It's a chunky 35 page document. But its conclusion can be summed up very simply: Arsenal has too much debt to pose a serious challenge to Europe's biggest clubs; or to use the jargon, it is over-leveraged, too thinly capitalised.

This is a verdict that has been rejected by Arsenal's board, which has been advised by NM Rothschild.

The North London club's directors argue that paying down debt would have only a marginal impact on the availability of financial resources.

Of course, as an Arsenal-supporting BBC journalist, I couldn't possible take sides in this dispute between the Uzbekistani plutocrat and Arsenal's directors.

But some of you will be interested in Usmanov's point of view.

Here are a few bullet points from the Lazard document:

1) It believes that Arsenal's earnings before interest, tax, depreciation and amortisation (EBITDA) will fall from between £55m-60m in 2009 to £35-40m in 2010. The most striking contributor to this squeeze that it cites is a 12-14 per cent increase in costs to £179m "as a result of players being compensated for tax changes and a number of step ups in wages for individual players".

2) It predicts that cash flow will fall by more than that because of some pre-payments on assorted deals that were taken in 2007.

3) It says that Arsenal's fans are already paying 40 per cent more than the average for the big four English clubs for match tickets and 24 per cent more for season tickets - implying there's little scope to increase gate revenues, especially in a recession.

4) It calculates Arsenal's gross average annual spend on new players as £18m, compared with £37m for the big four; and the net annual spend, including sales, as precisely zero, compared with a £20.2m big four average

5) Perhaps most germanely of all, it fears that redevelopment of Arsenal's former Highbury stadium into luxury apartments may not turn out to be profitable - and that refinancing £140m of property-related debt over the next couple of years will be neither cheap or easy.

So Usmanov - the second-biggest shareholder in Arsenal with a 25 per cent stake - suggests that investors stump up a maximum of £150m via a rights issue of new shares.

This would provide additional funds for Arsene Wenger to augment the playing squad, and/or pay off some of the property debt, and/or pay down a substantial portion of the £242m of separate debt incurred to fund the development of the new Emirates stadium.

As I say, Arsenal's board has said no to all this, following detailed scrutiny by bankers from Rothschild - which included those bankers sounding out the most important individual at the club, Arsene Wenger.

The advice to the board from Rothschild was;

a) paying down the Emirates-related debt would save a maximum of £5m a year;

b) there are better ways to rehabilitate the Highbury redevelopment, including a putative cunning plan under negotiation right now - and even if the worst came to the worst, there should be no direct financial contagion to the club, since the providers of the property loans have no recourse to the footballing assets;

c) perhaps most controversially, the chaps from Rothschild don't believe Arsene Wenger is seriously constrained by lack of finance in his ability to develop the playing squad - and, more importantly, they don't believe that he feels fettered (if you see what I mean).

All of which would be described by some as a courageous blocking tackle: turning down equity finance during a sharp recession, and while the worst conditions in living memory for property developers prevail, well that's quite ballsy.

As is implied by the data in the report, these two - or rather Royal Bank of Scotland and HBOS, which was bought by Lloyds - escaped full nationalisation only by the very fine skin of their teeth.

By the time the Treasury's scheme to insure them against losses on £585bn of their loans - what's known as the Asset Protection Scheme or APS - is put into effect, taxpayers are likely to own 84% of Royal Bank and 62% of Lloyds.

These banks belong to us, to taxpayers. And the monetary value of our investment in this duo is huge, though putting a precise number on it isn't easy - in that the losses we'll incur on the insurance scheme or APS should be seen as a de facto investment, and we won't know the scale of that for years.

If the losses turned out to be no greater than the insurance fees paid in shares by the banks, than taxpayers' total capital at risk could be "as little" as £53.5bn.

But if RBS's and Lloyds' lending and investment portfolio turns out to be considerably worse than feared, well then we might have to realise a staggering £100bn from the sale of our holdings in the two banks in order to get our money back.

The only thing that can be safely concluded is that taxpayers have invested a colossal and unprecedented sum in keeping these banks alive.

The annual report puts it like this:

"Following the issue of B shares in connection with the Asset Protection Scheme, the value of the UKFI-managed investments in these banks will be around £60bn at current market prices".

And, for the avoidance of doubt, if we sold at £60bn we would be selling at a loss - because the market value of taxpayers' initial stake in the two banks is about £11bn less than we paid for those first holdings.

In other words, there's going to be an absolutely enormous asset to sell, as and when these stakes are privatised.

Now what's really striking is how little influence the government wants over these banks in return for the unprecedented support that taxpayers have provided to them.

Yes, the two banks have promised to make more credit available to UK businesses and households, as a condition of transferring potential losses to the public sector under the APS.

Monitoring that the banks honour those lending agreements is a responsibility for the Treasury, not for UKFI.

But apart that lending tit for insurance tat - whose scale is not sufficient to make good the perceived credit deficiency in the UK - these banks have not become explicit instruments of government policy.

Some would say that having been more-or-less nationalised, the duty of the government is now to turn them into directly controlled credit-creation machines, an alternative perhaps to the less predictable initiative to ease lending conditions which goes by the name of quantitative easing.

