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Halifax Bank of Scotland is in the throes of being merged with Lloyds TSB and becoming part nationalised, after teetering on the verge of bankruptcy last month. At the heart of its problem was the aggressive expansion of its lending, financed by borrowing on the money markets, which then froze up.

As part of an investigation for Credit Crash Britain, made by the Money Programme team for ³ÉÈË¿ìÊÖ2 at 1930 tonight, I've seen an internal HBOS document from 2004 which shows the following:
- the bank knew there was a mismatch between the sales culture and the risk controls: the risk controls had "not kept pace" with the sales culture.
- that the regulator was worried about this - and about the potential development of a culture that was "overly sales focused and gives inadequate priority to risk"

HBOS has confirmed the report is genuine and said it resolved all the issues with regulators at the time. But it would not give us an interview. However the man in charge of making sure HBOS stuck to the regulations at the time did agree to speak. Paul Moore, HBOS former head of Group Regulatory Risk said:

"The retail bank was going a breakneck speed and an internal risk and compliance function feels like a man in a rowing boat trying to slow down an oil tanker. I'm not saying that there were any bad intentions in that, but it was difficult to slow things down."

Of course, HBOS was not destroyed by aggressive selling. It was destroyed by lending long term and borrowing short term. But it's clear to me, from reading the report, that the regulator was aware of a cultural problem at the heart of HBOS: that the balance of management experience lay in the direction of sales, and that those with risk control functions were having difficulty slowing the bank down.

Mr Moore, the most senior manager in charge of risk until he was made redundant in 2004, says people like him need to report direct not to the executive management but to non-executives on the board. And he wants a wider inquiry into the bank's collapse:

"The first thing that needs to happen is that there's got to be a broad-ranging inquiry - I don't know whether that's a public inquiry - that needs to investigate in some detail all of the things that happened. Because out of that will come lessons."

You can see my report on Credit Crash Britain at 7.30 on ³ÉÈË¿ìÊÖ 2 tonight.

I will start by quoting an AP wire that has just dropped on my desk:

"NEW YORK (AP) - Stock markets around the world plummeted Friday and oil prices plunged to their lowest in more than a year...The common denominator was growing fears that governments, central banks and finance ministers seem powerless to stop the deepening of a global recession that will slam corporate earnings and lead to deep job losses around the world."

That sounds to me spot on. Above all else what has driven the Nikkei down 10% and virtually all other Asian stock markets tanking in a panicked scatter graph around it, is this fear that the policy responses just aren't happening fast enough. They have after all seen it before - the "lost decade" after Japan slashed rates to zero and it still didn't work hangs heavily in the consciousness of Asian business.

Meanwhile in Britain the prime minister has tonight launched some winged words onto the airwaves. He said:

"We've seen cuts in interest rates from the Bank of England. I believe that they'll be looking at this again over the course of the next few weeks".

Those of us who listened to Mervyn King's hour-long speech about cricket, claiming inter alia that this is the worst banking crisis since World War one, had also gathered that. What would be useful to know is whether the government thinks "a few weeks" is the right timescale to be reacting. I say this because there are signals coming from the markets in New York that traders expect an early, emergency rate cut by the Fed.

I have been looking at the . It contains the power a) for the Treasury to restate its price stability (ie inflation) target at any time and b) the reserve power for the government to set monetary policy directly:

"if they are satisfied that the directions are required in the public interest and by extreme economic circumstances".

So if Gordon Brown would like an early interest rate cut he can actually order one - without impugning the formal independence of the bank since the Act is the legislation that made the Bank of England independent.

I don't know whether a rapid interest rate cut is the right thing to do. Some economists are loudly urging rapid fiscal intervention - and if you look at the figures it is only government spending that kept the Q3 shrinkage in the UK from looking a lot worse.

I do know that everybody who supports rate cutting as a strategy - whether monetarist or Keynesian by doctrine - is urging it to be done quickly. Now the MPC has discovered in October what it did not see in September - that we are in a sharp monetary contraction - the question is whether the policy framework is adequate given the scale of the crisis. I think this is the question history will ask of Mervyn King and the Labour government and it's one that we'll be putting to a government minister tonight.

