大象传媒

For Christmas I am setting you a political economy quiz based entirely on numbers. Each of the numbers below is an iconic sum of money, market position or statistic from the economic news this year. For each number you have a) give the unit of measure and b) the economic significance. There are both UK and global figures involved.

Example: Q) 700,000,000,000 A) US dollars, total of bailout money authorised in Hank Paulson's failed TARP bill.

I will post the answers on Boxing Day. There is, as always with the 大象传媒, no prize. Post your answers in the comments. Please limit your comments to attempts to answer the quiz (but I will accept spoofs, since its the holiday season).

[BOXING DAY UPDATE: Cllr Ross Grant of Leicester (Conservative) has come closest to the answers. The correct answers are in my comment #8]

Q1) 177,600,000,000
Q2) 787
Q3) 200,000,000,000
Q4) 33.87
Q5) 1217.40
Q6) 1,630,000
Q7) 3,512
Q8) 64.30
Q9) 325,000
Q10) 22

By the way, if you scan the list above and keep thinking "oh, that's easy, everyone will know the answer to that" you should really consider a career in an economic policy think tank.

Compare these two paragraphs, the first from the "deal", the second from the Pittsburgh G20 declaration. The first tells how developing countries, including China, will report their efforts to meet their own targets on reduced carbon emissions.

"Non-Annex I Parties will communicate information on the implementation of their actions through National Communications, with provisions for international consultations and analysis under clearly defined guidelines that will ensure that national sovereignty is respected."

Now let's hear the , including China, on how they plan to harmonise financial reporting standards:

"We are committed to maintain the momentum in dealing with tax havens, money laundering, proceeds of corruption, terrorist financing, and prudential standards. We welcome the expansion of the Global Forum on Transparency and Exchange of Information, including the participation of developing countries, and welcome the agreement to deliver an effective program of peer review."

No worries here about "respecting national sovereignty" - because the various agreements, above all the Basel II - are in the form of a treaty or convention.

Newsflash to world leaders: a treaty necessarily involves the partial sharing of national sovereignty with a supranational body to police the treaty. The WTO is one example, the Geneva Convention, I could go on.

Now consider the problems of "national communications" coming out of a country like China.

Exhibit One: In November 2006 the Chinese government announced it had discovered: "65,313 unlicensed mines, 4,509 illegal excavations, 960 unauthorized prospects and 1,365 illegal transfers of mining rights."

The Chinese government is engaged in continual public crackdowns on illegal mines and other production activities that would directly contribute to its carbon emissions. But the local bureaucracy and mobsters are continually engaged in evading the crackdown.

Chinese media on one case of illegal coal mining. The report from China News Radio has been translated and indicates allegations of official involvement in the maintenance of production at one illegal coal mine. Here's a quote from it:

"Why do coal mines in Hengshan county, which the Shaanxi province government long ago ordered be shut, continue to openly operate? One village resident says that this is because government officials and public servants have privately invested in the mines, and closing them would be in conflict with their interests."

When the journalists rang the local party secretary to put these allegations to him, here is the response they got:

"You China Radio journalists should mind your own business, don't you think? What you're asking about, I know absolutely nothing. So if you want me to tell you about something, how can I tell you about something I know absolutely nothing about?"

You can read the whole report on .

Exhibit Two: China's means that all potentially sensitive statistics about industrial production, including carbon emissions, may be designated in advance or in retrospect secret.

The most severe punishments under the law are reserved for those who provide information to recipients outside the country, and can include death. There are numerous case studies of environmental campaigners being repressed under the state secrecy law. Systemically the impact is, as Human Rights In China explains:

"The great elasticity of state secrets protections has contributed to a widespread culture of secrecy in the of铿乧ial handling and dissemination of information. The government has control over 80% of relevant information in society. This bottleneck of information is exacerbated by the lack of any independent supervisory mechanisms or precise classi铿乧ation standards....

"To the CPC ... good governance has long rested on the principle of maintaining social stability and keeping a tight rein on information dissemination--including classifying critical information such as statistics related to health, the judicial system and the environment--in order to ensure political control."

