Monday, 6 April 2009

The markets fixed; UK banks forced to bet on Government

As the current market rally continues, many of the share prices recovering quickly are the same stocks which took big hits. Banks like LLoyds and RBS, property companies like Taylor Wimpey and Minerva.
Clearly, from the G20 and all the QE jazz, we know the Government has been working hard to ensure a pain-free recession. However, as time passes, this is looking more and more like the UK edition of the Greenspan put. Where the US put off disaster for 4 years, but which has now cost it an even deeper recession.

Many of the fundamentals remain in deeply dark territory as regards the economy and even the Chancellor sees no hope of the recovery starting before next year.

However, Public spending is the real albatross in the situation, with Gilts sales failures and a set of accounts that would have a public company calling in administrators, such is the parlous state of cash flow.

Into this market, the Government has sent its newly owned banks. Here is a link which tells you how much the Government is ordering RBS to lend to the UK market this year. Where can they find enough demand in a stagnant market to meet this criteria?

What will the solution be, well, qui bono? The solution will be to pour money into PFI schemes and social housing schemes. Anything which the Government underwrites is both less risky and of political benefit to the bank, to say nothing of the Government.

The UK will though then have a nationalised banking system built partly on printed money lending to chosen government projects that produce a return for the Government. The wheel of the State is complete. How much PFI finance will Barlcay's and HSBC back in 2009/10?

Then we have the Bank of England asset finance scheme, which will lend more money to banks to take a chunk of the risk away. I 'wonder' what asset classes the Bank of England will choose to participate in?

The Government is making a huge leveraged play on itself. This will all end in tears, it seems as if no one can remember the 1970's when various governments applied all these same ideas on industrial policy rather than financial. This time, the mistake could be even more expensive.


Michael Potts said...

Don't think anyone will be surprised. Brown is infamous for micromanaging everything.... this must be his idea of heaven to tell the banks how to invest, especially if it supports his spin!!!

CityUnslicker said...

anon, - yup, sad but true.

Anonymous said...

This looks more dire by the day.

You're right CU, no one seems to learn.

If the B of E has to become the sole purchaser of gov't debt in this scenario, the people, those that get it, will rush to the exits.

Exchange controls, or Euro?
Exit taxes?
And all the Mayfair hedge funds?

I like your thinking on the completion of the gov't circle of lending/PFI.

The sadness is where it leads to.

guthrie said...

How the hell are we supposed to stop them?
I'm almost certainly a lot more left wing than most of you, but I knew eyars ago Brown was a charlatan, and ahve never voted for him. But how can we stop him doing even more damage? It'll be too late by the time the next election comes around.

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