However, the chancellor and prime minister have set up UKFI with an explicit mandate to make sure that doesn't happen.

UKFI's overarching objective, as explicitly agreed by government is to "develop and execute an investment strategy for disposing of the investments in an orderly and active way through sale, redemption, buy-back or other means".

And in order to do that, it and the government believe that the banks have to remain autonomous commercial entities, and not tools of macro-economic policy.

This is how UKFI chief executive, John Kingman, puts it in the annual report:

"We operate like any other active and engaged shareholder, on a commercial basis and at arm's-length from government...We work closely with our investee banks, for example through strengthening their boards.

Our investee banks continue to be separate economic units with independent powers of decision and, in particular, will continue to have their own independent boards and management teams, determining their own strategies and commercial policies".

So page after page of the annual report is about three things:

• how the government will not micro-manage the banks;
• how UKFI will attempt to help the banks improve the quality of their boards, their governance and risk controls (there'll be a lot more on this in a government-sponsored report by Sir David Walker to be published on Thursday);
• and how UKFI intends to flog those enormous holdings in the banks.

Here's the paradox.

As the annual report makes clear, flogging perhaps £100bn of stock in Lloyds and RBS - which is what the holdings may easily be worth in a couple of year - can't be done overnight.

That's just too big a mouthful for investors to swallow quickly.

How can I be certain? Well in the entire history of Europe, there have only been three occasions when banks (or indeed any companies) have sold shares worth more than £10bn to commercial investors in a single exercise (they were the share sales by HSBC, RBS and UBS all carried out in 2008 and 2009).

Which is not to say that the RBS and Lloyds stakes can't be flogged, but just that it could take quite a few years.

Now that'll be quite a few years during which protests aren't likely to subside that the banks aren't doing their civic duty of supporting the economy.

So UKFI's role as the human shield of the independence of RBS and Lloyds may become increasingly fraught.

Update, 10:18 AM: My favourite bit of the UKFI report is its stern warning to the City that it won't give highly profitable mandates to sell its stakes in the big banks to any investment bank it regards as leaky. It says:

"we need to be especially careful that our dealings with intermediaries - including our selection processes for investment banking advisers - do not create undue risks of leaking our intentions to the market".

There will be no "pre-soundings" of investor appetite, it says.

Crikey. Them investment bankers won't like the idea of flogging this stuff into a market that hasn't been "conditioned".

Update, 10:50 AM: Perhaps the most striking disclosure in the report is that the annual remuneration of UKFI's chief executive, John Kingman, is £143,000.

Of course, that's a lot of money by almost all standards - but not, of course, by the standards of those he employs to run Royal Bank and Lloyds.

Their annual remuneration, including incentives, is as much as 20 times as great.

It's also about half as much as the remuneration of some local authority chief executives.

Since Kingman is arguably the most powerful individual in the British banking scene, perhaps his pay will set the new norm for the industry.

If it does, he'll be barred from the City for life.

She was one of 75 individuals identified by police as having their phone messages monitored by the private investigator, Glenn Mulcaire - who was jailed in 2007 for phone hacking, together with Clive Goodman, the News of the World's royal reporter.

The police informed her that she was on Mulcaire's list of those whose mobile-phone voicemails were being tracked and was asked whether she wanted to press charges. She declined.

It's not unusual for newspapers to spy on each other, even newspapers within the same organisation.

The disclosure may be particularly embarrassing for Andy Coulson, who was then editor of the News of the World and is now the director of communications for the Conservative Party.

He denies that he knew that Mr Goodman was hacking into the mobile phones of celebrities, politicians and others.

Update, 10:45: For anyone running more-or-less any substantial news organisation, it'll be difficult to know whether to welcome or dread the Guardian's investigation into the use of allegedly improper techniques by News International to obtain private information about individuals.

Some will see it as an incentive for journalists to clean up the way they carry out investigations.

Others will fear that it will restrict the ability of journalists to uncover genuine wrongdoing, that legitimate investigations will become harder as a result of apparent misbehaviour by those hacks pursuing celebrity tittle-tattle.

But over-riding all other thought and emotions will be one terrifying question: "is my news organisation going to be seriously tainted by this?"

Because more-or-less every newspaper employed journalists whose specific skill was to obtain private phone records, or ex-directory telephone numbers or other confidential personal information.

And these specialist hacks in turn got hold of the valuable data through their relationships with private investigators.

A good deal of this trade in personal confidential information has already been exposed by Richard Thomas, who has just retired as information commissioner.

In a series of reports and in evidence to the House of Commons culture, media and sport committee, he made a series of disclosures about newspaper activities that he regarded as "prima facie" illegal.

Here's a statement from him to MPs that he gave in March 2007, which refers to the results of an investigation he carried out into the business relationship between the press and a firm of private investigators (the investigation was given the codename Operation Motorman):

"The first thing I would need to share is that the 3,000 or 4,000 transactions identified... came from a total of 13,000 transactions in this one operation alone. We were careful only to put forward those where there was some sort of hard evidence of the transaction being positively identified as involving a journalist for a newspaper".