And we'll be taking a look at the index that will not die down: the VIX - a measure of expected volatility on the US stock exchange. It rocketed up and peaked on the day the US government decided to "do a Gordon Brown" and part nationalise its banks. But it's still up there around 70 tonight.

If markets are short term voting machines and long term weighing machines, the VIX seems to be a vote against the effectiveness of co-ordinated action by policymakers in this crisis.

We now know the leaders of the G20 nations are set to meet on 15 November in the vicinity of Washington DC. I am told the UK Treasury may be preparing a plan to take to that meeting to kick-start a new world financial order. But what about the ordinary Joe: the people who don't get access to the agenda-setting pre-meets on people's yachts?

In the name of networked democracy I am inviting you to submit your plans for a new world financial architecture here. The rules are: 5 bullet points only and each of less than 100 words. If we get a decent response I will send it all to the Treasury and see if they will respond.

Once we've narrowed the plan down I will try and synthesise alternatives and do a SWAT analysis...

"I've cleaned toilets before and I guess I can clean 'em again - but no, we'll never get back to the kind of wages and benefits we had..."

These were the words of a former Ford production line worker at Dearborn, Detroit, who I met while making the film that goes out on Newsnight tonight (and ³ÉÈË¿ìÊÖ Word News America this week, in short-form - but you can watch it right now below). She had volunteered for redundancy a year ago but was still out of work, her home in repossession and in debt.

Ford, for economists and social scientists, represents not just the inventor of the Model-T but the invention of a high-consumption economy based on mass production and high wages. For two decades we've known that, in the western world, that way of life is in decline: it's no longer the mainspring of economic activity.

What it was replaced by, as you'll see in my report, was a high-debt, low wage economy. The most common jobs in Michigan are in fast-food restaurants, hospitality or waiting tables. None of them pays on average above $10 an hour.

Walk into a small town Starbucks and you will find highly educated people, often with a degree, working as baristas: people saddled with student debt and, if they are among the one in ten who can't afford to meet their mortgage payments, looking at a bleak future. Most of those I met love working there - though they would rather be in a graduate profession. But now the Starbucks economy too is in retreat: the company has announced 600 store closures this year - mostly in small towns and poorer neighbourhoods.

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Hellzappopin' at the , although it's all being done with the usual British decorum. Only three weeks ago, when Bradford & Bingley went bust the FSA was roundly refusing to revisit its past actions over B&B, HBOS etc. Now, , its new chairman Adair Turner has promised tougher regulation on the banks. Here's the key passage:

"If a year and a half ago, the FSA had wanted higher capital adequacy, more information on liquidity - had said it was worried about the business models at Bradford & Bingley and Northern Rock - and had wanted to ask questions about remuneration, the fact is that we would have been strongly criticised for harming the competitiveness of the City of London, for red tape, and for over-regulation.

"It [the crisis] frees one from the danger that one is going to be criticised in that over-sloganised way, which has been used for the past 15 years to cover up the defects in that argument. We are now in a different environment. We shouldn't regulate for regulation's sake, but over-regulation and red tape has been used as a polemical bludgeon. We have probably been over-deferential to that rhetoric."

Now whose rhetoric was that?

As I pointed out on Newsnight last week, the most high profile critic of the FSA's regulatory red tape was Tony Blair, who at the time was prime minister, a job title that also carries the moniker "First Lord of the Treasury" and thus ultimately responsible for the appointment of the FSA's bosses and the oversight of its conduct.

Here is what Tony Blair said in his to the IPPR:

"Something is seriously awry when ... the FSA that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone."

The FSA's boss Calum McCarthy sent Blair a furious letter in response, which was eventually winkled out of the regulator by a Freedom of Information Request. It said:

"It is damaging to our influence and our abilities to support the principles of better regulation to be described in the way that has occurred, hence our anxiety to establish whether there is any evidence to support the claim, which appears to be unfounded."

Actually if you read the full letter however (), what is clear is that McCarthy took umbrage with it in a different way from the line now adopted by Lord Turner. McCarthy's line of argument was: we've been proselytising like mad for light touch regulation in Europe (always called "better regulation") in the jargon; and now you go and call us heavy handed.

