John Rapley

LONDON, England:

Autumn is a political season in Britain. The parties hold their conventions and take turns sniping at one another. And, this year, the new Prime Minister Gordon Brown ratcheted the temperature slightly higher by having former Prime Minister Margaret Thatcher over for tea.

It might seem brazen for a Labour prime minister to cozy up to the icon of the British right, and equally brazen for Mrs. Thatcher to return the favour. But they had their agendas. Mrs. Thatcher got to thumb her nose at the new Conservative leader, David Cameron, whom she thinks has made her party all squishy by warming to green issues. And Mr. Brown got to remind Conservative voters of why they shouldn't vote for Mr. Cameron.

However, events soon overtook Mr. Brown. Late last week, the Bank of England announced that it was providing assistance to Northern Rock, a mortgage lender based in Newcastle. Northern Rock's customers panicked. Frightened at the prospect the company might go under, anxious depositors queued outside branches throughout the country to withdraw their life savings.

It was the first such run on a British bank in over a century. Fears rose that depositors at other institutions might be spooked by Northern Rock and turn on their own banks, possibly precipitating a nationwide financial crisis.

All of a sudden, Mr. Brown didn't look so clever. After all, he had been the Chancellor of the Exchequer during the boom years. Then, easy money and novel investment schemes enabled British banks to offer their clients large loans at cheap rates. Now, with the recent unravelling of it all in the global economy, not to mention rising interest rates in Britain, ordinary people were getting stung.

Mountain of debt

The principal opposition parties, the Tories and Liberal Democrats, pounced upon it gleefully. They reminded voters that Britain's good times had been bought with a mountain of debt. The chickens were now coming home to roost, and Mr. Brown had a lot to answer for.

On Monday, Mr. Brown's Chancellor of the Exchequer reassured Northern Rock depositors that government would guarantee the full amount of all their deposits, should the bank prove unable to do so. The queues dried up, confidence was restored, and the crisis seemed to have passed.

However, Mr. Brown knows full well his government may have only delayed the day of reckoning. The danger in bailing out banks is that it can create what economists call moral hazard: it will reassure banks that they can throw prudence to the wind in dishing out loans because the government will back them up.

We in Jamaica know all too well how a government can nearly bankrupt itself if its bluff is ever called. Already in Britain, depositors who lost money when smaller institutions folded are crying foul and demanding to get their money back. Worse is the danger that the risk-taking which created this financial crisis in the first place will now only get worse.

It's too early to tell. Nevertheless, the plot in this drama thickened the next day when the United States Federal Reserve Board slashed borrowing costs in the U.S. in order to prevent a recession which the financial gurus have been screaming is imminent.

The stock market surged and the banking system began functioning normally again. On the other hand, the dollar plunged and gold rose sharply, a sign of investor uncertainty.

The iceberg was averted. Yet Mr. Brown knows more may lie ahead. He may be starting to reconsider his idea of calling early elections to take advantage of the "Brown bounce". He, too, could get hit by a hurricane no prophet foresaw.