No, not the classic Bee Gees hit from 1977, masterfully reworked by Take That in 1996, but a question of how deep and what shape will the recession be?

Will we bounced in and out, the classic “V” shape, as most economists predict? Or will we scrape along the bottom for a while, before a vertiginous recovery?

Clearly “L” is the ugly option with no recovery n sight.

The answer, I’m sure, won’t be simple, hopefully the general economy will follow a “V” shape as a result of the governments massive fiscal and proposed monetary easing.

Housing and commodities could well be a “U”. New supply in housing and investment in capacity of commodities has fallen off a cliff as their price has plummeted, there might be no swift recovery, but once demand does recover, in line with the general economy and the slack taken up, the lack of new building or investment in refineries, say, could lead to a sharp recovery in asset prices.

But what of commercial property investment?

People in the industry forget that this is a discretionary activity and a case for it, especially in light of its recent catastrophic performance, will need to be made again, based on no guaranteed yield compression, low gearing and poor rental growth.

Until that case is compellingly made, we could be in for a “L” of a time.

The press is now full of articles extolling the virtues of the simple life and how “The Credit Crunch Brings Career Changes”:

http://www.timesonline.co.uk/tol/news/uk/article5062778.ece

Even a bad assed hedgie, like Andrew Lahde, wants to turn his back on the lucrative career that “destroyed his health” to grow hemp (his resignation letter is well worth a read):

http://ftalphaville.ft.com/blog/2008/10/17/17194/andrew-lahde-bows-out-in-style/

Given the non-stop barrel of laughs that is the world of commercial property and finance, I quite fancy jacking it all in to be the man that oils the thighs of the virgins that roll Cohiba cigars, but I doubt it would cover the school fees.

Like many things in this crazy, mixed up world, I feel that the concept of downshifting is yet another example of woolly ideas and a lack of joined up thinking.

My local organic deli (North St SW4, very good) is already full of posters and flyers for individual yoga tuition, children’s pottery classes, aryudevic massage, toddler acting classes and Chinese stool therapy (OK I made that one up).   It would now appear likely that it will be impossible to get in the front door for further adverts extolling the virtues of “lifestyle” businesses set up by former bankers.

Call me a cynic, but these self indulgent pursuits were just as symptomatic of the credit boom as second homes, flash cars and Christmas in the Caribbean; moreover rely just as heavily on there being a large amount of highly paid idiots with too much money to spend.

Alas those times gone and in The Great Deleveraging (new expression for the post Credit Crunch world) people are going to be focused a little further down Maslows “Hierarchy of Needs” and will be more worried about the basics such as food and shelter.

It would seem that the political consensus is that only further regulation can save us form the savage beast that is laying to waste the financial markets.  I think at best it is likely that politicians will end quixotically tilting at yesterdays monsters to no real effect, the beast will have moved on; at worst, however, they will sow the seeds for the next financial crises, be it in 5 or 50 years.

Some Stateside commentators, in fact, believe that our problems are down to too much regulation.

For example, Fannie and Freddie were borne out of the depression of the 1930.  Their remit was to ensure easy credit to Main Street America to promote and foster a property owning democracy.   What they morphed into, over time, was a state backed cuckoo sat in the middle of the mortgage market sucking in trillions of dollars of funds, but more importantly all of the decent customers.  The only rational response of the banks was to chase the higher returns “offered” by poorer credit rated customers.  Stir in a bit of well meaning legislation into the pot, courtesy of Bill Clinton, to ensure that banks couldn’t turn down customers for fear of being branded racist, bake it for eight years and you have big slice of Sub Prime Pie.

You would have thought that three quarters of century of a command economy would mean that the Russians could do regulation a bit better.  However once again, the seemingly sensible regulations put in place to prevent oligarchs from taking assets out of the country, have had disastrous and unforeseen consequences.

Not able to take cash out of the country to fund acquisitions that ranged from Chelsea FC, Candy & Candy flats to Courchevel and Iceland, they instead borrowed from Western banks secured against their rouble denominated equities.  The credit crunch, assisted by a less than prudent invasion of a small neighbour, led to a dramatic fall in their value, margin calls to meet the western loans, fires sales, a run on the currency, further falls in value…….

