FREDDIE SAYERSOPINIONS

counts in the hope that its value will rise. But finding a new price level for the rogue securities will be difficult. As a result, banks’ capital is being stretched. When credit quality falls, a bank’s capital requirements—the need for its own money—rises because the bank requires more resources to allow for bad debts. This hampers its ability to lend. In Britain, some borrowers, such as those wanting a 95 per cent mortgage, will have

Regulation failed because Northern Rock fell between the cracks ofthe new system

to pay more. In the market between financial institutions, only rock solid securities are being accepted as collateral. Pressure for more regulation will grow. For some time, regulators have bemoaned the uncertainties created by the new financial terrain but done little about it. Now Jean-Claude Trichet, president ofthe European Central Bank, has called for unregulated entities to be brought to heel. American politicians, with an eye on next year’s elections, will not pass up the opportunity to give a roasting to Bank executives who have been making millions in the good times. In Britain, the fundamental point is that regulation failed because Northern Rock fell between the cracks of the tripartite arrangement between the FSA, the Bank of England and the treasury. The FSA is a regulator and cannot bail out a bank, although it should explain why it did nothing about the weaknesses in Northern Rock’s business plan at an earlier stage. The Bank itself no longer has the power to arrange rescues behind the scenes, as it used to. And both are supposed to operate independently ofthe treasury. This was the first real test of the arrangement and it hasn’t worked. The Memorandum of Understanding between the Bank, the FSA and the treasury, agreed when Gordon Brown gave the Bank independence, will probably have to be re-written. The announcement by Alistair Darling, that all deposits in Northern Rock would be safe—effectively guaranteeing all deposits in all banks in Britain—was politically unavoidable at the time, but may need to be replaced by a less sweeping option. The consequences of tougher credit could have a big impact on house prices, jobs, investment and economic growth.

US house prices have been falling for about a year and there are now signs that the British house price boom is ending. Finance for all manner of deals and investments will be harder to obtain. There is a danger of recession, and Britain is not immune. But policymakers and central banks face a dilemma. On the one hand, cutting official interest rates —as the US Federal Reserve has done, and the Bank ofEngland may soon do— would help to create a sense of the authorities being in control. On the other hand, cutting rates could stoke inflation just as the anti-inflationary effect of China’s exports may be diminishing. Moreover, lower official interest rates run the risk of bailing out the knaves and fools in the markets without relieving the impact ofwidening credit spreads. On balance, the inflationary risk is worth taking. But there are other dangers. Lower US rates could undermine the dollar, which in turn risks increasing inflation in the US and exporting recession to other countries, notably Britain, the eurozone and Japan, by reducing US demand for imports. Moreover, ifhouse prices continue to fall, consumers will cut back their spending, especially in the US where it has been a sustaining force in the world economy. The response ofpolicy makers over the next few months—and especially Gordon Brown, the architect of the tripartite arrangement—will be critical.

POLITICS

No more Mr Nice Guy BY FREDDIE SAYERS

Brown should learn from the setbacks ofCameron and Obama, and abandon this nice-guy politics

In early September, Gordon Brown made a speech to the NCVO. Rejecting the “old tired sloganising politics of the past,”he announced the need for a “new type of politics ... a politics that is built on consensus and not division, a politics that is built on engaging with people and

Freddie Sayers is a commentator on British and American politics

not excluding them.”He then announced the appointment oftwo Tory MPs, John Bercow and Patrick Mercer, as government advisers. A week later, he invited Margaret Thatcher around for tea. This is not just evidence ofthe ongoing battle for the political centre ground. In the last few months, Gordon Brown has been showing signs of embracing a new, fashionable political style: the politics of nicey-nicey. It typically begins with a grand announcement about a “new style of politics”and is followed up by a calm, polite tone and gestures (like taking tea with icons ofthe opposition) that indicate a lofty, gentlemanly approach. But examining how this strategy has served its poster boys on either side of the Atlantic, David Cameron and Barack Obama, suggests that niceness might not be a recipe for success after all. Cameron and Obama came to prominence in a similar way. Youthful and passionate, they offered an antidote to cynicism. “I’m fed up with the Punch and Judy politics of Westminster,”Cameron said. “When the government does the right thing, we will work with them.”Obama has based his presidential campaign on a similar largeness of spirit: “We’ve got to get beyond the small politics... the slash and burn politics that have become the custom.”Instead, he said he wants Americans to embrace the “politics ofhope.” But both Cameron and Obama have found that the niceness that made them media favourites has tied their hand politically. After dreamy statements ofintent, momentary drops in civility can be seized on as evidence of hypocrisy. Obama recently lost his cool and described fellow candidate Hillary Clinton as “BushCheney Lite”(the worst ofinsults in Dem circles), and the Clinton campaign had a field day. “What has happened to the politics ofhope?”Hillary asked reporters. When criticism is required, the nice politician’s favoured option is to stick the knife in gently and politely—but killing with kindness can seem passive-aggressive and even unattractive. Commentators used to refereeing old-fashioned political brawls eventually find it off-putting. After the love-in that was David Cameron’s first prime minister’s question time with Tony Blair, the BBC’s Nick Assinder concluded, “Cameron cannot come to PMQs every week and agree with the prime minister. At first it will look fresh, modern...[but] it might quickly start to look tired and just a bit creepy.” In terms of getting your message

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