Sunday, Jan 18, 2009
Our money
Guardian: Brown ready to risk billions on debt insurance
Subheading "In a critical bid to revive lending, Labour is to underwrite toxic assets and use Northern Rock to boost the mortgage market." It appears that the housing crash is being revealed as a symptom rather than the cause of the banking failure but that won't stop Brown from trying to get that bubble going again. Whatever the price.
Posted by quiet guy @ 05:32 PM (1155 views) Add Comment
12 Comments
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1. denzil said...
Call me a cynic but I wonder how many of Labour's actions are driven by the fact that there will be an election in the near future.
It makes me sick to the core to watch Brown and Badger throw billions at a problem whist providing little reference to the taxpayer having to pick up the tab for ten years of folly after the next election.
2. tyrellcorporation said...
He really doesn't give a monkey's eh? If he wins the next election he'll bodge along, taxing and spinning as he goes until he loses the next one. If he loses the Conservatives inherit one of the World's truly great economic basket-cases. It's a win-win situation through his squinty eyes!
3. paranoia blue said...
T.C
"squinty EYE" along with "chin lock"
4. paranoia blue said...
Actually, it is “Pontoon eyes,” while one sticks, the other twists!!!
5. stillthinking said...
Browns plan is to guarantee savers deposits using borrowed money, and the way he will repay the money will be to tax the equivalent off the savers later, when they try and spend it. Which is circular reasoning, because whether the savers lose their deposits by default, or the savers lose their deposits through taxation, is in the end the same. What the banks have lost is gone.
The only positive side for savers is that the pain will be shared, debtors will also pay tax, and those with zero net worth (nothing wrong with it, very relaxing) will also be liable through wages,spending etc From this point of view, it is the defaults that results in the demand collapse, because if GB does eventually plan to pay the money back from taxation, there will be no net increase in demand.
Against that, there doesn't seem to be much of a repayment plan being announced, because GB is fooling himself that the guarantee won't get called (fingers crossed). Given that we are entering a global recession I think the defaults are almost certainly to happen. Maybe GB just intends to leave the guarantee money(can only come from quantative easing he can't fund that much) sitting on the books, in which case he effectively risks printing a huge sum of money for a temporary crisis and then -not- mopping it up later.
6. shipbuilder said...
It simply won't make a difference - the majority will not buy into a falling market under the shadow of unemployment. The government are trying to solve a problem that simply isn't there.
7. fjcruiser said...
you can tale the horse to the water but you cannot make it drink.
8. enuii said...
If Brown is going to do anything really controversial it will be this week while all eyes are on the Barack O'bama the American equivalent of Tony Blair, a nice distraction if ever there was one for 'burying bad news' under a pile of schmaltzy media journalism.
9. quiet guy said...
@enuii
"while all eyes are on the Barack O'bama"
Indeed. Another thing that bothers me about the current headlines is the way we've slipped into talking about government spending hundreds of billions as if it's just loose change. The similarity between the words million and billion is unfortunate. I can remember when talk of governments wasting millions had the power to shock.
Dr Evil learned about this problem: http://uk.youtube.com/watch?v=cKKHSAE1gIs
10. icarus said...
Ask yourself this question. Why do banks need to be bailed out rather than allowed to fail?
We need credit institutions and clearance systems, some policy regarding the channeling of credit and some back-up against a bank run. And that's it.
Outside the Anglo-American world, where banking is gambling and market-fixing, this simple model still prevails (though it has been adversely affected by the casino-isation of the world by the Wall Street-London axis.
Why can't we let these too-important-to-fail banks just go to the wall and institute a banking-as-a-public-utility set-up?
The answer lies in power and influence, NOT in 'the public sector is too thick to run a banking system' argument. The system doesn't have to be anything like as sophisticated as it has become. That sophistication is required only for a banking system run as a casino.
11. paul said...
Ask yourself this question. Why do banks need to be bailed out rather than allowed to fail?
You know, that was the exact question I remember the US Treasury asking Japanese Ministry of Finance officials in the 1990s. The US's advice for the Japanese government was this precisely, and Japan didn't follow that advice either, just like the US and UK aren't now.
Was/is that the right decision? Well I certainly think some of the banks should be allowed to fail, otherwise there is a very real sense of rightful indignation at the competitive double standard of 'heads we win tails you lose', and that everyone should pay for making bad decisions.
However social anarchy is never as far away as you think. For example, I have read that if the price of petrol suddenly became too expensive for hauliers to operate, the UK is about three days away from a complete breakdown of law and order - mass looting and literally breaking and entering to steal food from neighbours. Failing banks could potentially trigger that if there's no compensation or bailout scheme in place.
When banks fail, I imagine the compensation costs of the FSCS are considerable for the government, because that money can never be regained - it is like locking the money away for ever in the hands of people whose main interest will be to horde it.
I'm still going to go with the Swedish system of creating a Good Bank and transferring good assets out of banks and letting the existing ones rot. It is by far the most logical solution - the reason why that will never happen is because of power and influence.
12. guiriduro said...
icarus - no truer words spoken. Accepting that moderate, risk-averse debt issuance is a necessary part of capitalism, I really can't see why wasting taxpayer money on plugging the hole in failed banks loan books, would in any way be an efficient way to get a banking sector lending again. Put it this way - broken bank with a loan book with a potential 25bn loss would cost 25bn to shore up, and absolutely nothing is ready to lend again. But let a broke bank go bust, buy it and its workforce and its buildings and infrastructure for the minimum its creditors will accept (given that they lose everything if you don't) - let's say 2bn, then you have 23bn that can go into lending.
Do the lending carefully and there's no reason the taxpayer shouldn't make a modest profit from the exercise. Could even use that to lower taxes down the line. The losers? Bank equity holders, and the useless executives they previously elected to the boards, and bank creditors (well, the savers should already be spoken for out of liquidation reserves.) Big deal. LET THE BANKS FAIL NOW.