In 2005 an environmental activist called Tan Kai set up a local environmental NGO to monitor chemical pollution which residents in Zheijang province believed were causing birth defects. According to HRIC:

"Tan, a computer repair technician,was formally indicted on April 29, 2006 of charges of "illegally obtaining state secrets," ostensibly for information he had obtained while doing routine 铿乴e back-ups for his clients. However, the fact that on November 15, the Zhejiang provincial government had declared Green Watch an illegal organization calls into question the real reason for his prosecution."

So there's the problem. Since China has overtaken the USA as the biggest CO2 emitter (although its per capita emissions are much lower than the USA's) measuring and reporting its emissions are going to be crucial, even though it does not intend to reduce or cap emissions at all. In a big step forward China agreed to limit the carbon intensity of its growth, that is to slow down its rate of increase of CO2 emissions. But how do you measure it?

The state secrecy law is not the only problem. In large parts of China . This may seem strange for a country with such a powerful government, but it is observed by many western journalists who go there. (Robert Conquest's summary is a good starting point , also my Newsnight reports this year on Western China)

The current trial of more than 40 members of the local bureaucracy in Chongqing, where senior party members have been accused of "triad like behaviour" is just one example of this. For a period this large city of 30 million people seems to have been in large part controlled by a network of corrupt officials. The Chinese government crackdown on corruption is ongoing, but it is necessarily retrospective: it can punish corrupt officials for defying central quotas and the rule of law, but any treaty or agreement coming out of the post-Copenhagen process has to be pro-active and behaviour shaping.

Does all this explain why Barack Obama made such a big deal out of transparency at Copenhagen and why the Chinese leader at one point walked out of the negotiations? The Chinese felt insulted by Obama's insistence on transparency mechanisms. But in the end Obama signed up to an accord that allows China to retain "national sovereignty" over the measurement of its emissions reduction targets. Winding up China over transparency on the last day of negotiations could be seen as possibly the surest way of making it look like they were to blame and not the developed countries. The current spin is certainly in the direction of "China is to blame".

Inevitably it is more complex. Chinese political reality is of this vast state bureaucracy which finds it difficult to control or even monitor the activities of local bureaucrats, and of intense official competition between regions and provinces of China over investment and infrastructure projects.

There is a long-standing and controversial school of thought in economics, led by Pittsburgh professor Thomas Rawski, which calls Chinese growth statistics into question. But emissions statistics are more crucial: Wen Jia-bao gave a commitment to reporting them transparently. But without effective scrutiny from the press, and with the state secrecy law always a threat to activists on the ground this is an issue that will haunt the attempts to rein in Chinese CO2 emissions, whatever the good intentions of its government and whatever it signs up to.

[Back in July I promised to write a blog about Jez Butterworth's play Jerusalem. Here, finally, it is.]

"This, Wesley, is a historic day," says a middle aged drunken traveller, posed at the front of his caravan with various no-hopers, low-lifes, teenage runaways and misfits from semi-rural England..."For today I Rooster Byron and my band of educationally subnormal outcasts shall swoop and raze your poxy village to dust. In a thousand years Englanders will awake this day and bow their heads and wonder at the genius, guts and guile of the Flintock Rebellion..."

It's just one glorious speech out of many from Jez Butterworth's play Jerusalem, staged at the Royal Court Theatre this summer with Mark Rylance in the role of Johnny "Rooster" Byron, and set to be .

Butterworth's play achieves two things: in Rooster he has created one of the most compelling, complex and iconic characters in modern British theatre; at the same time he has managed to capture an era in British political and social life at the very moment of its ending.

Jerusalem was five years in the writing and depicts the life of a poor-ish, prospectless, rave-addicted, casual drug using, unskilled social group that is absolutely central to the society we live in, but which the media barely notices exists. It captures their reality better than any soap opera and their dreams better than any tawdry Saturday night talent show.

Life for such people is about to get very tough. Indeed, the economic data tells us that the UK's "flexible labour market" has already been the key to avoiding mass unemployment. The real life Daveys, Lees and Tanyas have gone on short time, taken pay cuts, slept on floors at their mates' houses, worked for no wages (in what our parents' generation used to call overtime).