And this is what he cited as the evidence of payments being made by journalists for the information:

"We did have, and we do have still, the statements, the bank statements, the invoices - some of these well-known proprietors were including information such as 'payment for confidential information', payment for 'blagging' [obtaining information by deception] in some cases - so there was what I might call hard 'prima facie' evidence."

But although successful prosecutions were brought against the detectives (who were given a conditional discharge), there were no charges brought against journalists - because Thomas was advised that, in the climate of the time, the courts would not wish to punish journalists, even if there were evidence of wrongdoing.

However the degree of detail obtained by him about this trade was startling.

He said the market price for obtaining the phone records of an individual was £750. Criminal records could be had for £500. The name of the owner of a car cost up to £200. And to break the barrier of secrecy of the ex-directory phone system cost up to £75 per number.

Where did the money end up? Well, a flow-chart produced by the office of the information commissioner shows the press employing private detectives who in turn deal with phone companies, call centres, the DVLA and what's described as "police source".

Also striking is Richard Thomas's list of the most enthusiastic customers of the particular detectives under investigation [pdf link].

The Daily Mail was listed as the top customer, with 952 transactions "positively indentified" (in the words of a report by the Information Commissioner's Office).

Then came the Sunday People, with 802, and the Daily Mirror with 681 trades.

The Mail on Sunday was in fourth spot with 266 deals. And the News of the World was one place below, with 182 transactions.

Even the Observer, sister paper of the Guardian, was a customer - with 103 transactions.

I would imagine none of those papers will be watching the current humiliation of the News of the World and its owner, News International, with much relish.

Update, 13:10: To state the obvious, my story says that the News of the World appears to have been eavesdropping on Rebekah Wade, editor of its sister paper, the Sun.

And - according to my sources - that is what she believes.

However, it has been brought to my attention, by a Tory spokesman and some commenters here, that on 29 November 2006 the Guardian reported that Mulcaire had intercepted her voicemail messages.

So the Conservatives are saying this is old news.

But the original Guardian story also says that no-one at the News of the World had a clue that there was eavesdropping of Ms Wade. There's an implication in that Guardian article that Mr Mulcaire may have been tracking the messages she received for someone else.

So, to repeat, what I'm saying is that News International is convinced Mr Mulcaire was operating for the News of the World - though I am not saying that the editor of the News of the World, Andy Coulson, knew this was going on.

Sorry if this is a bit complicated.

Because there is now a very clear difference between the policy of the government and the policy of the Tories.

And if the opinion polls are to be believed, it's the Tory plan that'll be implemented after the next election.

Which means that the Bank of England will become a lot more powerful.

As I mentioned in a recent note, the shadow chancellor George Osborne will create what's known as a Twin Peaks regulatory system (or a version of it), with the Bank of England monitoring financial risk at banks, building societies and big insurers.

A new consumer and markets regulator would replace the Financial Services Authorities. It would be responsible for making sure financial firms conduct themselves in ways that don't damage their customers.

For those running the FSA right now, this is a pretty fair old nightmare - because it will make it pretty difficult for it to continue the process of upgrading its staff through recruitment over the coming few months (why would you join a regulator that's being dismantled?).

By the way, some of those running the FSA would argue that a flaw in the Tory approach is that in separating prudential supervision and what's known as conduct-of-business regulation, it would be harder to assess risk in the round at any particular bank or insurer.

A big bank can end up being very badly damaged by selling the wrong stuff to the wrong customers. But under the Tory proposal, responsibility for keeping an eye on that wouldn't rest with the re-empowered Bank of England.

As for Mervyn King's disappointment that he hasn't won the right from the current chancellor for the Bank of England to go into banks and demand relevant information, some bankers had been somewhat alarmed at the notion that they might have had to report to two separate regulators (though they'll certainly have to do a bit of this under the Tory prescription).

Surely if the governor asks the FSA nicely enough, it'll supply him with the information on specific banks that he'll be wanting in the weeks to come.

And if the Bank perceives dangerous systemic risks, it will then be charged with recommending "specific actions which could be taken to counter" them.

Also, the Bank - in its regular Financial Stability Report - will have to say whether any necessary remedial actions should be implemented by it, or by the Financial Services Authority, or the government or "whether they require internationally co-ordinated action",

So, on the face of it, the Bank will have more authority to prevent a repetition of the lending binge that precipitated the worst banking crisis since 1913 and the worst global recession since the 1930s.

To use the financial phrase of the moment, it will be setting "macro-prudential policy".

But this will be seen very much as phase one in the creation of an institutional structure to combat overheating in financial markets (as and when that's a problem again - and the more pressing problem is that markets remain semi-frozen).

The Treasury's policy paper, called "Reforming financial markets", says that creating a formal mechanism for curbing future instances of excessive lending will require an international agreement on the appropriate tools (such as whether banks should be required to hold additional capital during periods of strong growth).

