Monday, 2 March 2009
RBS and Lloyd's may sink Britannia
That can be the only conclusion upon reading this post at the superb naked Capitalism.
In effect, there has been to market for many of the 'toxic' assets that the banks around the world have held onto. yes they have been marked down, but with no market to sell into the assets have been marked down on 'book' values.
However, this research suggests that due to the highly leveraged nature of many of these loans, that somewhere between a 5% and 20% return on these assets. This is shocking stuff, as the study also looks at the long-term return, not just a distress sale.
To focus on the recent UK bank bailout. RBS has put £250 billion into the Government scheme. The bank will take 10% of the losses and the taxpayer 90%. Being generous and say that 20% is recoverable, then there could be an 80% loss. 70% to the taxpayer, this is £175 billion loss for the taxpayer. If we double this amount to include the prospective asset insurance for LLoyd's and Barclay's, then we get to £350 billion in UK government loss. That is a massive amount, nearly half of annual government spend.
This is what the Government is doing on our behalf and yet today the focus is on changing the law to prosecute/persecute one man.