The Russians will now blow their currency reserves, effectively re-nationalising the economy and will end up with a politico-economic structure resembling National Socialism. Nice.

I could go on, but it would appear that unexpected consequence of the Credit Crunch has been to turn a left wing leaning, champagne socialist, like me, into a raging right-wing economic Neo-Con.  Not Nice.

Gallows humour is getting better, as the world gets worse; expect to hear these trotted out over the coming months and years:

“A rolling loan, gathers no loss.” (Courtesy of those bright guys at Goldman’s)

“Their balance sheet is a mess; on the left nothing is right, on the right nothing is left.” (FT)

It’s 6.00am. May 14th 2010.

Our hero awakes, slightly hungover following his 39th birthday.  Still, he thinks, not too shabby, as he looks down at his six pack, running his fingers through his still thick, luxurious, curly hair.

The radio confirms what everyone had know for some time, Gordon has romped home with a record landslide.  He breathes a sigh of gratitude, thanks to his brave and decisive leadership President Brown is widely acknowledged as having single handedly pulled the world economy back from the brink during the short 2008 correction.

He turns right to his wife and kisses her gently on the cheek, she certainly rediscovered her mojo following the “augementation”, he turns to his left and gently kisses Kate Moss on the cheek, who was he to complain when she had asked for an “open” relationship.

Jogging downstairs into his Belgravia kitchen, he turns on the television.  PestoTV is reporting that New York has once again closed on record highs, this was now getting embarrassing, he would have to set up yet another charitable trust to distribute his massive wealth.

His blackberry watch vibrates, it’s his 8 year old daughter emailing from Oxford university…………………

OK, OK, pretty fanciful stuff, especially the six pack bit, but given the stock markets equally euphoric (possibly unhinged) performance over the last 24 hours, anything seems possible.

Unfortunately, even if the long overdue, but admittedly far reaching steps taken by central governments are successful in saving Western capitalism, most sensible commentators are still predicting a recession worse than the early 1990’s.

But, and I’ll put my neck out, as Churchill said, this may not be the beginning of the end, but may mark the end of the beginning of this crises.

If you are a local government treasurer and you got caught with a load of cash in Landesbanki, Kaupthing or any other Icelandic Bank then you deserve no sympathy. In fact you should be flogged by your local tax payers.

You were trusted with tax payers money because you are a professional fund manager. You were not the honorary treasurer collecting the Xmas kitty for the local mothers union. As a professional you should have known your job. Anyone who knows anything about economics or ooccasionallyy glances at the FT should have understood that Iceland was the ultimate hot money trade that carried a lot of risk. There have been rumours about the solvencyy of the Icelandic Banks for months and CDS spreads illustrated that this risk was increasing on a continuous basis.

Admittedly they offered a better interest rate that the British Banks but there was a good reason for that. It’s called a risk premium. Its the first principle you learn in A level economics. If you were managing money on behalf of a risk averse local authority you should not have been able to spell Iceland let alone Kaupthing. To have been investing money with them to earn a meagre 0.25% or 0.5% more each year was simply crazy.

When the government bails out the local authorities I hope they make an example out of their treasurers as they have done with the reckless bankers.

Robert Tchenguiz was widely reported to have lost a £1bn in 24 hours, earlier this week, as he was forced to crystalize his loss making stakes in M&B and Sainsbury’s. These stakes have been loss making for quite sometime but he was forced to liquidate the positions as his financiers, Kaupthing, recalled their loans to meet their own financial difficulties.

Robert is a professional investor and a big boy so I am sure he does not expect sympathy for his plight. However, I do find it odd that the press and the financial community seem to have taken great delight from his demise. He and his brother, Vincent, may not be everyone’s cup of tea but I have always found them to be hard working, energetic and entrepreneurial. Hardly characteristics to be despised or deplored.

