Friday, 4 December 2009

£850 billion investment for £30 billion loss

That is the sum of the news out today. In the last two years the confluence of plitics and business has been amazing, no where more so than in banking. Just this week RBS tried to push on the bonus issue with the Government, but look at the big guns coming into play. Just a day or two later the Government can have the NAO release horrific numbers that smash the RBS case; already RBS is backing down and bankers there won't get the pay they want.

I note the £20-50 billion loss the NAO expects is broadly similar to my own calcs that I did last month. I thought a £30 billion loss would be the total, nasty but not on the scale of the huge public sector deficit we have run up of nearly £500 billion.

Is this a price worth paying - well probably, letting the banks fail would have cost the economy far more than £30 billion.

Should this be the end of bonus culture? No, it is a free market and you should pay what is required. However, I can't see in the long-term how a state owned bank can also be a high risk investment bank. If RBS's book was in a better state then the best plan would be to sell of RBS GBM, its investment banking division. Lloyds does not have an investment banking arm which is also why there is less focus on it in this regard.

However, being state-owned and bailed out makes a difference and huge payments are just not going to happen politically these days. Time will tell if this is a good idea for the shareholders (i.e. us) or not. Maybe I am wrong and all will be work out fine and I can eat my cyber-hat again.

Overall though Labour is being led by the nose by the media on a populist witch-hunt of bankers, it is sad to watch a fag-end Government in this phase, with poor long-term decisions taken for purely populist, electoral reasons.

8 comments:

Stringy said...

it is sad to watch a fag-end Government in this phase, with poor long-term decisions taken for purely populist, electoral reasons.

Amen

The Great Simpleton said...

Bud light? You've gone in my estimations, CU ;-)

Overall though Labour is being led by the nose by the media on a populist witch-hunt of bankers, it is sad to watch a fag-end Government in this phase, with poor long-term decisions taken for purely populist, electoral reasons.

I'm not so sure. Its well known that in prisons there is a hierarchy of villains as even the lowest of the low need someone to kick.

MPs are held in such low esteem over expenses that they need someone lower than them to take the heat from the public and press and who better than bankers? I wouldn't be surprised if there has been a few press briefings on this giving the pot an almight stir.

Demetrius said...

Easy, as RBS is such a mess, for which we will all pay, and they are so keen on a bonus, then how about ten lashes at the wheel for every £1000?

Blue Eyes said...

How much of the £40,000 per household or whatever it is will we eventually get back? I can't afford to repay it all myself out of my income.

I think we should have a new ministerial liability law. How about Prescott has to give up his Parliament View apartment for a start??

Bill Quango MP said...

if I'm a shareholder where are my shares?
If the government insisted that they, meaning us, stepped in to save the banks, then why can't I have my shares? Its my taxes that are going to pay for the next twenty five years. All I will get is a 'thanks for all your tax. We sold the banks bank in 2033 and made a small profit that we spent on a bridge, or a hospital or a war or something."

Probably won't even get that.

Optimistic Cynic said...

"However, being state-owned and bailed out makes a difference and huge payments are just not going to happen politically these days. Time will tell if this is a good idea for the shareholders (i.e. us) or not. Maybe I am wrong and all will be work out fine and I can eat my cyber-hat again."

Please explain how this is in any way "good". My future is being staked on a bank, something which I didn't ask to be done, and for which there are no predicted rewards to come back to me.

£50 billion is the equivalent of £800 for every man woman and child in the country (does this also include interest?).

Now, I know there's this whole thing about them keeping the credit running to business, but at what cost? If you take £800 off every person, then that's less to spend in every business.

It's all being done to make everything seem a little sweeter before the next election. It's why this housing rise is a false dawn.

James Higham said...

What happened to your header, boys?

AntiCitizenOne said...

> Is this a price worth paying - well probably, letting the banks fail would have cost the economy far more than £30 billion.

You have to justify this far more than just a statement.

> No, it is a free market and you should pay what is required.

No it's not! The market is totally led by what the state is doing rather than any other factors.