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Editor's blog 2nd February 2009: Holding public finance to maturity - not marking it to market

Hello, and I hope the snow isn’t affecting you too adversely.

Today we have new Maynard Doctrine -  www.healthpolicyinsight.com/?q=node/255 for you - please be warned, it is not optimistic at all.

Today we also have new Health Policy Today from Tom Smith - www.healthpolicyinsight.com/?q=node/256 - which is somewhat optimistic, and wide-ranging.

Today from me must, alas, be quite a quick one – but two pieces in the press stirred a thought. A feature in yesterday’s Observer suggests that the financiers of PFI have got cold feet (www.guardian.co.uk/business/2009/feb/01/creditcrunch-recession).

It appeared to give less weight to the possibility that banks have simply got no money to lend because of their catastrophic losses – even though the guarantor of PFI loans is national government: the one thing that cannot go bankrupt (we all just pay more taxes).

More to the point, borrowing from Anatole Kaletsky in today’s Times (http://business.timesonline.co.uk/tol/business/columnists/article5636248.ece), some of the thinking around the PFI apocalypse seems mired in the ‘mark-to-market accounting’ tradition.

Mark-to-market, Kaletsky outlines, “assumes that market prices automatically reflect true economic values has been discredited by the illusory profits it created in the credit boom - and should be ignored in valuing bank assets for the new guarantee schemes that governments are rolling out.

“These schemes should instead use what Ben Bernanke has described as the “hold to maturity” valuations of assets, which use transparent and reasonable economic assumptions about house prices, inflation and so on to assess the long-term probabilities of default”.

Interesting and good points. Moreover, if banks really either can’t or won’t lend, then there are going to be some of the fabled ‘private sector good’ project managers coming onto the employment market. A secure contract or job in the public sector probably looks like a not unattractive option just now …