Bad Bank plc

This week, Alistair Darling announced yet another strategy within the broad range of strategies and guesses with which the Government intends to fight the recession and it is the creation of a 'Bad Bank' which will contain the mountain of 'Toxic Debt' it believes to be blocking the flow of credit in Britain.

I can now reveal that the Bank will be called Bad Bank plc and I was granted an exclusive interview with its new CEO, Sir Giles Snoutintrough, a former senior executive of a famous Investment Bank.

Job Creation

"The great news is this," beamed Sir Giles, sipping a small champagne cocktail and straightening his silk tie. "We are forming a new corporation which will require a massive new office building and we need new staff - approximately 5,000 new staff immediately and of course there will be plenty of employment for foreign building workers who can help build it for the lowest bid. We plan to be open for business to take on our first debt next week and we are just having a new vault installed."

I pointed out, that debt was in fact negative money so a vault was not needed.

"The vault is not for deposits, old boy," smiled Sir Giles. "It's to hold my bonus payments, the first of which is for accepting the job whilst sharing it with my duties as a non-executive director of several banks and the part time Director at the FSA. Of course, the City has had its wings clipped rather severely and so Bad Bank plc will be the only bank paying massive bonuses this year. The bonuses will be based on performance and so the more bad debt we can create and store, the more money will be paid to me. It's not stupid money anymore, just a few million pounds, one has to tighten ones belt, you know."

How Will The Bank Function?

"Pretty soon we will be opening branches in every major town in Britain plus a call centre in India," replied Sir Giles. "After we have handled the initial wave of Corporate 'Toxic Debt' we will be open to the public in order to handle more debt at a personal level. The public will be able to pop in and deposit their debts with Bad Bank plc and we will issue them shares in the bank in return. As the debt grows and becomes more valuable then they will share in the returns. We are forecasting that the bank will be trading its assets on the exotic-derivative markets within a few months and the price of the shares in the bank should sky-rocket."

So any debt can be deposited?

"Absolutely - that's the function of Bad Bank plc," he continued. "You see it is vital to get credit flowing again into the markets and specifically the housing market. This will clear the decks so that Bank Executives can clearly see once more how they can create new scams in order to rack up billions in apparent profits and therefore pay themselves enormous bonuses and re-buy corporate jets that unfeeling politicians take away from them. The house market is critical in all this. It is important that Joe Public and The Plumber get back to spending money they simply don't have and borrowing trillions on credit cards with zero security - and they can't do that if they have appalling debts hanging over their heads or decreasing property prices so that they have no apparent equity in their homes."

"The strategy is simple. Bad Bank plc will take a cash for negative equity swap in any household that is struggling. That way we will effectively give the householder a load of money for a stake in their debt. As we all know, debt is crucial to the functioning of modern society and so we will in turn deposit that debt into the 'Toxic Debt' area of the bank and everyone can forget about it, especially me as I will be taking my family on the Corporate Jet to Mexico for a well earned holiday."

So When Will The 'Toxic Debts' Have To Be Repaid?

Sir Giles looked at me dismissively. "You really do not get it do you?" he said. "The whole point of a Bad Bank is to take away the worry of the debt so that executives can be completely absolved of any blame or accountability in the future - the slate is wiped clean. As for the public, well as they are funding the whole thing through the tax burden, they still get to repay their debts but with a little help from all the other millions of generous taxpayers, so it's very cost effective for people in debt now. You really need to understand - Bad Bank plc is the where the buck stops."

How Do You Know What Is A 'Toxic Debt'?

Sir Giles took a moment to stop laughing before taking a gentle swig of his champagne. "You really make me smile - I thought the public were stupid but I didn't think they were that stupid," he laughed. "Look if we knew where and how much the Toxic Debt is then we would not be in this mess, would we? Then there would be no need for Bad Bank plc. You see, the whole point of the financial system was to just keep trading the debts in ever more complex ways in order to cash in on the bonuses and then let someone else make the numbers add up as clearly it was never sustainable. But everyone knew that."

"So what we do is this. Banks just come along and we take a few stabs at guessing their toxicity of the debt mountain and then we haggle a bit before I accept their highest guess. That way, if we are out by a little on the positive side, they can pour it back into their profit mountain in the future and earn a fat bonus on it. Meanwhile, as I am goaled on debt, I readily accept their highest estimate and try to get them to add a bit more. There really is no point in coming back to Bad Bank plc a second time as most of us will not be here, we will be on conventions, freebies and endless paid for holidays as there will be zero requirement to do anything while the taxpayer assumes all the responsibility and liability. It's a superb plan."

Sir Giles is an economic adviser to the Government and is paid £400,000 per minute for his part time role as CEO of Bad Bank plc.