In a TV interview on Sky News, Michael Geoghegan, Chief Executive of HSBC said the new 50 percent tax rate in the UK was “strange” and was causing many bankers to leave the UK to set up in Switzerland and other countries. He himself is moving his office to Hong Kong next week, although the banks HQ will remain in the City of London.

“I think when you start moving taxation for political reasons, the trouble is that it is an industry that can move,” he told Jeff Randall Live. Asked if damage was being done, he replied: “Yes.”

Hethought people in the UK had been given an easy ride because interest rates had been slashed close to zero, but he predicted pain ahead as inflation rises. “As interest rates come back up, that’s going to start squeezing and that does need to happen.”

Mr Geoghegan will, however, still spend up to a third of his time in the UK. He believes Britain needs to wean itself off debt and rein in its fiscal stimulus “sooner rather than later. How we finance our lives does need to change and I think, as the Governor of the Bank of England came out and said, we’ve got to start with our shopping list, we’ve got to cut our costs and I think that needs to start, not just in the UK but in other places, to stimulate all the economies.”

He said UK moves to toughen up regulation risked making the City unattractive. “The UK is leading it and it has been doing some very sensible things but the rest of the world hasn’t come forward so in a way I think maybe the UK is moving too fast.”

Mervyn King, Governor of the Bank of England has suggested more British banks may have to be nationalized in order to get them lending normally again. The alternative is many years of sub-trend growth.

Here’s the statement:

“The measures taken over the past six months were designed to stabilise the banking system and prevent failure. What’s become apparent is that nobody knows what level of capital they need to hold in order to be willing to make judgements about lending on the same criteria as you would regard as normal… In the long run, the only way to overcome this is for banks to get back to a position where they’re sufficiently well-capitalised that the degree of risk aversion that they exhibit towards their lending practices returns to a more normal level of risk aversion and not the extreme risk aversion which is being exhibited today.

“Higher capital would resolve that. How much capital, we simply don’t know. There was an interesting contribution from Alan Greenspan which suggested that several percentage points extra capital would be needed in American banks over and above the levels that regulators are pushing them to to get them to a more normal lending state.

“What’s very important to distinguish between and to my mind this is the big lesson of the last three, four five months, is that there is quite a big difference in practice between the levels of capital that banks need to be stabilised – in the sense that the creditors are reassured that the banks can continue as viable entities – and the levels required to persuade banks to exhibit normal levels of risk aversion. How big that gap is is absolutely impossible to say. I know of no scientific basis on which you can set that figure, but it looks as if it will be quite big.

“And what that means is that it will take time for the banks to get that extra capital. They are bound to be cautious about the rate at which they expand lending. It is a difficult problem to deal with. If the banks are going to continue as private sector entities they will naturally behave in a risk averse way for a while. That’s one of the lessons of history in terms of balance sheet problems.

“They could put in more public sector capital if they decided to do so but that has to be a judgement for government, and it does have ramifications for the Government’s shareholdings in banks because the amount you’d need to put in would undoubtedly be significant relative to the size of privately owned capital at present, and that does raise a whole series of awkward questions – but that is a matter for the Government.”

Not a nice prognosis and signs that the recent “bull” market and green shoots could all be in vain.

John Evans

We have been told for years that a virulent ‘flu pandemic is only a matter of time. Last year, the World Bank forecast it would depress the world economy by 5pc.

Well, it’s here. The outbreak of “swine” ‘flu in Mexico, where 150 people have died as I write, has been classified as a pandemic by the World Health Organization (WHO). There have been a number of cases in the US and a couple in the UK, although no deaths as yet.

With the entire world in the grip of a gathering recession/depression, this is what we don’t need. Britain is already facing a fall in GDP of around 4pc this year, and the effects of the ‘flu outbreak could push that up to depression levels (10pc fall in output from peak to trough) with massive implications for unemployment.

The City of London does have emergency plans for just such an occurrence and they are now being activated. The nation as a whole has enough antiviral drugs, such as Tamiflu, to cover half the population, but has rejected stockpiling face masks because they have to be replaced frequently and could be easily contaminated.

Already, markets are feeling the pinch, many headed south, while banks may need even more capital before this episode is over.

On Tuesday, the Bank of England began the arcane process of printing money by buying back the government’s debt.

The decision has had mixed reviews from the press.

The potential inflationary effects are the main are of concern. Others take the line that the Bank could do little else to boost the money supply, while a few politicians have pointed out that broad money (M4) is already rising by 20+ percent.

A good primer on the pros and cons is given by the BBC’s Business Editor, Robert Peston on his blog:

Will QE work?

Not to be outdone the BBC’s Economics Editor, Stephanie Flanders, also weighs in with an informative piece on how the Americans are doing it — mainly by buying corporate bonds, not Treasuries:

Ahead of the curve

My favourite is by the Daily Mail’s City Editor, Alex Brummer, who today gives an emphatic thumbs down to the whole operation.

Bank’s great experiment may prove gamble too far

Syntagma also greeted the “new dawn” of lumpen monetarism with incredulity:

Watch out for the mashed potato machine

Food for thought.