Lord Turner's interview begs some questions however: why didn't the FSA say it was worried about the business models of Rock and B&B? It's a very bread and butter question - because if it failed in its regulatory duty, as the government found out with the , it could be culpable and shareholders might have a claim against the regulator.

Anyway, mark it in your diary. Today marks the end of light touch regulation in the financial sector.

This week's is a credit crunch special, hosted by me. I am doing the full : "star in it, write the theme tune, sing the theme tune".

The Friday 17 October show airs at 6pm ET and again at 10pm, then again on Sunday morning at 10am ET. As this is my American presenting debut, I urge all my friends in the USA to tune in and boost my ratings: as these mainly include people I have met randomly sitting at a bar, I apologise in advance to , the and similar establishments inbetween for the any resulting loss of trade.

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There's a lot of catastrophic imagery being thrown around about this crisis, but I think I have finally found one that fits: with the 15 September meltdown, the stock market panic and finally the economic chill that is falling on the world and depressing growth. It's like the eruption of Krakatoa.

On 26 August 1883 the Sumatran volcano exploded so big that the sound was heard in Perth, Australia. That wiped out about 3,000 villagers and the local ecosystem. That's like the week of 15-19 September.

Then, a tsunami killed 30,000 people. Nobody had ever seen one before so they were not prepared. But it was still basically a regional not a global tsunami. That is the credit freeze and the stock market crash of last week combined.

Finally, in the year after Krakatoa erupted, global temperature fell by 1.2 degrees centigrade because of sulphur dioxide emitted into the atmosphere, and sunsets were red for years That's the global recession that is intensifying and feeding back into share prices and bank solvency.

Fortunately, a cooling sky has no direct ability to make volcanoes erupt again or cause tsunamis. This is not the same as with a cooling economy: it is full of latency to cause further bank collapses, or even country-level debt defaults. This is the difference between the decision to let Lehman go bust without having a plan B and the Krakatoa eruption.

OK we now have two major banking groups effectively nationalised: HBOS and RBS. I say effectively because it looks like they will both end up with a majority government stake.

The others are committed to raising capital and have to do it on a bigger scale than envisaged last Wednesday, largely because the FSA has - one is tempted to say "at last" - taken a precautionary view of the situation and forced them to recapitalise on a bigger than expected scale.

What does the taxpayer get for their money? These details are crucial because they will then reveal the answer to a more fundamental question: what happens to competition within the retail banking sector?

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There is much soul-searching in the Observer's media and business section about "Why did no financial journalists predict this?" I will give you the following answers:

1) Some did. Gillian Tett of the FT; the Economist on almost any given Friday; my ³ÉÈË¿ìÊÖ World Service colleague Alex Ritson on Credit Default Swaps for Newsnight. Channel Four News was early to the Icelandic bubble. This was pretty close in general outline, I would say also, though a year too early.
2) Journalists, as opposed to expert economists, are supposed to basically tell you what other people tell them, and report facts. And extrapolate from current events possibilities and probabilities: that's what the New Statesman article was based on - not reiki and crystals.
3) The nearer some financial journalists get to the centres of power the more imbued with its prejudices they become, so its harder for them to see the possibilities. That's not a criticism but a fact of life: I'm just reading Alistair Cooke's of the abdication of Edward VIII, which contains an object lesson in how far behind the curve the "insider" press can be, including at this point Cooke himself.
4) Once the credit crunch happened on 9 August 2007, and then Bear Stearns, many journalists did try to dig out the size of the systemic black hole: the problem is we always knew that only the market could really discover it. Derivative finance is opaque: I once tried to make a film about hedge funds in Mayfair and a hedge fund guy came up and shoved me off the pavement simply for standing there.
4a) Not enough political journalists understand economics.
5) There is a high price to pay for asking tough questions about individual people who are financially powerful. Enron famously leant on Bethany McLean's editor to get article spiked (unsuccessfully). And AIG lifer Ron Shelp reveals in his of the company's failed boss Hank Greenberg: when in 1995 the Delaware regulators began asking tough questions, Greenberg hired private investigators to "snoop on the snoopers". Only ten years later did a regulator emerge with the cojones to take on AIG, and his name was ...

