Friday, 16 January 2009

Lets create a bad bank

The immorality of this idea to create a dumping ground for bad loans - euphemistically called a bad bank, is staggering. Banks, who have paid their shareholders and workers extraordinary sums of money, are now going to offload their bad decisions onto a state owned bad bank. Toxic debt will be taken off bank balance sheets and given to the tax payer.

So instead of building schools, providing health care and looking after the old, the taxpayer will be covering up for the banking sector.

Gordon Brown is calling this a rescue package. What he really means is that it is a package to rescue him from consequences of years of New Labour economic mismanagement.

4 comments:

Vado said...

scandalous and immoral.

sobers said...

It isn't going to rescue GB, just the banking system (possibly - at the expense of future taxpayers). GB is going down, electorally come 2010, and historically after that. He will be written off as the worst, and most hubristic, Chancellor in UK history.

aSteve said...

I've been thinking about this in the bath - and had a bit of a "Eureka!" moment.

At present, banks are incentivised to make large loans at competitive rates because, if they do otherwise, their portfolio of existing debt will plummet in value and this will either impact profits or bankrupt them. If banks' balance sheets are rescued from the risks already taken, I anticipate that something amusing and somewhat perverse will happen. Pundits bandying this idea around argue that it would free up banks to make new loans... but, in fact, what it will do is remove the last shreds of motive to continue to lend competitively. Freed from the risk of impairing my own portfolio, the rational behaviour for banks would be to adopt usurious rates for lending in order to maximise their returns and minimise the cost of their capital. I anticipate that this would cause an asset price crash the likes of which mankind has never conceived.

The only question that remains, in my mind, is whether politicians will want to go ahead with the plan in spite of it being most likely to have the exact opposite effect from the one they claim to expect.

TheMoneyForum said...

The very fact that they are talking about the creation of a bad bank to soak up all of the bad debts just proves by their own admission what an almighty great big cock up they've made of their own financial affairs.

Why should the poor bail out the super rich?

Let them rot. If this is government representing the views of the very people that voted them into power, it just goes to show what a load of cobblers the entire system is.

This is back to rewarding people for their very bad mistakes and dreadful performance, whilst they continue to take the mickey out of the rest of the population, charging them at every opportunity extraordinary fee's etc for the slightest perceived misdemenour, whilst they themselves, get off scot free.

Talk about biting the hand that feeds them!

This country, it's government, is making a mockery out of the UK people.