They have scrabbled around the bargain shelves of major supermarkets, shopped in the pound shops, borrowed from doorstep lenders and bunged their electrical goods into Britain's booming pawnbroking sector. As we go into 2010, they will now be faced with an economic "recovery" in which public services are cut, benefits are very likely frozen or slashed, credit is in short supply and all political parties implore them to "help themselves" and become "social entrepreneurs".

The sociology of Jerusalem is interesting: Rooster is a drug-dealer and fairground daredevil rider, a kind of anti-social entrepreneur. In real life he would be drawing some kind of benefit. Of the three young male foils to Rooster, Lee is "a pisshead and a wizzhead" about to emigrate to Australia; Ginger is an unemployed plasterer with delusions of being a DJ; Davey is a slaughterman. The West End theatre tended to describe this demographic as a "bucolic underclass", "wastrels", "waifs and strays".

But the power of the play lies in the fact that Rooster's band of outcasts are not at all marginal to real life in Britain. They are only marginal to the "real life" portrayed on soap operas and the slick, unreal drama series that British TV specialises in making - and of course to the pop tribute shows and star vehicles that clutter the West End.

Jerusalem then, is real. The plasterer, the DJ, the weekend drug dealer, the ex-squaddie looking to work abroad, the bored slaughterman - are mainstream figures in the real English workforce and down the real English pub: two million ecstasy tablets are taken in Britain every week; one in eight young people are not in work, education or training; 15% of all households claim in-work benefits.

Also real is the effing and blinding which seems to have uniformly discomforted the mainstream theatre critics: the swear wordcount in Jerusalem is acutally low compared to reality, and the swearing is generally genial, compared to reality where it is often aggressive, racist and violent. This, then, is the real English spoken by something close to the majority of real people: it's an indictment of the state of theatre (also, while I am at it, English literature, which has recently become dominated by surreal narratives told in a kind of quasi-poetry) that the language of Jerusalem is seems so challenging to theatregoers and critics alike. For this alone Jerusalem will go down as one of the great plays of the decade.

But Jerusalem's greatness is that it is also hyper-real. In Rooster Byron the playwright has created a character who both embodies, understands and rebels against everything that is wrong with this real England. (I am deliberately not writing here about Mark Rylance's superb rendition of Byron, because I think the play is even bigger than the performance).

A relentless fantasist and purveyor of tall stories to his mates, Rooster is also the protector of runaway kids abused by their parents, a serial rebel against the planning department of Kennet and Avon council, the local bogeyman whose anti-social behaviour can fill the local church hall with outraged Rotarians ("You get a cup of tea. Flapjack. Then they all sit down on foldy chairs and go beserk."). He is also a force of nature: Falstaff and Henry V in the same body, the original Green Man of pagan folklore whose face vomiting vegetation can be found on the corbels of early medieval churches all over England.

And he embodies magic. At the centre of the play, which is dark in ways impossible to discuss without revealing the plot, is the ambiguity between Rooster's tall tale telling (I will call it that because this is a 大象传媒 blog but you know the word I am thinking of) and the tantalising question of whether or not he really has magical powers. Is the 90ft tall giant who once gave Rooster an earring in the shape of a golden drum on Salisbury Plain, and who will one day be Rooster's own personal close protection guy in showdown with Kennet and Avon Council, real or imaginary?

By placing this unreal, magical, flawed, wounded, complex character onstage amid an unflinching portrayal of real life in low-skill, low-pay, low-horizon England ("When I leave Wiltshire, my ears pop," says one character) Butterworth asks layer upon layer of questions about the society we live in.

And the biggest one is this: what would happen if this happy go lucky world of cheap booze, semi-employment, casual sex, Saturday night raves etc were one day disrupted by something serious. What if the music stopped, the benefit office closed its doors and the caravan got dragged away by the council.

The coming fiscal crunch has made this a relevant question. Because Butterworth's characters are captured at the end of an era of debt-fuelled consumption, cheap credit and amoralistic drift. When we sit in London and say: the Greeks' lifestyle can't go on; or Latvia is living above its means; or Dubai was a dream built on sand, Butterworth's play shows us there are equally telling observations to be made about British society in the era of Shopacheck and .

