Anyone who has read the Ellandi blog will know that I am pretty left of centre for a property chap, heck I’ll even admit to the fact that I was actually a card carrying member of the Labour Party until well into my 30’s.

Which is why I really must explain why I am voting Tory next May.

Ah, the 50% tax rate I hear you say?

Nope.

To be fair earning £150k next year is something to aspire to.

It’s more the case of being terrified what a hung parliament would do to the UK in these difficult times and according to The Independent (see more proof of my pinko-lefty credentials), this is almost a dead cert.

Tuen Draaisma of Morgan Stanley has a fear for next year that “The UK becomes the first of the G10 to have a major fiscal crisis as elections lead to a hung parliament”.

Why would a hung parliament be such a bad thing?

I’ve often thought that Proportional Representation would lead to a nice ineffectual government stripped of dogma; after all decades of coalitions don’t seem to have held Germany back?

The difference, of course, being that the Germans are not fiscally incontinent, have credibility in respect of keeping on top of inflation and don’t rely on the rest of the world to fund its deficits.

Despite still being in recession, the rest of the world hasn’t punished the UK too badly.  They have even let us get away with a fairly blatant spot of competitive devaluation, which has certainly beggared the shopkeepers of the RoI that neighbour the border with North.  However “the markets” tolerance of this is built on the premise that after the election, one of the main parties will cut the crap and get on with a seriously painful bit of tax raising and service cutting to get somewhere near a sustainable level of borrowing.

In the event of a hung parliament, or worryingly even the anticipation of a hung parliament, where every painful decision will be fought over tooth and nail or even avoided, UK plc will lose any credibility that it has overseas.  What happens then?

-The pound tanks (even further)

-We loose our AAA rating, bond rates shoot up; we can no longer sustain our massive debt

-Inflation rockets due to the increased cost of raw material imports

-Interest rates are ratcheted up to curb inflation

-Plague, pestilence, famine……..

You get the picture?

Basically Iceland without the free hot showers and Bjork.

So I am going to vote Conservative for the first time this June.  Having said that though, I am not sure how effectual this will be given that I live in Lambeth.

Maybe PR is not such a bad thing?

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.

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.