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This week I have taken a punt on two propositions in my work on Newsnight: first, on Wednesday night, in response to a bank briefing, I said that some banks would not take up the offer of state recapitalisation but some would ask for so much that the state could more sensibly buy them; then on Friday, a day off having failed to soften my prognosis for the world economy, I said - and believe me it was wierd saying it on Newsnight - that the world is on the brink of a system-wide economic meltdown. And that a socialised banking system was probably the only alternative to a slump.

The Sunday papers appear to vindicate both these calls. Here's David Smith & Dominic Rushe in the :

"Tomorrow the first of the British banks to be bailed out by the government's £400 billion rescue plan will reveal how much money they want. Royal Bank of Scotland (RBS), which has seen its market value fall to under £12 billion, is to ask the government to underwrite a £15 billion cash call. HBOS, Britain's biggest provider of mortgages, is demanding up to £10 billion, while Lloyds TSB and Barclays require £7 billion and £3 billion respectively.

Although existing investors will have the right to put up the new capital, and some may do so, the rescue could leave the government owning 70% of HBOS and 50% of RBS."

Just hold that thought a minute. The current market value of is 6.7bn. If it is demanding up to 10 billion then why does the government not simply use 6.7bn to acquire the company? ...

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I sit in one of the dives, on fifty-second street...actually I am in a Madieran fry up cafe in Kennington but it still feels as much the end of an era as in the famous Auden about 1939. Tonight myself, Mark Urban and Michael Crick will be giving you our big-picture take on the situation as it stands. Here, heavily influenced by , is mine:

This was spillover week: the crisis spilled into the stock markets; into the savings system; and into the world of anybody who banks with Iceland - from celebrity chefs to local councils to taxicab drivers...

The relentless breaking news, the flurry of financial terms, the shortage of adequate hyperbole make it hard to understand exactly where we are in the crisis. Here's where I think we are...at the end of week four... we're on the brink of a system-wide meltdown of the world economy.

• When Lehman went bust, that sparked the freeze in lending between banks that has lasted 26 days
• That led to a wave of bank failures or near failures: HBOS and B&B here, the Benelux giant Fortis, Hypo in Germany and much of the Icelandic system
• That in turn sparked what they're calling a "silent run" on the banking system. There were no queues. Because one by one, governments moved to give implicit or explicit guarantees to savers.
• Finally, this week, the inevitable stock market panic began, spreading the pain to Asia...

The stock market crash is being fuelled by several factors:
- First the spillover of the credit freeze to the real world. Airlines, telecoms companies, high street shops - across the globe they've seen bank managers tighten their overdrafts, raise interest rates.
- Second the failure of politicians to end the chaos.
- Third, the realization that the coming recession is going to be longer and deeper than expected.

Today he FTSE100 has fallen 8% so far
The Dow plunged last night 7.3%
And the Nikkei has fallen 24% overnight
All told, several hundred billion dollars of wealth has been wiped out. And this is the kind of wealth that the government does not replace with taxpayers money.

At every stage the politicians have looked behind the curve. Paulson's three page request for $700bn took a week to pass, and still hasn't worked. Gordon Brown's plan - widely praised as the template for the next stage action in Europe and America, so far has not worked. Even in Iceland, where the government has seized the commanding heights of the economy, there is chaos.

There's a pattern emerging: after 20 years of neoliberal economics, almost no politician is mentally prepared for the severe state capitalism they've had to impose. So they've done things reluctantly and late. And in some cases without conviction. But the most striking thing is the lack of co-ordination.

In the 1930s, the different national rescue plans pulled the world economy apart; but today's economy is global. The solution has to be global and co-ordinated.

The successful outcome to the next policy response will be a prolonged recession and a heavily socialized banking system. The unsuccessful outcome could be a depression.