But the governor of the Bank of England, Mervyn King, is getting far less than he wanted.

He asked for the legal right to inspect individual banks. And he hasn't got it.

What's more, the FSA has actually received new powers - including receiving a new responsibility for maintaining financial stability. In fact, if anything, the FSA will be perceived as encroaching on territory that the Bank of England cherishes as its own preserve.

In a nutshell, the chancellor is attempting to reinforce the tripartite regulatory system - or the distribution of responsibilities between the FSA, Bank of England and Treasury that was allocated by Gordon Brown as chancellor in 1997.

What that means is that on this issue, voters in the forthcoming general election will have a very clear choice. Because the Tories are pledging to bury the tripartite system.

And, in the process, the Tories would probably give the Bank of England even more power than it may actually want.

Update, 13:15: George Osborne has announced that a Tory government would give prudential supervision of banks, building societies and other significant institutions to the Bank of England. It will create a separate consumer and markets regulator. It would mean the end of the FSA.

And the Financial Services Authority and Bank of England may have failed miserably to curb the City's dangerous excesses during the boom years.

But the Treasury has opted for correcting the flaws in the existing three-pronged regulatory system created in 1997 by Gordon Brown - rather than doing what the Tories want, which is to dismantle the so-called tripartite approach and confer the important powers to prevent bank crises on the Bank of England.

Also, the Treasury's 140-page paper on reforming financial regulation - to be published at last, many weeks after initial deadlines - will say that our big complex banks can be made safe by an FSA which forces them to hold substantially more capital and cash as a protection against losses and runs.

The Treasury will reject demands to break up the likes of Royal Bank of Scotland and Barclays, or to hive off what the governor of the Bank of England calls their casino operations from their state-insured retail arms, the parts that look after our precious savings.

But it will urge the FSA to make good on its promise to penalise banks that give big bonuses to executives that take dangerous risks.

It won't all be patching, re-seaming and darning. There'll be a proposal to give the Bank of England increased formal responsibility for assessing whether financial markets are overheating in a dangerous way, but the decision on how to curb banks in general from lending too much - as and when they're doing so again (if only) - well that's being postponed pending the outcome of international negotiations.

As I said in my note on Monday, everyone seems to agree that the globalised financial economy would be safe to swim in again if only we had lifeguards with macro-prudential tools to curb systemic financial risk, but no two geniuses can agree which tools are best.

Anyway it's clear that the Treasury would want the Bank of England to do macro-prudential policy, as and when the Treasury has worked out precisely what macro-prudential policy might be.

UPDATE, 07:19, 8 July: By the way, I'm very uncertain about whether the governor of the Bank of England will think he's getting the powers he needs from the Treasury.

It's pretty clear, to use his analogy, that the Bank of England's future sermons will have more teeth than hitherto - they'll be more like a papal encyclical than a gentle Sunday morning morality tale.

But whether Mervyn King will still feel he needs more direct powers to intervene in the affairs of banks, well we'll just have to wait for his reaction.

And talking of papal encyclicals, the one published yesterday by Pope Benedict XVl takes quite a swipe at global financial capitalism.

If you're in the mood for reading about how the capitalist system is unjust and needs radical reform, that's where you should look - rather than in a Treasury paper written by a Labour government.

From Greenbury, to Salsbury, to Vandevelde, to Holmes, to Myners, to Burns, and finally Rose, this company seems to find it impossible to pick chairmen or chief executives without sparking controversy and alienating important groups of shareholders.

If Harvard Business School wants to do a case study of how not to do succession planning, Marks would be it. How different from all those decades when Marks was the definitive Harvard case study of how to run a retailer.

I used to think M&S governance difficulties stemmed largely from the painful transition it made more than 25 years ago from being a family-controlled business into a mainstream, institutionally owned company.

Now I just fear that the directors have been cursed by a witch who was refused a refund on saturnine underwear.

Anyway M&S went against corporate governance best practice in 2008 (for at least the third time in a decade) when Stuart Rose added the responsibilities of being chairman to his existing role as chief executive.

The board felt that was the best way of preparing for his eventual departure. Many shareholders disagreed.

More than a year later the tension between the owners and the managers is coming to a head in a vote at tomorrow's annual meeting.

A resolution requisitioned by the Local Authority Pension Fund Forum calls on the company to appoint a new independent chairman by July 2010.

To employ the kind of language that was current in the City when I became a journalist in the early 1980s, this represents a discourteous gesture against Stuart Rose - since he is planning to retire in July 2011.

In the event that most shareholders were to vote for the LAPFF motion, Rose would almost certainly feel he had to quit now, because the owners would be pronouncing a negative judgement on his leadership of the group.

He wouldn't be legally obliged to go, because the vote is - apparently - not binding on the board. But it's simply impossible for any executive to stay in place when he or she has lost the confidence of the owners.

And if Rose himself weren't minded to go (but he's a proud man, and I'm sure he wouldn't cling on), the non-executives couldn't ignore the revealed preference of the owners. They would have to ease him out.

Two questions follow.

Would shareholders be well served by the premature departure of Rose?

