Monday, 19 January 2009

Bank Bailout: Out of Ammo

There are a raft of initiatives out this morning from HM Government. We looked yesterday at the Insurance idea. Pondering further overnight I see this as a great opportunity for the bankers to take the taxpayers to the cleaners. the premiums will be too low and the losses more than expected.

In effect, the Government will become like AIG and the monoline insurers - see here for a good, if technical, description. That worked well as a business model....

However, converting preference shares into ordinary shares was a good idea for Lloyd's and RBS - but not if they end up in Government hands anyway. RBS is down to 13p a share right now so that is looking very likely as of now.

The other measures are all good ideas to get lending going again and a good fist at trying to stop a depression resulting from the credit crunch. If only they had been done a year ago...

UPDATE The key measure from now on in is printing money. The UK can not really bailout the banks as their assets are too big for us to handle. This leaves interest rates and inflation as the only way out. We paid our money, took our chance and now the wheel has stopped...

7 comments:

Mark Wadsworth said...

the premiums will be too low and the losses more than expected.

Exactly. The other measures are shit - the way forward is setting up New Good Banks, debt-for-equity swaps and allowing house prices to crash as fast as possible. Everything else just prolongs the agony.

Bill Quango MP said...

The new good bank is on the cards, but can't be set up in time.
Expect the "Bad bank" idea to be resurrected if things don't improve fast enough.

CityUnslicker said...

market reaction says it all. Banks hammered.

Mick said...

What a one-sided deal this is. Because Brown and Darling and rest of the useless sods have never been in business, they don't have the basic negotiating skills needed.

The banks get everything, the taxpayers get nothing.

They should have split out the retail side from each bank, hived the rest off into separate companies and let them sink or swim.

Anonymous said...

It's not going to work because the banks don't have the money to lend so all the insurance in the world isn't going to change that. So as the banks cease lending more businesses that need to roll-over debt or that need working capital to finance or that need consumers to take out debt will fail. This will cause the banks to write off yet more debt (listed on their balance sheets as "assets") leaving them deeper in the doo-doo and even less able to lend.

That's how a debt bubble collapses my friends. Gordon clearly doesn't understand what is going on so I guess we will have yet more of the same desparate "polyfilla" economic action until the whole financial house falls down around his ears.

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