Either way take a long look at the high-debt economy...as I write students are arriving in London to run up an average £30k of debt that will hang around them for a decade, people are paying for drinks on credit cards. Taxi drivers are passing in cabs effectively the property of the Icelandic government. So look around, as Auden might have put it:

"As the clever hopes expire, Of a low dishonest decade"

The plan is unleashed. It's a growing possibility that everybody else will follow the UK and the emerging central technique for stemming panic is established:

- Government becomes permanent supplier of medium term credit to banks
- Central Bank becomes short term source of overnight loans until the crunch subsides
- It's all wrapped up behind a scant recapitalisation plan that leaves the state with little control in return for small optional ownership stakes; this functions far better than deposit guarantees as the way of stopping the "silent run" on the banking system

The variants on this are: the US one, evolved by Paulson & Bernanke: that is, you first wipe out the toxic debt overhang with taxpayers money; and the Icelandic one - where the government simply legislates to seize ownership and control of the banks and major conglomerates.

Thus the Brown Supremacy (I think we should start calling it that) has set a template for a global solution (I am not saying it will work but that it has quickly become influential).

has outlined as much yesterday (I am quoting here a bullet point list from RGE Monitor):

"1) some explicit public guarantee of financial system liabilities is unavoidable. This means not only retail bank deposits but probably also interbank and money market deposits, so that activity may restart in these key markets.
2) take out troubled assets and force the recognition of losses. If prices are inflated, then banks will inevitably have to make good the losses that fall on the taxpayer - in the US case, they would have to issue shares to the government, thus diluting other shareholders.
3) match new private capital subscriptions with state capital, which imposes a market test for the use of public funds.
4) high degree of international co-operation to prevent unintended "beggar-thy-neighbor" consequences
5) emerging market countries are likely to be hit hard by financial turmoil--> Lest a sudden stop of capital bring their progress to a sudden halt or, worse, bring down their financial systems, some form of large and rapid financing should be kept ready."

However this firefighting plan, which looks the only credible one adopted so far, is just that. Any talk of a "" emerging out of this weekend's IMF/G7 meetings is ignoring a big question.

How are we to suppose that a generation of politicians who have overseen, designed and propagated the economic system based on high debt instead of high wages; deregulation instead of prudence; macroeconomic tweaking instead of intervention etc can suddenly come up with a blueprint for a new economic stability based on the opposite course of action?

Second question: And why should it be left to them? ...

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I've just been in the press conference with Gordon Brown and Alistair Darling. I asked them: "As you are the ultimate stewards of the financial system don't you owe the British people an apology for the fear, financial panic and silent bank run of the last 48 hours"

Gordon Brown told me that once I understood the long term aspect, the restructuring of the banking system involved here, I would "rethink the question".

I then went to a "non-attributable technical briefing" with ministers and civil servants at the Treasury.

I asked: "Can you point me to any technical aspects of today's deal that are part of the long term restructure of the financial system: bearing in mind that the 250bn liquidity access cannot be long-term?"

The non-attributable answer was basically, that's for another day.

I think however this long term issue overhangs all the dramatic proceedings of the past two days. If in the medium term we end up with a banking system that is part state-capitalised, with dividends - ie profits - depressed, bonuses heavily suppressed, predatory cynical manipulation of customer churn and rip off credit card practices are actually banned, what is going to be the driving spring of the banking system?

A part-socialised banking system has to have a social goal wider than saving the markets from collapse. What is it to be? What is it to look like?

There has been a theme running through both government and opposition statements that "it'll be better regulated during the next asset price bubble". But I thought I saw in the PM's eye a glint - and it was a steely glint this morning, betokening the fact that he thinks he's pulled something off of global significance - of a vision of a system where asset price bubbles become impossible.

Today will be a day for poring over the details but I think - at the price of near system destroying chaos and several high-flying careers - the government bought itself time to think. We now need to hear the results of that thinking.

PS. It is now clear that another reason they took so long is that the banks resisted it. I am hearing the words HSBC a lot in the discussions. As I have had 4 hours sleep I will now have a Blueberry smoothie and try and read all the stuff. If you are in the markets, or a customer, or a government insider who wants to give me something of a more useful non-attributable briefing about all this, do write, text or call.