And how likely is it that a majority of them will back the LAPFF resolution?

Ejecting Rose now doesn't look an especially rational thing to do.

First, very few shareholders would argue that he's been a failure. He's had his ups and downs since becoming chief executive in 2004, but most would say M&S is stronger for his tenure. And the last set of figures indicated that the business may be over the worst of the current recession.

Also it's worth investors dwelling for a second on quite how dark a place the business was in before he arrived.

If he were to go now, the UK's largest clothing retailer would be rudderless for an indeterminate period.

By contrast, M&S has promised to find a new rudder - a new chief executive - in an orderly fashion next year.

So it is possible to characterise the LAPFF position as a preference for finding a chief executive in panicky hurry rather than in a methodical and sensible fashion (the LAPFF would of course say that it wouldn't want Rose to evacuate the building immediately).

Which brings us to the question of how investors will vote when it comes to it.

Well, there's bound to be a significant vote in favour of the LAPFF motion.

But I suspect it won't quite get a majority.

What will then be intriguing and important is how many abstentions there are and how the non-executives interpret those abstentions - whether they deem them as irrelevant or as de facto votes of no confidence in Rose.

From what I can gather, the non-execs will rally round Rose so long as the LAPFF doesn't win.

But that is what Margaret Thatcher expected her cabinet colleagues to do after she won her indecisive victory in the first round of voting in the 1990 election for leadership of the Tory party. And something quite different happened.

To coin that awful cliche, this isn't just any mess, it's a very special and very characteristic M&S corporate-governance mess.

For more than four years a top QC and a leading forensic accountant have been investigating what happened at MG Rover between the moment it was taken over by the Phoenix Four in 2000 and its demise in 2005.

The professional-services meter has been ticking over for more than 1200 working days, so the taxpayer has been presented with a bill of more than £16m in respect of their diligent labours.

For that money - and on the basis of their sparkling CVs - it's not unreasonable to assume that they're better qualified than most to spot prima facie evidence of a crime.

So why, in all those years of probing MG Rover, didn't they call in the Serious Fraud Office - or recommend that the Business Department (which used to be the DTI) bring in the SFO?

Apart from anything else, I am told that the Business Department received very regular updates on the progress of the investigation.

Why was it that only after the Business Department received their finished report on 11 June that the First Secretary, Peter Mandelson, determined that the SFO should be asked to investigate whether there's been a criminal act?

More than that, on a reading of the Proceeds of Crime Act, one of the inspectors - Gervase MacGregor of the accountants BDO Stoy Hayward - would actually have been obliged to bring in the police just as soon as he smelled something untoward.

That said, a senior lawyer tells me there's a convention that POCA is suspended for inspectors - which is a bit odd, but there you go.

Anyway, I assume there is a reasonable explanation for why Mr Mandelson felt it necessary to bring in the SFO, but that Mr MacGregor and his QC colleague, Guy Newey, didn't do so at an earlier date.

But of course it's impossible to work out what that might be, because we're not allowed to see the inspectors' report.

And we're not allowed to see the inspectors' report because Mr Mandelson has passed the case to the SFO.

Which is almost a logical paradox of the kind that's designed to make us go batty if we reflect on it too long.

What does seem unsatisfactory is that taxpayers have spent a colossal sum trying to understand more about why a major employer collapsed and yet we remain none the wiser.

It's worth remembering that the failure of MG Rover represented the end of volume car making by British-owned manufacturers.

MG Rover's demise represented the death knell for an industrial policy of propping up an indigenous car industry that went back decades. Even at the end, this government engaged in frantic, fatuous efforts to prop up the business.

Were MG Rover's final, inglorious death throes the consequence of fraud by the Phoenix Four, the quartet who bought the business (the Phoenix Four deny any wrongdoing)?

Did it stem from their incompetence? Or were they just battling against insuperable economic odds?

And why, in the spring of 2005, did the government provide short-term financial support but withhold more substantial aid?

Until the SFO has completed its inquiries, we're not going to know.

According to Andy Haldane of the Bank of England (him again) it's a "new ideology and a big idea" that will "shape the intellectual and public policy debate over the next several decades, just as the Great Depression shaped the macroeconomic policy debate from the 1940s to the early 1970s."

And there will be a bit about it in this week's paper on financial regulation from the Treasury.

Also, I can say with near certainty that it will be "done" or "managed" by a new committee attached to the Bank of England - and that the composition of this committee will probably be as set out recently by Lord Turner, chairman of the Financial Services Authority.

In other words the committee would be chaired by the Governor of the Bank of England, Mervyn King, and would contain perhaps eight other members, drawn 50:50 from the Bank of England and the FSA. You'll note however that the Bank would have the majority and would be deemed to be in the driving seat.

So King can put up the bunting in the magisterial parlours of the Bank of England. He appears to have won the argument that macro-prudential policy is something that the Bank of England should do.

But the sharp-witted among you will have noticed that I haven't spelled out what the Bank of England will be doing as and when it actually does macro-prudential policy.

And that's not because the practicalities of macro-economic policy are obvious and boring.

