Get Your Cheque Books Ready

As you sip your tea or coffee over breakfast this morning you may just want to check your wallet as some day soon we may all have a nasty cash call on us and the numbers aren't pretty.

Asset Protection Scheme

As part of the bank bail out scheme, the Government has introduced the concept of an insurance underwritten by you, the reader and taxpayer, which in return for a premium paid by the bank insures their future losses. Whether those losses are solely linked to the 'toxic debts' everyone talks about or losses in general no one really knows but there are some things that may make us pause for thought.

Of course, we haven't been consulted over this but then again we really do not understand the mechanics of modern banking nor have we either the intellectual capacity or a calculator large enough to cope with the astronomic numbers. We should just sit back and applaud the PM, Treasury Ministers and the retinue of finely paid advisers for their sheer genius to do the mathematics for us.

Not to worry anyway - at RBS and Lloyds Banking Group, our liability is a mere snip at £500bn. The good fellows at these two banks have until the end of the week to agree the terms but the points at issue are what strings the scheme comes with and the cost of the insurance policy which even makes bonus payments seem cheap at an alleged £8bn for RBS. As the deal completes, it is reckoned by the BBC's Robert Peston that the total amount we are in for is a cool £1.3 trillion.

That may seem like a lot of money to someone as intellectually challenged as me but I have it on reliable oath that this figure, made up of loans, insurance, guarantees and investments is equivalent to the entire annual output of the UK economy. So no worries there, then.

Poor Banks

Naturally, the banks are negotiating hard. They certainly do not want, under such a scheme, to have to take losses themselves - surely isn't that what the insurance pays for? Not so - there will be a proportion of the loss that has to be taken by the banks anyway - a sort of pathetic 'skin in the game' and a constant reminder that they cannot just forget the debts they created.

Also, the fees, at such astronomic heights themselves, would be self-defeating if they had to be paid in cash. So the Government is negotiating that the fees are paid in preference shares and carry no voting rights so effectively the Government stakes in RBS and Lloyds, already at 70% and 43% respectively, are not increased. In reality, they are and it is just one short step away from full scale nationalisation of banks - a far cry from the harmonious free-market enterprise at the heart of Gordon Brown's dreams for the UK.

It also means that private investors in the banks are pretty much left high and dry in terms of having a stake over the profits and assets of the banks, making their shareholdings close to worthless. It is most likely to be greeted with yet another fall in share price.

There is just a chance that one day we may get some news that does not increase our future tax liabilities - that should be worth waiting for.