Last night I mentioned that the economic playbook for scenarios like this had been thrown away. That few politicians, officials or journalists were prepared to contemplate the moves needed to blow the head off this crisis.

Just for the sake of argument I will spell out what the final shocks are that could break the circuit of market panic, interbank Scroogeishness and real world downturn. And then you can scrap about them and vote for or against them all morning while I am filming for the Money Programme; so when I clock on for my day job I will be better informed.

1. Total deposit guarantee
2. Government takes controlling stake in banks
3. Massive interest rate cuts: 3% cut as wished for by Prof Blanchflower?
4. Even more liquidity (but can it work)
5 Quantitative easing: central bank prints money to improve money supply
6 Temporary nationalisation of commercial banks
7 Create central clearing house for credit default swaps
8 Close all offshore tax havens and force all hedge funds onshore

I am sure the Savonarolas among you can think of even heavier blows - but the wierd thing is, to be writing this, is to know how many of these measures are being seriously considered. Indeed...

9 Governmnet takes control of the commanding heights of the economy with the power to hire and fire bosses...

....has been enacted by Iceland. I doubt it will achieve the anti-capitalist cult status of Venezuela overnight however.

10. There is of course an alternative: do nothing. Let market forces rip and the strongest survive.

I am doing my best to get this school of thought onto Newsnight (it's alive and kicking in this blog's comments) - so pile in.

I have learned that Alistair Darling has called in the UK's banking bosses to 11 Downing Street at 6pm this evening. I am presuming they are not getting together to watch World Grand Prix Darts on Sky. As I write RBS is down 15%, Barclays 12% and they are supposed to be the good ones. My editor has asked me to come up with a simple explanation of "bank recapitalisation". Can anybody help me?

As I write, my colleague Robert Peston is telling a woman styling herself the "Chief Secretary to the Treasury" what the government's policy on nationalisation is....

It is a function of the tech revolution which created this situation that we are all now bombarded with too much information to process. Iceland's bailout this morning, Germany, Austria and Denmark join Ireland and Greece in guaranteeing deposits, and now the UK papers have caught up with Idle Scrawl and are reporting the UK government considering taking equity stakes in the banks. And in the USA, TARP-II is beginning to take effect. I am simply going to sum up, bullet points, what I think is going on. Really big picture and assertive, but here goes:

1) There are two kinds of contagion driving the financial crisis:
a) the unwinding of bad debts following the detonation of Lehman and AIG. People are starting to pick over this and Fannie/Freddie. The withdrawal of funds from hedge funds is a subset of this
b) what Nouriel Roubini calls a "silent run" on the banks. It's not a material run - except at the edges - but a confidence run. Huge amounts of the deposits of businesses and high-value individuals remain un-guaranteed and that is draining confidence.

2) I am still struggling to work out the interaction between these two unfolding events: we will mainly know in hindsight for example with Hypo. However together the two contagions are driving the Eurozone financial crisis.

3) The credit freeze is the secondary effect of both the Lehman/AIG week, and the US Congress's failure to pass the original TARP. It has built, gone global and is being amplified by feedback loops. Thus on Roubini's blog it says traders reporting that the end of last week was the worst ever: no interbank lending going on.

4) The credit freeze creates both short and medium turn crises for the commercial sector: businesses in both the UK and USA are reporting facing ad hoc demands for higher interest and cannot get credit. Debt rollover problems are also facing the state of California and other US state and city-level administrations. We are maybe weeks away from a big corporate default. That will drive the crisis to its next level.

5) The real-world recession is gathering apace. My local Tesco has suddenly filled with sliced bread and own-label products. The first big corporate bankruptcy will spark initial attempts at a government bailout, followed by contagion.

6) On the basis of all the above, the world's governments are facing the following challenge: to stop a global banking crisis on a scale the world has never known. This is not hyperbole. We have had 1929 but never a global 1929. This is not just 1929: it was started by bank failure and has now moved into the "run on the banks" phase. But governments are already taking measures it took years to evolve in 1929-33 - and taking them within 4 weeks.

7) The missing event is a stock market collapse: we are in slide-to-crash territory already but a collapse will wipe out large numbers of the global middle classes - especially in the emerging markets.