Quite the reverse: as Mervyn King pointed out in a recent speech, macro-prudential would "contain a number of instruments to reduce risk, both across the system and over time" but "we are a long way from identifying precise regulatory interventions that would improve the functioning of markets".

In other words, we know what we want macro-prudential policy to do: we want it to prevent banks and other credit institutions from lending too much for the health of the economy during the boom years, and also - which is the more immediate problem - to discourage them from lending too little during a recession.

But we don't really know how that should be done, what the levers would be to regulate credit at the level both of national economies and of the global economy.

There are plenty of jolly good ideas.

A ceiling could be imposed on all banks in respect of how much they could lend relative to their equity resources, a so-called leverage multiple, which would be raised or lowered according to whether credit markets were over-heating or freezing over.

Or there could be a variable regulatory tax on incremental lending, which would increase the cost for banks of making new loans during a boom period by forcing them to hold more capital relative to those additional loans (and would reduce the cost when the economy slows down).

Which may all sound straightforward. Except that the financial economy is like a great blancmange, and if you squeeze it in one place there's always a risk that it will splurge out where you least expect or want.

So, for example, the Macro-Prudential Committee would have to be constantly watchful to make sure that newfangled credit institutions weren't being created to avoid the new fetters.

There's also a conviction on the part of the Treasury - which some would say is misplaced - that it would be inappropriate to impose these constraints just on banks and institutions operating in Britain, that there would be damaging ramifications for the competitiveness of our economy and of the City if there weren't an international agreement that macro-prudential policy is the future.

And you won't be the least surprised to know that securing such international agreement is proving rather more challenging than herding cats.

Two final points.

First, how will we know when banks are lending too much and that asset prices are rising to unsustainable levels? It's blindingly obvious with 20:20 hindsight vision that this is what happened from 2005-7. But alarm bells were not ringing sufficiently loudly for the super-brains at the Bank of Engand, the Treasury and the FSA at the time.

Second, are we absolutely sure we need a new Macro-Prudential committee armed with new tools and levers, as opposed to giving the Bank of England's Monetary Policy Committee a new and second target - to curb systemically excessive lending - to add to its anti-inflation mandate?

As Howard Davies, director of the London School of Economics and former Deputy Governor of the Bank of England, has pointed out, there is an interesting logical issue here.

As and when a new Macro-Prudential Committee instructs banks that they must lend less, credit will became scarcer. That will have the effect of making loans more expensive, which is another way of saying that interest rates will go up.

But isn't varying interest rates what the Bank of England's Monetary Policy Committee is supposed to do, in order to fulfil its mission of keeping inflation in check.

Of course, we've all discovered in the past couple of years that the MPC's powers to fine tune interest rates in their many and varied forms throughout the economy are more feeble than it believed.

Even so, will the economy really become a safer place if we have one body - the MPC - using its interest-rate tool to achieve one outcome (controlling consumer-price inflation) and another body - the Macro-Prudential Committee - using another interest-rate tool (variable leverage multiples or capital ratios) to achieve a different but related outcome (preventing dangerous asset price inflation).

That said, both committees would - as I've said - be sitting under the expansive roof of the Bank of England. But some may nonetheless fear that their separation would lead to muddle and confusion that could damage the economy.

The new probe follows the completion of a four-year enquiry under section 432 of the Company's Act by inspectors appointed by the Department for Business.

The Business Secretary, Peter Mandelson, will make a brief written statement tomorrow confirming that the SFO has decided to take the case.

The involvement of the SFO means that publication of the report by the Business Department inspectors will be delayed pending a decision on whether there will be criminal prosecutions.

MG Rover went into administration under insolvency procedures in April 2005, with debts greater than £1bn. More than 6000 employees lost their jobs and suppliers to the company were also badly hurt.

A quartet of executives known as the Phoenix Four took control of the company in May 2000.

John Towers, Nick Stephenson, Peter Beale and John Edwards are estimated to have taken out more than £40m in pay and pensions in the years before the business went down.

They originally bought MG Rover for a nominal £10. The business came with an interest-free loan of £427m from BMW, the previous owner.

There are likely to be questions raised about why the case has been referred to the SFO only after completion of the inspectors' enquiry, rather than bringing in police at an earlier stage.

A spokesman for the Phoenix Four said: "There has never been any suggestion of improper conduct by the directors and this was confirmed in a report by the administrators PWC six months after they took over the running of the company."

His latest speech, "Small Lessons from a Big Crisis" [pdf link], is grist for those who believe top bankers are being paid far too much (although this is not a conclusion he draws himself).

First, Haldane looks at the returns generated by UK banks and financial institutions since 1900, to see whether shares in the financial sector have performed better than the market in general.

What this shows is that from 1900 to 1985, the financial sector produced an average annual return of around 2% a year, relative to other stocks and shares.

So for 85 years investing in bank shares was "close to a break-even strategy" (his words), nothing special.

But in the subsequent 20 years, from 1986 to 2006, returns went through the roof: the average annual return soared to more than 16%, which was the best performance by financial-sector shares in UK financial history.

