A week of monied madness?

On the face of it, Nottingham City Council watching £42 million of council taxpayers’ money float into the financial equivalent of an Icelandic cold store is enough to send shivers down your spine.
There will be scores of people across the country wondering what on earth councils were doing apparently playing poker with public cash.
They weren’t, of course. So let’s explain.
Public bodies like councils routinely have eye-watering amounts of cash rolling into their coffers regularly. Think about it: they’re taking a useful wodge off hundreds of thousands of us in council tax every month.
It simply doesn’t make sense for that cash to sit there and do nothing. After all, if you had a great pile of readies that you didn’t have to spend there and then you’d probably shove it in a savings account so it earned you an extra few quid.
That’s what councils do with useful chunks of their revenue while they wait to spend it and it’s been happening for donkey’s years.
Now, no council wants to see public money being handed over to banks controlled by either gun-toting dictators or reckless chancers. So they can only stash your cash with banks approved by the Government.
Iceland’s banks were among them. Not so long ago, the Icelandic economy had been roaring ahead like a steam train, its modest population enjoying a stonkingly high standard of living.
It followed, therefore, that its banks were in rude health, enjoying a gilt-edged reputation from credit ratings agencies that came from supporting what seemed like a Rolls-Royce economy.
A few months ago, those ratings started to lose their lustre when the credit crunch clouds started to bubble up into the Northern hemisphere. The truth was that Icelandic financial institutions, just like those in the USA, the UK and Europe, had been supping with the bad debt devil. In a big way.
Why didn’t our councils sound the alarm bell and pull out their cash the moment those ratings changed? They couldn’t: just like conventional savings, the money was locked into long-term higher interest accounts.
Right now, the councils are pointing the finger at the Government, saying they put money into Whitehall-approved banks. There was also an implication from some quarters – one that has a ring of truth – that the Government encouraged councils to pursue high-interest investment strategies that might have yielded extra cash at a time when Government was keen to keep a lid on council tax rises.
And Gordon Brown? He’s blaming his opposite number in Iceland for apparently deciding that the collapse of his banking system is someone else’s problem.
It isn’t clear right now whether, and to what extent, Nottingham’s £42 million is recoverable. If it’s not there are bound to be service-related implications, especially as our own Government – already busy spraying billions at our own hobbled banks – seems reluctant to take up the slack.
Some may conclude that this is yet more evidence that we have been living through an era when major institutions – be they banks, building societies or councils - seemed to forget the caution and prudence that was expected of the stewards of other people’s money.
As we reach the end of a momentous week, others will be punch-drunk on the terrifying scale of the numbers that have been bandied around.
So let’s finish with another. On the same day that that councils including Nottingham revealed that they may collectively have lost more than £900m during the course of this financial crisis, news emerged that one London property investor had lost £1 billion in one day.
Will they call this the week of monied madness?