MELTDOWN

April Fool's Day 2020. Today's headline in the Times is "PM takes control of drive for control of virus tests". Thank goodness for that - at least Boris will get a grip of that which the civil service and NHS, it would seem, cannot. Just in case anyone was getting a bit cynical about the mounting dysfunction in our non-military "public" services, Prince Charles was wheeled out, puffy and livid after his own attack of the lurgy, to award metaphorical VC's all round to our "fantastic" state sector workers and "selfless" NHS staff. We are running out of cheerleaders. The meltdown is indeed upon us.

The most important thing now is to embed priorities - Stay Home, Protect the NHS, Save Lives. And by golly, that message is being hammered home. Twenty four  hours after the BBC evening news spent seven minutes briefing the nation on the progress of their cancer suffering and Covid 19 surviving anchor man George Alagiah, a mere three minutes today was devoted to the revelation that over one million UK businesses were likely to go bust as a result of the current state sanctioned "emergency" within the next fortnight. It's about trade offs, you see. George, (a truly nice man) employed to read a BBC autocue on behalf of the NHS, is "saved"; Dave, trying to sell fuschia seedlings to cheer up peoples' gardens, is torched. Claire the cleaning lady, is forced to beg from her clients. Dougie the boiler repair man, is pole axed by "social distancing". Why? Because 1.2m NHS personnel cannot, still cannot, get their act together.

But beyond today's front page headlines, another metaphorical Rubicon was crossed - although you had to go to the business pages to spot it. Sam Woods, CEO of the Prudential Regulation Authority, "called" on the chairpersons of "large" banks to suspend dividend payments, not just now but for the next twelve months. We haven't quite left the EU yet, and so old habits die hard. There is no idiotic EU directive that the UK cannot gold-plate - otherwise what on earth has been the point of the UK civil service since 1973? So while the ultra cautious EU regulators have told their own banks to hold back a bit for the next few months, the UK regulator has gone all-in. It's zip for 2020. If you want some cash, sell your holdings. It's been an effective message alright - share owners have been dumping stock, big time! Brilliant. We need a sense of crisis to get people to toe the line.

Yet the response of investors is not irrational.The investment case for UK bank shares, already vestigial, has been rendered non-existent by the latest edict. Think about that : the primary source of  the distribution of money in the economy and  an important driver of money "velocity" without which the economy cannot grow, has been rendered un-investible.

Equity is the source of perpetuity capital. Without this ultimate loss-absorbing buffer, other capital cannot be raised nor loans nor products advanced or sold. It's not just true for the banks, but for every enterprise dependent upon outside funding. Yet this capital must be allowed a return. Banks have struggled to make any sort of return over the past ten years, forced to hold huge capital reserves for a rainy day like this one while trying to deploy it in an environment where yield curves have been hammered flat by central bank intervention. There is a reason most banks  have traded at a discount to their book value. Now they are being forced to hold on to more funds that the markets (correctly) believe will not be allowed to make a return and will probably be lost in the coming depression.

Amazingly, the boards of UK banks have caved in to an  intervention that neither Corbyn nor Lenin would have contemplated - after all, you have to fund a revolution someplace. You have to admire the bankers' sensitivity to the zeitgeist, while deprecating their spinelessness. Bad PR is so much more important than  economic or commercial considerations. But make no mistake, the banks have been nationalised de facto if not de jure - the worst of all positions in which to be. To an equity investor, the UK quoted banking system now has virtually no value. If I was a proper leader of a bank board who wanted to save any tiny particle of residual value, I would be quitting the UK jurisdiction altogether. If depositors twig that their hard earned cash might also be thrown into the chaotic response to the pandemic, then it will truly be "game over". It is doubtful the current flock of headless chickens in our state organs have thought about that one.

Boris and his cabinet are just about to discover that if you want a mixed economy in which the wealth creators subsidise the unfortunate or the feckless, you have to have viable profit making enterprises. You have to have an economy that works. It also has to survive. If it doesn't, who  is going to "Stay Home, Protect the NHS, Save lives"?