And it's no coincidence that the pay of top bankers also zoomed up to the stratosphere. Which at the time upset only a few, because the bankers seemed to be enriching the owners of the banks, their shareholders (millions of us through our pension funds).

That, of course, is not the whole story.

The collapse of banks' share prices in the past two years has wiped out most of those gains: to March this year, when the low point was touched, the fall in UK bank share prices was more than 80%, an all-time record plunge.

What this means is that in the full period from 1900 to the end of 2008, the annual average return on financial shares was less than 3%, almost identical to the market as a whole.

Which is what common sense would predict should have happened, since banks are to a large extent a utility, serving the needs of the wider economy, and its difficult to see how banks in general can therefore grow significantly faster than the wider economy.

What went so right in 1986 to 2006? Had top bankers become much more brilliant than their predecessors, such that they deserved disproportionate rewards?

Haldane answers this question by breaking down banks' return on equity - the return generated on ordinary shareholders' capital - into its two component parts, which are the return on gross assets and the leverage employed by the bank.

This is slightly complicated, but bear with me, because it is absolutely central to assessing whether bankers merited their lavish remuneration.

Now if you want to know whether bankers are particularly skilful, you have to look at the return on gross assets. If one bank earns consistently bigger margins on the loans and investments it makes, that tells you it is probably doing something cleverer than its rivals.

By contrast, leverage - or the ratio between a bank's gross assets and its stock of shareholders' equity - is the Las Vegas part of the return on equity, the contribution made by a punt or a gamble.

Here's the important point: for any rate of return earned per unit of a bank's gross assets, the return on shareholders' equity rises as the assets-to-equity ratio rises - or, to use the jargon, as leverage rises.

Which is easier to grasp by way of a practical illustration.

Suppose a bank has lent £1,000 and earns a 1% net return on this, or £10. If that £1,000 is backed by £50 of shareholders' equity - which is a leverage multiple of 20 - the return on equity is 10 divided by 50, or 20% (which, for what it's worth, is a handsome rate of return).

Now, suppose another bank lends £1,000 on a leverage multiple of 50, or supported by just £20 of shareholders' equity. In this case, the return on equity is 10 divided by 20, or 50%. So the return to shareholders is a stupendous 50%.

Or to put it another way, increasing leverage is a simple and automatic way of increasing returns to shareholders. And as I hope you've noticed, there's nothing terribly clever about it.

But if all you care about is fat returns, and you're not interested in how they're earned, you'd give the boss of the highly leveraged bank a cigar, a bottle of Krug and a £5m bonus.

As I've observed many times in this column, maximising leverage is the equivalent of buying a house with the maximum amount of debt: it looks like an awfully smart thing to do when everything's going up up up, but is the fastest way to lose money when the economy turns.

Just to prove the point: if our banks were to lose £20 on their £1,000 of loans, the bank with just £20 of equity would be wiped out, it would be bust (a big hello to Royal Bank of Scotland, which at the peak of its lending and investing had a balance sheet that was indeed 50 times the size of its core equity).

So what has Haldane discovered about the golden banking years from 1986 to 2006? Were the super-normal returns of banks the consequence of management skill, viz high returns on gross assets? Or were they casino profits, generated because banks in general increased their leverage, their ratio of assets to equity?

This is what Haldane says:

"Since 2000, rising leverage fully accounts for movements in UK banks' ROE [return on equity] - both the rise to around 24% in 2007 and the subsequent fall into negative territory in 2008."

In other words, in the seven years before the crash, British banks' bumper profits were in aggregate generated wholly by a massive increase in leverage by the industry: and in Haldane's view, these would be returns generated by gamblers' luck, the jackpot from the roulette ball landing on black.

What follows?

Well, it's uncontroversial that we all paid something of a price, in the form of the worst global recession since the 1930s, when the bankers' luck ran out, when the wheel spun to red.

Which means that we all have an interest in preventing bankers from repeating these reckless gambles.

These would be a few useful lessons.

1) The overall level of bankers' pay was inflated over the past few years by the rewards they scooped from the leverage gamble. It should be cut to a level commensurate with an industry that's closer to a boring utility than to a wealth-creating, entrepreneurial venture. This has not happened yet. In fact, if anything, bankers are pumping up their pay packages again (the recent remuneration deal made by Royal Bank of Scotland with its chief executive, Stephen Hester, would not have looked mean in the boom-boom era).

2) Regulators should impose a legally binding maximum - and at a relatively modest level - for the ratio of a bank's gross assets to its equity, the leverage multiple, to restrict bankers' freedom to gamble.

3) Owners of banks should be very cautious indeed about rewarding bankers for the returns they generate on equity, and should focus rather more on the returns earned on gross assets.

If you're still with me (wakey, wakey), there's one other important related issue I want to explore, which is how to re-introduce moral hazard into banking, how to persuade bank chief executives that they'll really suffer if they place reckless bets that go wrong.

The problem is that no one can possibly any longer believe that there are any circumstances in which our government will let one of our biggest banks collapse.

