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Bank Of England: Bailout Bill Hits £1trillion

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Sam Fleming, Daily Mail

26 June 2009, 7:40am

The Bank of England has issued a dire warning about the crippling taxpayer costs of the financial crisis.

Just two days after its governor Mervyn King's lacerating attack on the Treasury, the Bank warns a further, even more radical overhaul of the stricken banking system may be needed.

In its bi-annual Financial Stability Report, the Bank calculates a breathtaking £1.26 trillion of public funding has already been pledged to support the City.

But it warns that banks remain too financially feeble to bolster lending to normal levels. And any additional infusions of public money could impose dangerous pressures on governments' finances.

In a blow to Gordon Brown, the report also found that the debt and housing bubble that preceded Britain's crash was even worse than in earlier banking crises in other countries.

It also criticises City institutions that it sees as being too big and complex - putting it at odds with Treasury policy. Mr King has expressed concerns about firms that combine high street retail operations with higher-risk investment banking, arguing such activities should be separated.

The report suggests 'limiting the scope of banks' businesses to a narrower range of relatively low-risk activities'.

The Bank finds there have been improvements in the 'resilience' of City lenders but says UK banks 'inevitably remain vulnerable' and face a possible £500bn black hole in their finances between now and 2013.

One obvious response might be to pump more public money into banks. Yet the Bank of England warned there are limits to the Government's ability to prop up the banking system, because its own finances are under such intense pressure.

The analysis suggested that market worries about the scale of the national debt could drive up the Government's cost of borrowing and adversely affect the entire financial sector.

Underlining that point, the Bank released a survey of City investors and dealers showing that fears of a Government debt default are dogging the markets for the first time. Some 26% are worried about this occurring, yet no one said this in last year's survey.

The Bank also warned rising unemployment could push yet more homeowners over the brink. The number of people in arrears on their mortgage is likely to double to 333,000, the report predicted.

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These are the same bankers who are now awarding themselves vast bonuses again because they are talented and create wealth :lol:

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These are the same bankers who are now awarding themselves vast bonuses again because they are talented and create wealth :lol:

Surely not the moral hazard that our Merv was "warning" against last year? <_<

I wonder how much it would have cost to wind HBOS and RBS down while protecting all the deposits?

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Surely not the moral hazard that our Merv was "warning" against last year? <_<

I wonder how much it would have cost to wind HBOS and RBS down while protecting all the deposits?

I'm pretty sure it would have been much cheaper. However it would "not have been the right thing to do" in the eyes of Gordon Brown. What total idiots we have in charge.

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Could it be a plot to make Brown's earlier mistakes like selling the gold cheap appear trivial?

A few billion here and there is now seen as nothing.

and spending other peoples money continues to be a piece of p*ss

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At least it is a little reassuring to hear the BoE starting to make loud noises about the unsustainable government spending. Like many on hear have been warning about time and time again, the banks will suck so much money in, that it will put pressure on the gilt markets.

If yields start to rise noticeable, it will have two affects - 1. new borrowing will be more expensive for the government and 2. rolling over existing obligations will have to be financed at a higher rate too. It's like a noose slowly tightening around our necks - the more we wriggle (borrow) to get free, the tighter the choke holds (the more expensive it gets).

How will interest rates be kept low by the BoE if the market says otherwise? Print more to give to the banks to lend cheaply? The choke hold in the gilts will tighten further and sooner or later, we will have to take the medicine of high interest rates or face hyperinflation.

For those who then think "yay, my mortgage debt will evaporate!", I would be more worried about the £10 loaves of bread and lack of employment to pay the interest on it if I were you.

Face it - the banks own the governments. They will get their way until the public go for a full blown revolt.

And this makes things better because? It just moves the insolvency problem from the banks to the government.

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i remember at the start of 2007 i had arguments with people about bank funding via the government, what really sickens me people just dont see they are being played.

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Watch what they do, ignore what they say?

"oh I am ever so worried about inflation"

PRINTY PRINTY!!

"We need a plan to pay back all this debt, you know, chaps."

PRINTY PRINTY!!

"This will means tax hikes and higher interest rates later on!"

PRIJNTY PRINTY!!

All they have done and will do is print and chat shit in the hope that people are fooled long enough that they can get away with it.

Edited by Injin

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These are the same bankers who are now awarding themselves vast bonuses again because they are talented and create wealth :lol:

untalented and create vast debt more like..

However is this £1 trillion real money or funny money of the printed kind?

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I forgot to add - it is good that they are talking about splitting investment from retail banking too. Vince Cable has been banging on about that for months and I completely agree.

Putting mortgage lending back to the sound principle of lending from other account holders' savings is surely the only way to keep house prices steady and sustainable. It would stop the banks betting the house (quite literally) on some financial gamble too.

Sure, people may need a large deposit, prove that they can be trusted and may have to wait a while, but would surely be immensely more fair than the current casino system we have now.

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