for at last someone may have a true measure of the problem, though with so little transparency that’s very difficult to judge.

Unfortunately the assets of mass toxicity are proving more real than Sadam Hussein’s weapons of mass destruction and the laws of unintended consequences are proving as treacherous as Pandora’s Box.

One fears what yet may be lurking around the corner to punish us for our hubris.

Let’s face the facts – the Tripartite Authorities and the regulatory system haven’t delivered as expected, the provisions of Basle II have accentuated the current crisis rather than delivering improved understanding and management of risk, and derivatives, which were supposed to mitigate risk, have actually served to spread the financial contagion from the US sub-prime market around the globe.

The same can be said of the way that the Prime Minister facilitated the monopoly busting takeover of Lloyds TSB by HBOS.

Rather than shoring up a bank in difficulties it has served to damage a successfully and prudently run business to the extent that it is now being baled out almost to the same extent as RBS which was allegedly brought down by the prolificacy and ego of Sir Freddy Goodwin.

One may well ask who needs Fred the Shred when we’ve got Brown the Clown but like it or not he is still captain of the good ship Britannia and if Obama proves lucky, then let’s hope Brown can shout snap.

The problem is that it will have to happen sooner rather than later because who knows what will happen to the value of that £585bn mountain of toxic assets should the situation in the US and UK mortgage market get much worse. Asset values, after all, depend to a huge extend on a bank’s willingness or ability to lend, and our government has till to solve that problem too.


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