Here are the questions:
a) Can governments act decisively and in collaboration to stem the panic?
b) Can the corporate sector be inoculated from a series of defaults, bankruptcies and closures?
c) Will the global stock markets crash, crater and refuse to come back for a decade (as in 1929)

If the answer to all three is no, then the only two examples we have from history suggest that the world economy will enter a decade-long depression. You've heard of the 1930s - but worth also a look at capitalism's first "Great Depression" . Both depressions were driven and coincided with a contraction in world trade and protectionism. Both created major international rivalries driven by economic rivalry.

To put it bluntly the world is pretty much in the same situation as Iceland: it has borrowed way more than it could afford to borrow and huge amounts of capital will now have to be wiped out because they are fictional. We replaced an economy based on high wages and long-term investment with one based on debt and speculation. There will be many versions, politically, of where we go from here, but society is being posed point blank with the question: what sustains a high-consumption society if not wages or debt?

I will tell you the answer in ten years time.

"We are looking at some pretty big steps which we would not take in ordinary times but we are ready to take them..."

That's what Alistair Darling Andrew Marr. But what can these be? They have already agreed to trade private banking dirt for Bank of England gold, effectively, by allowing US student debt and credit card debt (judging by my stay in Ann Arbor, home to UMich, the two categories overlap) to be traded for crisp new sterling notes. They have already set up a National Economic Council. They have nationalised two banks and brokered the forced merger of a third.

I will now spell it out: I am not going to indicate sources and I view with a mixture of frustration and sympathy the fact that the major decision makers keep coming out with these coy indications. Further down I deal with the intellectual resources that could inform a more coherent response to the crisis, and why all these "comrade Hank Paulson" jibes are missing the point...

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OK this is big. I am slightly depressed that in a press conference about the biggest change in UK economic policy in over a decade most of the questions were about Peter Mandelson, and I suppose so is he. Here's the . As you can see the new Economic and Regional councils involve almost everybody powerful in the government. It is, as Nick Robinson suggested, a "war cabinet" (except as it now strikes me there is an even more evocative parallel: the !).

But equally important is Gordon Brown's response to a question: the "old economic policy" he suggested, of tweaking interest rates to control inflation (and by implication of staying with arbitrarily defined fiscal rules) is dead.

I will get to the critique and depth analysis in an updated. But my snap reaction to this is it a) prefigures a major change in economic policy which will be fleshed out in the PBR; b) a big change in the political apparatus for running the economy. Think "Board of Trade" under Heseltine or Tony Benn to come up with parallels.

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The most significant economic story this week was the scoop by Benedict Brogan in the Mail yesterday, that Gordon Brown is considering an Irish style £1.9 trillion bailout. It was the kind of scoop that makes the rest of journalism gasp because, without naming any sources, it suggests the entire economic policy of the UK is about to be junked and replaced with a state-backed banking system. Here is just one quote from Mr Brogan's article:

"The Treasury is working on a proposal that could insure a staggering total of £1.9trillion in deposits in UK banks and building societies, said officials."

There is more of this in today's Guardian, with the usually well informed explaining why it is unlikely to happen. I understand at today's lobby briefing for political journalists it was explicitly ruled out by the Prime Minister's Official Spokesman.

Nevertheless, there is clearly a lot more going on than the public is being allowed to know about. The British way is to do through private channels everything that's been done in the USA through semi-official ones. Clearly on Tuesday Brown and Darling saw Mervyn King on more than one occasion; following that Alistair Darling was "locked in with Mervyn and the bankers". At the time clearly the fear was that the HBOS deal would unravel - which now seems to have gone away.

Here is my best surmise of what is going on: and why do I have to surmise? Because of the total untransparency of the process - even in the USA it is fairly obvious that Hank Paulson's people were briefing the WSJ and NYT after the bell each day. Nevertheless its an educated guess:

They are trying to design and bank-by-bank recapitalisation programme using the February 2008 . This would involve factoring both public and private sector money into the UK banking system to recapitalise it. The limitless deposit guarantee is a sideshow, I think, because it's implicit already in the UK.

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