Thursday, 20 November 2008

Is Peston admitting Gordon got it wrong?

Robert Peston's blog this morning carries an interesting revelation about the bank bailout.

Basically he says that - while Ministers wanted us to think that the bailout was about generating liquidity, it was actually a question of the Government stepping in to maintain solvency and save the banks from collapse.

the transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks - although it's unsurprising that many of you think that's what it was all about, because ministers created that impression


Which is interesting, because the Banks were solvent - technically at least, until the Government deliberately started a run on their shares (using Peston as their mouthpiece) and simultaneously changed the solvency rules. The result? The Government ended up owning a major slice of the banks, and taking a loss of billions with taxpayers money - just so it could be seen to be in control. This gave Gordon Brown the profile he needed to take credit in the public eye for all the actions taken by other countries to prop up their own banks.

And what are we told by Peston now? Shockingly that more taxpayers money is going to be needed to prop up the mortgage market (ie. a UK TARP). In other words the Government now needs to execute the very option that was on the table (in the US) at the time that Gordon and his meddling bunch of politicians decided to use our money to overreach themselves and attempt to set the international agenda.

Had Gordon been acting in the interests of the country, instead of his own - he could simply have done the following in September:

1. Put in place the absolute lending guarantee for UK banks which has basically always existed (the lender of last resort). This could have been formalised and a fee charged - thus following the US announcement and sorting out the LIBOR crisis.

2. Announced that from 1st January a new tier 1 ratio would apply, that banks should find the capital to meet it from their own shareholders and the market if possible, and that if not the Government would consider a preferred equity scheme, on a confidential arms length basis - like the US - if they could not. This would have ensured that it was the shareholders of the banks who took the losses, not the taxpayer (as has happened since 15th September). The taxpayer would then have bought into the banks at a competitive rate AFTER the bank shareholders had taken the implied losses of their previous bad investments (ie. the losses implied by the tier 1 alteration)

3. Announced a UK TARP immediately to deal directly with bad mortgages, small business loans, sales ledger finance, commercial paper etc. which might have helped in putting a "firebreak" in the domestic lending market and maintaining liquidity for homeowners and businesses. As it stands, this point was not addressed at all (except by some misrepresentations implying that the Government would somehow be able to force the banks to lend, which was never going to happen).

So there we have it, the difference between the actions of a disinterested Government (in the US) who could not be re-elected, and a power hungry Government desperate for a mandate no matter what it takes (in the UK).

1 comment:

jon dee said...

Could be that Peston is aware that his professional credibility needs to
appear more objective than it has of late.
His views on next weeks outcomes may be more revealing.