Which is an enormous comfort to the chief executive of a bank. It means he or she can do something spectacularly stupid, safe in the knowledge that taxpayers will bail out the bank as and when it all goes wrong.

The best deterrent against greed-fuelled gambling by banks is the threat of being sacked when it all goes pear-shaped. But that's not a particularly scary threat to any banker who's earned enough in the preceding years never to need to work again.

That rather implies that bankers should be paid a decent wage, but should not be able to get their mits on any serious wealth for years and years and years.

Arguably they shouldn't be allowed the big haul till they retire and it's clear beyond a scintilla of doubt that they haven't dangerously over-mortgaged their respective institutions.

And once again we're back to the serious critique of Royal Bank of Scotland's board for sanctioning Sir Fred Goodwin's never-have-to-work-again pension.

But Sir Fred is just one embodiment of how banking became a casino run for the benefit of bank executives: the sucker punters were the shareholders and - little did we know it - taxpayers.

"In my Ministerial Written Statement on 21 July I said that, whilst the Government remained of the view that it should remove itself from detailed involvement in the affairs of the racing and bookmaking industries, the Government would need to be satisfied that it was right to proceed with a sale in the light of prevailing market conditions.
"After further work over the summer, I have now concluded that it is not appropriate to pursue a sale in these market conditions. I have therefore decided that the Tote should be retained in public ownership for the medium-term, and brought to the market when conditions are likely to deliver value for the tax payer and racing."

Sutcliffe seems to have read the market pretty well.

And market conditions have not yet improved sufficiently for the government to want to flog off the Tote - even though it's widely viewed as a highly attractive business.

Curiously, less than two months after the Tote disposal was shelved, and at a time when the economy was in freefall and credit was almost impossible to obtain, Peter Mandelson took a rather different view of the state of the marketplace.

He embarked on his auction of a sizeable stake in Royal Mail.

Which can only show, I think, that he rather likes making bets on 100-to-1 outsiders.

Perhaps he believed that a tentative offer from TNT, the Dutch post office, was more serious than it turned out to be. But even if he did somehow persuade himself that TNT was unlikely to walk away - which is what it has done - he surely can't have expected there to be any serious competitive tension in the auction.

It was fairly clear at the time that the going would get tougher for almost all possible bidders from the postal industry, such that their appetite for a substantial acquisition could well shrink to nothing.

That said, in view of CVC's sizeable investment in continental postal services, that private-equity firm was always likely to make an opportunistic bid. However CVC's partners did not become stupendously wealthy by overpaying for assets.

So a decent price could not possibly be extracted for the taxpayer if CVC ended up bidding against itself - which was the predictable outcome.

It's possible to say, and not just with the benefit of hindsight, that Peter Mandelson took quite a punt when pressing ahead with the partial privatisation of Royal Mail. And what he wagered - according to some of his colleagues - was the unity of his party at a time when political conditions were as fraught and unstable as market conditions.

Doubtless, now that he's shelved the sale, they'll carry him shoulder high as a hero once more.

The global economy is in recession. Credit is tight. The value of businesses on the stock market remain depressed.

So when the first secretary says it looks impossible right now to sell a sizeable chunk of Royal Mail at a price and on terms that would secure value for the taxpayer, well that's uncontroversial.

The problem for Peter Mandelson is that market conditions were - if anything - even worse on 16 December last year, when he embarked on his adventure to partly privatise this historic public service.

The economy was in freefall. Credit was almost impossible to obtain. And stock-market prices were more-or-less where they are today.

Which implies one of two things.

Either Mr Mandelson and the government were demonstrating a complete absence of commercial nous in thinking it was a good moment to sell Royal Mail.

Or his real reason for abandoning the sale has as much to do with politics - with the fervent opposition to the deal of much of his own party - as with the scarcity of cash-rich purchasers.

There's the relatively contained financial cost - a maximum of £72m.

And then there's the difficult-to-quantify but substantial blow to its reputation - and to its ability to win future business from government.

The transport secretary has made it clear that he's not prepared to award any further rail franchises to National Express - and if he can, he'll probably do what he can to frustrate its bus operations.

For National Express that was a price worth paying.

The £1.4bn it had agreed to pay to the government for the seven years of its franchise was predicated on revenues growing by 9% a year.

But since the contract was signed in 2007, there's been an economic event called a global recession.

Revenues on the East Coast line are this year growing at 1%. Which means National Express would have faced crippling losses if it didn't walk away from the contract.

That said, National Express would rather have secured the public consent of Lord Adonis and the Department for Transport for handing back the franchise - so it offered more than £100m by way of compensation, above its contractual liabilitiy.

But alienating Lord Adonis and the government turns out to be less of a concern for National Express than the burden of the East Coast payments.

Which implies that National Express is reconciled to becoming a rather smaller business - and possibly either dismantling itself or selling itself to another transport company.

That said, the newly appointed acting executive chairman, John Devaney, loves a bumpy ride - and he has something of a talent for extracting a decent price for shareholders when the world looks pretty bleak.