Friday, October 10, 2008
Better placed to deal with the downturn?
Gordon Brown is absolutely right in his proposal that the G7 offer state guarantees, on ‘commercial’ terms (really terms that provide the state with an adequate risk-adjusted return on the funds it commits) to restore life to interbank lending. Banks today don’t lend to each other without high-grade security at any but the shortest maturities. When banks don’t lend to each other, they don’t lend to the real economy - non-financial businesses and households. That is the road to economic disaster. If French officialdom believes the interbank lending market in the eurozone to be in materially better shape than in the UK, it is detached from reality.