And what still stuns me is how new and raw and original and terrifying life in semi-rural working class Britain seems when viewed through the experience of Rooster and his mates. And the very low chances of escaping it.

As whizzhead Lee explains to slaughterman Davey:

"Ever since I've known you, come Tuesday you ain't never got a pound for a saveloy. You're broke...You are a sad, fat povvo what thinks he's Alan Sugar. You're going to live your whole life with the same ****ing people, going to the same s*** pubs, kill two million cows and die a sad fat povvo."

Davey, capturing the spirit that has sustained the downtrodden English bloke from Agincourt to Helmand replies:

"Sounds unimproveable".

***

Jez Butterworth's "Jerusalem" is published by Nick Hern Books in association with the Royal Court Theatre. The Royal Court production at London's Apollo Theatre in January.

Two things struck me about today's ministerial statement on defence spending. This was a major announcement, reprioritising the MoD's resources to provide 22 more Chinook helicopters, doubling the number of Reaper drones available to troops in Afghanistan, plus tooling up the army with the kit they have been presumably been asking for: more body armour, night-vision sensors, robot devices for detecting and defusing roadside bombs.

The first thing that struck me was the speed with which the Labour back benches cleared as Bob Ainsworth rose to speak. I did not spot any other cabinet minister alongside him and in background was a sea of green leather. The opposition benches were swarming with MPs all too ready to lay into the government and the Treasury, which has asked Mr Ainsworth to cut from core spending to meet urgent requirements in Afghanistan.

Mr Ainsworth, the fourth Defence Secretary since 2006, is finding out how lonely it is to be making these tough decisions. But in truth he is only trying to deal with a long-term legacy: Britain has been trying to run an army, navy and air force at the scale of a major global power, equipped for big war - at the same time as fighting counter-insurgency conflicts in Iraq and Afghanistan, peacekeeping in various parts of the world, and maintaining commitments to NATO in Germany, and the European Union.

Successive governments have recognised the problems for defence procurement this dilemma poses - but struggled to do anything about them.

Today a NAO report flayed the governement for "saving" money by delaying projects, which then end up costing much more. It showed that the MoD faces a potential gap in funding of 拢36bn - between what it's decided to buy and how much money it has to spend. And that's only if the next government does not actually cut defence spending.

Everybody I've spoken to today recognises that there's an urgent need for a Strategic Defence Review. All parties are pledged to having one - but it will not be the same kind of exercise as Labour's initial review, in 1998.

Today some very tough choices are being posed acutely, as demonstrated by the issue of what kind of wheeled armoured vehichles the army needs, and when.

The Mastiff and Ridgeback vehicles rushed into service in Afghanistan represent, at one level, an effective response to a new threat - the Taliban's turn to IEDs. But at a strategic level, as it committed troops to Helmand, the MoD was also in the middle of a long-term project to re-equip the army with a whole new range of wheeled vehicles, known as FRES, and based on a system popular in European armies known as the Piranah 5. In May 2008, General Sir Richard Dannatt, chief of the defence staff said:

"Whilst our Protected Personnel Vehicles such as Mastiff are a very successful addition to meet specific operational requirements in both Iraq and Afghanistan, it is the FRES medium weight capability which will allow the Army to conduct a considerably wider range of operations in an uncertain and changing world. I am therefore delighted that we are maintaining progress on this vital programme."

But progress has stalled. The main phase of FRES has been scaled back, indefinitely, with only the most urgently required "Specialist Vehicles" (engineering, recce and ambulances) now in development. In part it was due to disagreements with contractor, General Dynamics: but in part, as John Hutton implied in a commons statement last December, it was a victory of the urgent over the strategic:

"We have concluded that, in the context of current operations, and bearing in mind the considerable recent investment in protected mobility, the highest priority should now be accorded to delivering the Warrior capability sustainment programme and the FRES scout vehicle as quickly as possible." (the Warrior being the army's existing tracked armoured fighting vehicle).

