Sunday, 23 November 2008

Radical Solutions; Suggestion 2; NewCo Bank

The other day I posted about using a monetary stimulus, printing £'s that is as a possoble solution. This had a mixed reception but I was glad to see the idea being discussed on Newsnight on Friday; so maybe not as barking as some would have you believe.
There are of course many problems with that idea (see comments to the article) but it is going to do more than cutting VAT by 15% for a year or so which is the Government plan plus a few small tax breaks for their client estate Labour voters.

The next proposal I have is more radical and is inspired a little by Anti-Citizen One's comment on my blog months ago.

Our banks are bust, they have far more toxic assets than they can cope with and are slowly going to die or be nationalised. All banks have the toxic virus as they all bought into the real estate bubble and structured finance con.

Yet businesses are crying out for loans, people need mortgages and car loans, the economy is stuck with a terrible monetary collapse - fiscal tax increases are not the answer (at least David Cameron get this as he said on Marr this morning in a very impressive interview).

What we need is a new bank or banks, one unemcumbered by the debt. Then the old ones can be wound down over time and the new ones take their place. So what is stopping this? Well a new bank needs a lot of capitalisation (hard cash), a branch network and lots of staff. Fortunately all these are avaiable for a song right now. The UK Government already owns the Norther Wreck and Bungle and Binglie networks and staff and could make better use of its assets.

Instead of a further investment into the likes of HBOS, we need new national champions - let the shareholders and bondholders in failed companies take the strain and not taxpayers.

Set up a new bank or two and then sell them to the private sector (most likley private equity coompany at first). They will have such a huge competitive advantage they will soon be able to clean up the monetary mess we have in the UK. Much of this work is already done, it just needs courage and some imaginantion to get it going.

Thoughts?

15 comments:

Ed said...

So you would leave all the current liabilities on the taxpayer?

Alan Dean said...

An intriguing idea. Reminds me of the idea from the 90s of having the euro compete side-by-side with national currencies that John Major used to talk about.

How would it work in practice, I wonder? I suspect that people with good credit records and savings would be eager (and able) to move to the NewCo Bank. What about those without these merits though? Would this actually end up orphaning the most financially stressed people in pre-existing financial institutions, prey to predatory pricing, or (worse still) bankless if those institutions end up liquidated?

RobW said...

Have you considered that there may be no big plan solution.

That maybe we're just going to have to take this on the chin.

That the best solution is to bottom out as quickly as possible and re-build from there.

I'm with Jim Rogers -- we're better off letting the bad banks fail and letting the sensible institutions buy their assets.

Andrej said...

Totally agree, something I actually proposed as a petition to the Downing Street... http://petitions.pm.gov.uk/rescuebank/ ... feel free to sign!

Bill Quango MP said...

Alan Dean..
Bad banking customers, poorer customers, ,low income families, benefit customers and pension accounts end up at the new PostBank. Which is a little bit of what Peter Mandelson was hinting out with his talk of respected brand and unprecedented national reach.

Anonymous said...

I've told you before: my plan is to run "Dour and Daughter" as a bank with the slogan "The Bank that likes to say 'No'". It's adverts, which will appear very sparingly, will feature a photo of a bloody great safe.

Ed said...

respected brand and unprecedented national reach

Which can't keep track of other people's letters, let alone their money...

CityUnslicker said...

BE - the ones we are stuck with there is no way out. others to be dumped onto the market.

AD - Orphnas - like with the curretn zombie bank!

TBRRob - Maybe, best to float some new ideas though. There are not many around.

CityUnslicker said...

Andrej - I will

Anonymous said...

I was going to put some money into national savings but then I though "Do I really want to entrust this Labour government with more of my money at this time?". So a state run bank might not be too popular with investors that remember what the government did with pensions.

Anyway, like all plans considered so far it doesn't deal with the nub of the problem - the UK is uncompetitive and imports too much and exports too little. No cheap credit is no worse than the Geoffrey Howe Austrian School economics that purged bad debt from a heavily indebted nation back in the 70s and paved the way for a UK economic renaissance. As Maggie said back then - "it will get a lot worse before it will get better". People don't vote for that sort of approach these days though.

AntiCitizenOne said...

I think it was Mark W's idea.

Mark Wadsworth said...

Agreed.

@AC1, what I suggested was a slightly different tangent, although it led to a similar end result. But thanks anyway.

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