Letter from London - Big Bang Bugs British Banks

LONDON - It has come to this. London's Big Bang was to open up UK financial markets to stop the grousing by Oxford-Cambridge graduates about how much more money their Wall Street cousins earned. But opening up the UK markets also allowed in the U.S. subprime-CDO-CDS virus that laid low many U.S. institutions and now has more UK victims. Europe's more regulated financial sector has been relatively immune to the disease.

How the right and the left do converge in such a crisis. Dubya's administration with Phil Gramm's leadership was engaged in a methodical deregulation of the financial markets. But it showed no hesitation about swiftly seizing the commanding heights of the mortgage lending and investment banking industries.

In Britain, Gordon Brown's Labour Party - ideologically far more prepared to turn its banks into government bureaucracies - delayed taking action but is now following in Uncle Sam's tracks. The Financial Times calls the bank bailout a "part-nationalization".

Newspaper headlines this morning focus on a £50 billion UK bank bailout. The Times, Daily Mail, Telegraph and Independent have major headlines, all explaining that the number is an estimate of an initial infusion of capital by H.M. Government to buy equity primarily in three major banks - Royal Bank of Scotland, Lloyds TSB and Barclays. A fourth bank, the Halifax Bank of Scotland, is also involved because it is in the process of being absorbed into Lloyds. (The Royal Bank of Scotland has already absorbed National Westminster.)

The Evening Standard, however, perhaps because it has a later deadline, reports that the bailout is for much more, £500 billion or about $870 billion. The larger number is huge for an economy that is substantially smaller than that of the United States. It is also more realistic, because it includes £50 billion to guarantee bank bond issues, £200 billion for short-term lending and another £50 billion for recapitalization.

Besides the big banks that have been huddling with the Chancellor, four other banks are mentioned in the Evening Standard story - Abbey, Nationwide, HSBC and Standard Chartered. The list is still "in formation" as HSBC, for example, isn't convinced that it wants or needs the government's money.

The complaints over here are similar to the ones aired in the United States, except that in addition Her Majesty's Government is being called dilatory. Simon Jenkins of the Guardian describes as "dithering" by Brown's Chancellor Alistair Darling as "dithering" and Parliament as "useless" - postponing action because of a schedule "fixed by the grouse-shooting season." London traders are described by the Evening Standard as calling the new act "Too little, too late." Alistair Osborne of the Daily Telegraph headlines his story: "Action at last - but is it too late?"

Most of the commentary, of which there is much, focuses on the control that the government will exercise and the taxpayer perspective. The Daily Mail says the banks will "fall under state control, the biggest nationalization of modern times."A typical comment is by Alex Brummer, who says that "the heavy hand of government" will exercise "ever more control" over the banks.

The IMF is reportedly about to release a projection that the UK is the "biggest casualty of the world downturn", with bank losses reaching $1.4 trillion and the GDP growth turning negative in 2009 for both the United States and Britain. Brits are asking the same question as Main Street USA - "What do we get for our blank check?"

Armageddon-friendly theorists go further and predict that the financial crisis will be the death knell for the euro and some suggest raises questions even about the future of the EU itself.