The fate of the wider FRES programme will be decided in the Strategic Defence Review, but note the change of emphasis: a year ago the chief of staff was saying - Mastiff good, big new next-generation vehicle designed from scratch much better. One armour brigadier was quoted on the MoD website proclaiming: "FRES represents the equipment heart of the future Army". Now the emphasis is make do and mend: "good-enough solutions" as they are called in business.

I have often wondered why it is so difficult for military planners and politicians to make these tough choices in the context of geo-political, strategic and military priorities. But that question was partially answered by the other thing that struck me in the Commons today.

At a certain point during the debate on the MoD budget the House of Commons filled up again. MPs on both sides were keen to speak. What they were keen to speak on was the future of specific projects that guaranteed jobs in their own constituencies - the Conservatives tending to be worried about RAF bases; Labour - and above all Scottish Labour - tending to be delighted at the assurances that the aircraft carrier building programme is safe.

It was a reminder that, for successive governments, defence procurement has been about jobs - and the retention of strategically vital skills in the UK. The idea that the UK should buy more off-the-peg equipment and reinvent the wheel less has been seen as heretical. Yet in Afghanistan - with the Mastiff, the Reaper drones and now with the new Chinooks, which will not be built in the UK - off the peg is what we've got.

As for the future of the Queen Elizabeth II Class carriers, the Joint-Strike Fighter, Trident and various other big-ticket bespoke items: these are certain to become major political flashpoints as politicians face up to the reality of the gap between taxation and spending.

In the seven-day run-up to the Pre-Budget Report it became clear, from the network-chatter and the briefings and the smile on Gordon Brown's face as he delivered that "playing fields of Eton" jibe, that this would be the "Class War PBR".

Looking back on both the PBR and yesterday's EU summit what is still pretty stunning is how little of a narrative Labour politicians have been able to construct out of the measures taken; how little of a "core vote strategy" has actually yet been crafted to fit atop the various taxes and spending choices announced this week.

Two weeks ago a senior Labour figure told me: "we have no manifesto, no election strategy and no [full list of] candidates". The emergent core vote strategy fills one of those gaps but shows what a big hill Labour has to climb, .

Let's just list the key moves.

1) A fiscally neutral 2010-11 spending year (as predicted on Newsnight). Now it is clear that instead of a slight tightening next year as planned in Budget 09, there is only the withdrawal of the fiscal stimulus. Tightening is, as the (heavily slapped down but correct) FT headline predicted, "deferred".

2) A choice has been made to spend more and tax more than planned in Budget 2009. Long-term the government will rack up more debt than it planned to six months ago. It is, in other words, a tax and spend budget in a recession.

3) 50% of the taxes raised in PBR 2009 will fall on the top 10% of earners.

4) The bank bonus tax, though it will be lucky to raise even the target 拢500m has caused real outrage, as it was designed to, in the City of London.

5) In or around Westminster, shortly before daylight on the day of the PBR itself, Ed Balls secured a settlement for education that went beyond the initial plan to "ringfence" health and schools. There is a real terms 0.7% increase that was hard fought for and specifically designed to draw a dividing line between the Conservatives and Labour.

6) Gordon Brown then went to Brussels and got the EU heads of government to sign up for a financial transaction tax proposal designed to damp down speculation and raise money for climate change. Yes, pinch yourself, a Tobin-style tax advocated on EU headed notepaper.

The commentariat has noticed this, bigtime.

The Economist's , with Gordon in a climate-camp-style hoodie and the headline "Class Warrior" captures the moment. Likewise Blairite veteran John Rentoul has bemoaned what he sees as a commenting that, as with George Bush Snr, a core vote strategy is a sign of a campaign that is "going down the toilet").

However, there is little sign of a core-vote narrative.

First because the left - the big public sector unions and the TUC as well as the PLP left - are up in arms about the imposition of a real pay cut on public sector workers after 2011, plus the expected cuts in local government, transport, higher education etc. They would be key transmitters of any new core-vote message. One prominent centre-left back bencher told me they felt "totally blindsided" over the PBR.