I understand why the press have castigated short sellers who profit from the distress of others and make fortunes as Joe Publics pension value evaporates. However, Robert Tchenguiz has taken a very different approach. In both M&B and Sainsbury’s he saw an opportunity to create value from changing the companies strategic approach to their real estate assets. He campaigned aggressively, especially at M&B, to affect these changes but he certainly put his money were his mouth was. He took enormous stakes and hoped to engage the board in a strategy that he perceived would boost the share price.

His ideas, based on splitting the operations and the property assets and applying leverage, may not have been popular but he was certainly not looking to bust these companies or profit from a slump in the share price. As a major shareholder, he was doing his bit to champion shareholder value hoping to boost and his personal wealth in the process. 

Surely we should applaud entrepreneurs who invest their personal fortune in trying to improve businesses rather than celebrating their downfall. Sympathy may not be required neither is taking pleasure from his pain.

Unfortunately neither Morgan or I went to the right sort of school, so our manners sometimes leave something to be desired; we don’t eat with our mouths open, but elbows are usually on the table.

Having said that, there is one area of etiquette that I don’t think Debretts covers, so we’re a bit unsure of what the polite course of action is. 

Namely, when a company goes bust, how long is it polite to leave it before you phone your mate there?

This might, of course, be to see if they’re fine, but it might be made awkward if he knows (and you do) that it is a business opportunity for your company, and let’s be frank you weren’t actually that good friends in the first place.

The Germans, I am sure, will have a wonderful literal word to cover this along the lines of “schadenmakeamarkfrommienedistressenfruede.”

I have not had a great deal of respect for Alistair Darling since I met him in early 2007. He had breakfast with a group of bankers, of which I was one, and openly invited questions from the room. When I asked the Chancelor how he would deal with a UK recession? He answered that there was little need to consider such an eventuality as it was not going to happen….

Ok, so planning ahead and reading the signals were not be his strong point but I think he has finally got something right. In proposing to provide capital to the UK banks in exchange for preference share or a substantial stake we are adopting a far more robsut approach that the US governments poorly defined $700bn bail out or the blanket gurantee of its banks provided by Ireland.

The banks have two problems. Firstly, they can not fund their day to day activities as banks do not have the confidence to lend to one another. Secondly, their balance sheets are too weak to absorb the losses that they need to take before rebuilding their businesses.

By taking a stake in the banks, the government provides a bank with signifcant additional capital and an implicit guarantee that it will provide further funding if required to keep a bank solvent. This should help to create confidence around the UK banks, allowing them to borrow on the inter-bank markets to fund their activties.

The longer term fix is that the government cash injection will give the banks the capital base required to rebuild thier businesses. The first step will be to properly address the value of their assets (loans and investments.) These are currently in the books at artificially high levels, many of the loans and investments made in 2005, 2006 and early 2007 are not worth the paper they are written on but this is not refkected in the accounts. Without the fresh capital a bank could not admit to this as it would threaten its solvency and probably lead to its demise.

The government cash injection will allow this process to begin. Assets must be marked down and sold, this will create short term pain but it is the only way for a bank to re-emerge as a credible entity that can once again go about its business of lending to make a profit.

If the government can help create a group of well capitalised healthy banks they can then focus on their key function. Bank are the essential cogs that provide credit and finance to the UK economy. The failure of the banking system (which is where we were heading) would in turn destroy the economy. It is not good that each tax payer is putting £2,000 in to the banks but this is certainly better than the alternative.

The devil will be in the detail but hopefully Mr Darling supports his £50bn investment with suitable conditions. Banks must be compelled to restore discipline, to write down their assets, dispose of the bad loans and rebuild the bank in a manner that drives forward the UK economy in a sustainable way.

If Mr Darling succeedes in doing this his legacy may be more than his incredible eyebrows?

The FT reports this morning that the cost of buying insurance against the defualt of a US government bond is now higher that the cost of the same insurance against McDonalds. i.e. people think there is a higher likelihood that the United States of America goes bust that the Burger Chain.

This is attributed to the stress on the US economy from the credit crisis and the $700bn bailout programme. The alternative way of looking at it is that Americans prefer eating burgers to paying taxes…

Either way these are crazy times!