If a cynic is a man who knows the price of everything and the value of nothing, today's British bankers are cynics in reverse. They are strong on values, insisting that the value of their assets is still related to the figures in the balance sheets, but as long as no one will pay that price, they have a credibility problem.
Everyone has been losing patience with the inability of the banks to identify their toxic assets, so that we can begin to assess the scale of the difficulty. Yet even if most people now think it is impossible to be unfair to bankers, this is unfair. Once the market for certain assets no longer functions, it is impossible to decide what is toxic.
Let us start with four assumptions:
First, in 10 years, in the US and the UK, almost all the dwellings caught up in the sub-prime mortgage degringolade will be worth more in real terms than they are now.
Second, most of the mortgage-holders would like to go on living in their homes. Those who have lost their jobs may have problems making repayments in the short term but if they could find another job they would want to be back on track.
Third, by the beginning of 2007, and especially in the UK, the ratio of house prices to average earnings had become far too high. Hence the six-times-earnings mortgages; there were never many of them, but the fact there were any at all was a symptom of a fevered market. There needed to be a brutal downward adjustment in house prices, which was hideously unfair to those who had scraped together every penny that they did not have in order to buy at the top of the real estate market. But the ratio has now returned to something approaching sustainability.
Fourth, most of the businesses that are now having difficulties with their bankers were viable two years ago and could be viable in another two years again, if they survive. Not every troubled business is a Woolworths.
If these assumptions are correct, the problem does not arise from toxic assets – an unfortunate phrase which implies that people's homes and livelihoods are the equivalent of lethal-grade nuclear waste – the difficulty comes from toxic markets. This is not the market-makers' fault, for it is not easy to decide on prices during a recession. As a result, however, a banker has become someone who knows the value of everything and the price of nothing. That cannot be corrected until the markets start functioning again.
That creates an intellectual problem: one of contradictory messages. The regulatory authorities are telling the banks to rebuild their balance sheets (no easy task when asset prices are falling); tacitly agreeing, the Government blames the banks for lending too much. Yet ministers are insisting that the banks should continue lending at 2007 levels; no easy task, especially when much of the refinancing available from the Government carries a penal rate of interest, but if the lending markets do not recover then the recession could turn into a depression.
David Cameron has not just been wondering how he compares to Barack Obama. Before Christmas, he and his colleagues devised an insurance scheme for business loans. Roughly speaking, the banks would lend one quarter, with government providing the rest. This would have a number of advantages. As the banks would still be risking their own money, they would have every incentive to lend sensibly. The Government would be paid interest on its portion of the loans. This could not only act as an insurance premium for the small number of loans which would go wrong, it should actually provide a profit, thus giving much-needed assistance to the public purse.
But the Tories' plan has an insuperable difficulty: Gordon Brown did not invent it. Throughout this credit crisis, only one form of credit has interested him: the sort that he could divert to his own political bank account.
So instead of adopting the Tory plan, which has the merit of simplicity, he is devising his own, part plagiarism and part improvisation, which is so complicated that the details are still not available. Over the past few months, the Prime Minister has been so busy saving the world and accusing the Tories of inaction that he has never taken that first essential step: to sit down and think.
Even before this newspaper's latest poll, Mr Brown was uneasy. On Friday's Today programme, he was bad even by his standards. Graceless, evasive and repetitive, he sounded like a set of bagpipes with a belly ache.
The belly-aching is starting up again in the Labour ranks. Whenever things go wrong, the refrain is always the same: "Why didn't he call the election in September 2007?" One suspects that Gordon Brown shares in the lamentations, and the mood in No 10 has changed over the past few days.
A week ago, there were rumours that Peter Mandelson and Philip Gould had almost persuaded Mr Brown to go to the country in June, at the same time as the European election.
This always seemed unlikely, for it would mean holding the poll before the Irish had been made to resit their EU referendum, so that an incoming Tory government would be able to repudiate the treaty.
Equally, prime ministers are never keen on calling elections while they are behind in the polls. Mr Brown had bottled when he was 10 points ahead. Would he really have the bottle when he was several points in arrears?
As soon as Mr Brown backed off in 2007, it seemed unlikely there would be an election before 2010. The latest polls make that a virtual certainty. It would, of course, be foolish to underestimate the fickleness of the sovereign people. In recent months, British politics has been more than usually volatile. But there are limits. Unlike a soufflé, Gordon Brown managed to rise twice. A third time is most surely beyond him.
He still thinks he has one ground for hope: Barack Obama. Like most of the political class, Mr Brown is obsessed with the new President and hopes that he can turn it to his advantage.
He will prove mistaken, for two reasons. First, there is not that much advantage to turn. Most of those who are obsessively interested in British politics are equally preoccupied with America. They usually have their own allegiances. But this has little resonance outside our beltway. David Cameron obviously believes that Mr Obama is a potent factor and many Tories agree with him. They are mistaken. No president has ever had a significant influence on a British election. That is not about to change.
Second, there is no reason to suppose that Gordon Brown will be able to develop anything like the relationship with Mr Obama that his predecessor had with George Bush. For a start, it is not clear that either man is good at close political friendships. One is clumsy, the other coolly calculating. Gordon Brown would be better advised to concentrate on thinking through the mess at home and leaving American acquaintanceships until he has more time, after the election.Reuse content