Monday 9 July 2012
Vince and Ed both grab the wrong end of the stick
No, Mr Cable, this is not true. The reason the banks are not lending is becuase there is very little demand for new money. Big ticket projects are being funded by placings and a very strong bond market - even high yield bonds are still getting away. SME lending is dead becuase small SME's who have a clue are not looking at the economic situation and deciding that now the time is to bet the company on a huge bank loan.
Of course, let's not forget, the Banks have some serious problems that are not helping the recovery at all. Sitting on piles of bad property loans which they can't sell becuase it will bankrupt them is having a bad effect on the many sectors, such as the construction industry. Yields are just being used to pay zombie debt rather than providing capital for new business and opportunities. This is a problem that requires bank recapitalisation, not more lending.
Meanwhile, Ed Milliband is thrashing around trying to say something to keep himself in the papers. The current one is how all the retail banks should be broken up. But this is not the real problem is it? The real problem is the securitisation market and the access that gave banks to wholesale funding. Making banks smaller does not help this. Indeed, the Mutuals proved a complete failure and the sector has shrunk massively.
The real piece of work that was needed was to increase capital requirements for Banks to stop them over-leveraging and to split the Investment Banks away from the retail banks so that they could blow themselves up without resort to the taxpayer. To a large extent this is now being done - not that improvements could not be made. As usual, crazed politicians are just throwing around populist ideas. Milliband is making an arse of himself yet again - which is good going with toxic Ed Balls as his shadow Chancellor I did not think it could get much worse.