Second, because the press, on the morrow of the PBR, ignored the "class war" measures and picked up the theme that the NI increase is an attack on middle Britain: the , drawing on deep genetically programmed reserves of fine headline writing, came up with "Labour's war on Workers" and that never to be forgotten Tiger Woods headine. The Conservatives issued their poster, in Labour's class war (compare it to how the sells the PBR).

But third, and most importantly, because no senior Labour politician has yet managed to craft the PBR/EU Summit decisions into a coherent core-vote narrative.

Before, during and after the PBR the Treasury's briefing teams seemed obsessed with denying the minutae of Conservative attack lines, countering the wonkish claims of various think-tanks etc. I am told Ed Balls gave a look of surprise when the 0.7% increase for his department was read out - there was certainly no time for Alistair Darling to include any political side-swipes at the Conservatives about education off the back of the announcement in the PBR speech.

Finally you get Gordon Brown's trip to Brussels to bat for the Tobin Tax: virtually unreported in substance.

I discovered late Thursday evening that there was a chance the EU would sign up to a work-programme on the financial transaction tax and back the proposal in the IMF. The Germans had to fight like crazy to get one half sentence about this written into the Pittsburgh communiqu茅, so that is a big move (big even if you think it's rhetorical). I reported this on Newsnight that night, and now it has come to pass. But Brown's people downplayed the story. Like his original move at the Edinburgh G20 Finmins summit, it will get lost in the weekend miasma of talent shows and football.

If there is an emerging "core vote" election strategy, then, it is - as the commentators point out - a reversal of 15 years worth of New Labour political instinct.

It is also going to be complicated to achieve. The core vote is in fact bleeding off in two directions: towards the Libdems and Conservatives, SNP and Plaid (mainly from the public sector, metropolitan salariat) and towards the BNP, UKIP, independents and potentially towards the successor to Bob Crow's no2eu.com (mainly from the manual working class in smaller towns). Plus of course towards anti-political abstention driven by the expenses scandal.

For Labour to do a "class war" narrative would require not only a generation of New Labour-trained politicians to sign up to it, red blooded and visceral, but all their mates in the newspapers, their buddies in high-ticket Mayfair PR firms and Soho members clubs etc, plus the wonks in the Millbank wonk-warren and of course the real-life Malcolm Tuckers of this world. I think that last sentence kind of sums up the obstacles to doing it, but watch this space.

Sunday's political programmes are going to be interesting.

With an hour to go until Alistiair Darling delivers the PBR, it is clear that on many fronts British politics and economics are moving onto unknown territory.

Moody's threat yesterday to downgrade the UK's sovereign debt set some of the mood music: we are looking at a man who has to convince the bond markets he does not intend to let inflation whittle away the profits on the money they are lending him.

On bonuses, though small, the ideological impact is significant. Those who were treated as heretics in Cabinet for suggesting a cap on bonuses are basking in the new orthodoxy this morning. Not only will there be a bonus supertax - and you can tell it is significant because bonuses have suddenly become an emotive issue for bankers: there will be outline proposals for a Tobin Tax and a permanent levy or insurance programme for banks to pay into. This is all driven by Andrew Haldane's thinkpiece about reversing the power balance between state and finance. Only months ago Darling and Brown believed global, market-based (ie capital adequacy) solutions were the way forward: now they seem to have moved beyond the G20 consensus (remember the Tobin Tax was only inserted at the last moment as "a discussion" in the Pittsburgh declaration). Again - new territory.

For taxpayers and public servants the new territory is scary. If, as the FT has calculated, the decision to ringfence "hospitals, schools and police" (note - not the NHS, Education and the Home Office) leads to 14% cuts elsewhere then it is goodbye aircraft carriers (or hello aircraft carriers for India); goodbye F35 fighters, goodbye comprehensive elderly care; collect your own rubbish, sweep your own streets. At least there will be fewer traffic jams on the motorways because forget road maintenance as well.

A public sector pay freeze, severe headcount cuts in the back office of nearly every public service.

