Snow gets chilly reception

By DAILY MAIL REPORTER
Updated:

 

IF President Bush hoped to lift the spirits of the financial markets with his choice of a new economic team, he will be disappointed.

Wall Street showed disdain, with the Dow slipping. Fears that America's strong dollar policy may be coming to an end unsettled the greenback on the foreign exchanges.

The emergence of John Snow as Treasury Secretary does not entirely inspire confidence. There may be more encouragement to be drawn from the ability of a Republican White House to attract a former Goldman Sachs chairman, Stephen Friedman, as chief economic adviser.

Mostly Goldman executives, including former Treasury Secretary Robert Rubin and Senator Joe Corzine, are affiliated with the Democrats, rather as Goldman Sachs in London is linked with Labour through Gavyn Davies, now chairman of the BBC.

With his background in railways, Snow might make a good transport secretary. But it is a long time since he served in the Ford Administration and it is by no means clear that this clone of Paul O'Neill, in terms of age and background, is really what financial markets want.

We are told that Snow will be a strong advocate of Bush's new round of tax cuts, about which O'Neill was distinctly cool. But a quick search of the sayings of Snow does not suggest that he believes further fiscal stimulation is needed. Earlier this year, he observed that the combination of a further 'stimulus package' with the liquidity provided by the Federal Reserve 'could see problems down the road' for inflation.

He had better start cleaning that quote up before his confirmation hearings on Capitol Hill. What the White House wants from the Snow/Friedman team is enthusiastic tax cutting. This includes a speed-up of the tax reductions already promised to middle and upper-income taxpayers, some cuts in corporation taxes and an expansion of savings plans for retirement.

There is also discussion of cuts in social security or payroll taxes - the equivalent of our National Insurance - going right down the income scale. This would be a move in exactly the opposite direction to our own Chancellor Gordon Brown, who is just about to raise National Insurance taxes to pay for the NHS modernisation.

Financial markets are right to be wary. There is a smack of Reaganomics about the Bush agenda. Stimulate the economy like mad and forget the build-up of the twin trade and budget deficits.

Snow, with his industrial background as a former boss of the Business Roundtable (an American CBI lookalike), is thought to favour a more competitive dollar. Goldman Sachs also believes that some kind of devaluation will eventually be necessary to deal with a current account deficit climbing towards $400bn.

So it is on the foreign exchanges that the real action will be. This cannot be pleasing for Gordon Brown or European leaders, who will find it that much more difficult to pull out of the present slowdown if sterling and the euro are forced upwards.

Say goodbye, Graham
SHAREHOLDERS are rightly perplexed over the stubborn refusal of Cable & Wireless to dispatch its chief executive Graham Wallace. The destruction of shareholder value on his watch is starting to make even the efforts of Lord Simpson and John Mayo look amateurish.

Not so long ago C&W was enjoying plaudits because of its success in turning its investments into cash, saving itself the ignominy of telecoms rivals.

But the cash mountain of £4.7bn at the end of last year, which seemed destined to keep it afloat, is rapidly vanishing.

The disclosure of a potential £1.5bn tax charge, following the downgrading of the group's debt, means C&W must now be officially regarded as in the basketcase class. The value of its investment in PCCW, the Hong Kong telecoms group, is fading fast, putting further pressure on the balance sheet.

If Wallace were really smart, he would fall on his sword now rather than wait too long.

Should Archie Norman's bill designed to banish golden handshakes for failing executives ever become law, Wallace would be a victim. He should go now before the spigot of 'fat cat' pay-offs and a glorious pension is turned off.

Equitable saviour
HERE'S an idea. John Ralfe, the departing Boots pensions fund guru, is one of the few people in Britain who has successfully ridden out the storm to have hit Britain's retirement funds. He might be just the kind of credible figure to save Equitable Life from insolvency now that the regime led by Vanni Treves has been discredited.

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