Nottingham, Iceland...and Bleak House

I hesitate to dip a toe in the troubled waters off Iceland, but a note of sanity needs injecting into expectations about the recovery of Nottingham's missing £42m.
I'm all for the council getting as much cash back as quickly as possible, and who wouldn't be?
Sadly, there’s little likelihood that Nottingham will get every single penny back and the reason for that is simple.
When a huge sum of money is locked in an account for any length of time one of two things happens to it: it either gets bigger or smaller. In accounting terms, it can't stay the same.
How come? If it's in an interest-paying account it will earn a load of money. And even a low rate of interest will add up to thumping wodge of cash on £42 million.
Unfortunately, Nottingham's money isn't earning interest because the banks whose accounts it was sitting in went bust.
This leaves it exposed to depreciation. In the same way that £5 in 1999 won't buy you as much in 2009, the purchasing ability of £42 million will diminish over time because of inflation.
Now, inflation is currently very low, so the £42m is not depreciating at a high rate at the moment. But in the same way that a low rate of interest can add up to a big gain over time, so even low inflation will exact a sizeable toll on £42m.
So even if Nottingham gets back the full £42m in a few years' time it will still have lost money.
And it may be quite a few years.
The case study advanced by the Local Government Association as proof that money does come back eventually concerns the hugely controversial failure of the Bank of Credit and Commerce International, the Pakistani bank whose questionable past finally caught up with it in 1991.
The BCCI story is an extremely colourful one. More to the point, it goes on forever.
What has happened since 1991 bears more than a passing resemblance to Jarndyce v Jarndyce, the never-ending court case in Charles Dickens' Bleak House. It was five years before any money was returned to creditors, it went on to involve a court hearing which featured a 119-day opening speech, and some of the money remains outstanding to this day.
The losses caused by 18 years of inflation simply don't bear thinking about. But that may be the kind of issue that Nottingham City Council's treasury team has to confront.
Making long-term forecasts about inflation is fiendishly difficult because different sectors of the economy are exposed to it in different ways.
But there will come a point when all the councils who got caught out in Iceland will have to consider whether an early settlement with the Icelandic authorities is more cost effective than hanging on for what might come out the other end of a long wait.
Battles like these have a habit of ending up in court. Beware the spectre of Jarndyce, or the outlook could be very bleak indeed.