This is the moment people have to decide not whether they accept the scale of budget cuts, but on whether Darling's timing of them is credible, and whether they can stand being systematically denied concrete information about the cuts plans before the election.

Finally, Labour is revving up for the mother of all rhetorical swings to the left. Led by Gordon and Alistair? As Judy Garland famously announced to her dog after they'd landed in the technicolour land of Oz: Toto - We're not in Kansas anymore.

OK here's what RBS is saying publicly about the report that its board is prepared to resign if they are not allowed to pay at least a quarter of the investment banking division's profits as bonuses:

"Our agreed business plan requires us to operate commercially in competitive markets and this plan underpins the prospects of recovering value for taxpayers and other shareholders alike. UKFI, as with our other shareholders, has to date engaged with us positively in reiterating this goal and we expect that to continue . At the same time we understand and embrace the need to ensure pay meets the new G20 and FSA requirements and will continue to advocate this and other ways to address public concerns relating to banks and always pay on the principle of no rewards for failure."

RBS meanwhile is insisting - off camera - that they "have not taken any legal advice of the type described by the 大象传媒".

I hope you are clear now? If not, here's the situation.

1. RBS boss Stephen Hester commissioned McKinsey to carry out a sweeping review of the bank's operations. The aim is to get RBS in a position where it can start generating profits to offset the losses on 拢282bn toxic debts. Eventually the shares the taxpayer owns could be sold at a profit (we are currently sitting on a loss of maybe 拢15bn).

2. The only majorly profitable division of RBS is Global Banking and Markets, which has generated 拢5.6bn in the first three quarters of this year. The going rate of bonus for people who work in this sector would see a quarter of profits as a minimum: hard for the ordinary joe to accept, however if you substitute Premiership Football for banking, you could understand the logic. Like this or not, the point is: if they let entire investment banking arm wither on the vine there is a strategic problem: RBS becomes a utility-style bank with low profits and the taxpayer gets out with not very much upside.

3. But, you say, if the investment bank is so profitable, why don't they spin it off? Well the Treasury is not alone in believing that much of these profits are being made because, as a semi-nationalised bank, people can do business with RBS with very minimal risk to themselves; in addition the Bank of England's 拢200bn quantitative easing programme is flushing the banking system with cheap money. Basically, RBS' GBM business does not make these high profits because of the skill of its investment bankers but because of QE and the Asset Protection Scheme. Or to put it in footballing terms: they may have the skills of a Drogba or an Anderson but they are playing in the Sunday league.

4. But there is a further problem: only the GBM side of the business can actually trade away the toxic debt parked in the government's scheme. Techncially, you need the investment bank whizz kids to be working inside the business even if its only to make sure the government does not end up sitting on this toxic debt pile.

5. There is of course a neat way out of this: nationalise RBS. Turn it into one of those boring banks Mervyn King wants to see, employ an agency to work through the toxic debt pile (probably, as with all emergency contract work for UK government on a very high, er, bonus). It is not a very palatable option because RBS has tens of thousands of people working in its back office who would then not be needed. However if the board were to make good on its threat and walk away, you may have to do this. But the government's entire strategy has been to avoid nationalising RBS, even to the point of secretly lending it 拢37bn pounds - at a time when its shares were worth almost nothing.

6. This is why, my guess is, we will get to January and there will be a fudge: the government's representatives in UKFI will look at the logic I have outlined above and conclude that it is actually in the taxpayer's interest to pay the bonuses that the bank's board deems necessary - otherwise the whole of the government's and the UKFI's strategy is in ruins.

7. This is only the latest iteration of a problem outlined in Andrew Haldane's influential paper, . The banks have the state over a barrel in every systemic crisis. Don't be surprised if, the more they get dragged through mini-crises like this, governments end up concluding as Haldane does that the entire sector has to be made to pay a strategic price for the implicit "heads we win, tails you lose" relationship it has with modern governments. Indeed the relationship has to be reversed:

"Reversing direction will not be easy. It is likely to require a financial sector reform effort every bit as radical as followed the Great Depression. It is an open question whether reform efforts to date, while slowing the swing, can bring about that change of direction."

And note the guy's job title: executive director, financial stability.