Monday, 27 July 2009

Again, Why Did We Bail Out The Banks?

Alistair Darling is on the war path. Watch out, as he is a mean, hard and dirty SOB. And the banks are in his sights.

I am sure the CEOs of the banks are quaking in their Italian-made suits and shoes. As they gear themselves up to start doling out massive bonuses again, the Chancellor is about to start hauling them over the coals about their lending policy to small businesses which he reckons is too low and too expensive. They really couldn't give a flying Frisbee what he thinks as they are making serious money again by playing the old games we wanted them to stop and they have their pockets ready to fill.

The banks will claim that they have lent approximately treble the amount of money they did in May last month at around £366m. Given they have received over £100bn of our money in terms of new capital, it doesn't sound a great deal.

Well, what did Darling expect? The panic button was hit and money was handed out to banks at a furious rate. The Treasury is already estimating that we will lose at minimum £25bn via the Asset Protection Scheme which is the insurance policy for toxic debts we all underwrite on behalf of the banks who lent stupidly. The Enterprise Guarantee Scheme for small businesses means that we also underwrite 75% of all new loans to companies so, theoretically, there should have been a great deal more lending to small businesses who have been very badly affected by the recession and credit crunch. And it should be based on the 0.5% interest rates we have - but perish the thought, according to banks, as they get that money from the wholesale money markets at double the price.
So what happened to the money we gave them?

The problem really is that the Government did not think all this through in their panic to save the financial world. There was the stupidity of Goodwin's pension, presided over two NXDs and a Minister, all of whom still have their jobs; there was the fact Northern Rock not only carried on lending out 125% mortgages 6 months after going into public ownership, they then handed out bonuses just for paying back part of the debt and then unilaterally re-wrote the terms of the deal; bonuses will be paid in the City this year after thousands lost their jobs in the back room and branches while the big-hitting, overpaid traders and their colleagues kept their jobs. Oh, and the banks were allowed to continue playing their games with potentially toxic assets in the forms of derivatives, exotics and whatnot plus shorting goes on unabated. In the midst of all this, the FSA is still 'drafting' its policy on Macroprudential Regulation (a euphemism for the same again) as the same donkeys man the senior positions who cost us billions.

It's a script you would have been hard to have imagined because you would have been guffawed at for being unrealistic, but the magnitude of our collective stupidity is pretty incalculable. And it goes on.

Darling will be hard pushed to get any change out of the banks. They are back on the gravy train thanks to his largesse with our money, for which we will pay the price for another 20 years in tax and much more in terms of jobs and cuts in Public Services. If he thinks the banks will pay much more than Mandelson-style lip service, then he is badly mistaken as he has been for some time about the whole situation. They will pluck out statistics and use the same joke on him that the Government use on us - big numbers. By mentioning large numbers it sounds as if something is being done. But let's face facts - small businesses collectively make up over 97% of the UK's businesses, they employ over 70% of the workforce, and they pay a disproportionate share of the Tax in terms of the revenue they create compared to large corporations like, say, banks who have the ability to offshore some profits, and pay big accountants to find plenty of loopholes.

Small businesses are the backbone of British industry and the largest pool of the workforce. £366m in June in terms of loans was nothing when a private Equity Firm can get £9bn of loans from banks to take over a single company and reap the profit. When it comes to lending to businesses, there is no profit for banks in lending to small ones as the BIG MONEY is in lending to like idiots to the likes of Private Equity firms or Philip Greene.

We had a chance to reform the banking industry and stop these top levels games which gamble with our money. But we have done nothing but saved the necks of a bunch of greedy people who could not wait to get their hands on our tax receipts and pledges to go kick start the gravy train again.

Next stop will be a further credit crunch and recession and small businesses and the likes of you and I will foot the bill once again. Darling had a chance to do this properly, but that would have kissed goodbye his anticipated knighthood and Non Executive Director jobs for the future. Everyone wants to follow Tony Blair's lead of after-Government earnings that's for sure.

One step Darling could have done was to break up banks so that no retail banks could have an investment bank business so that our money never ever gets preyed upon again and that we do not pay excessive costs on fees and loans to subsidise investment bank risk and pay. Simple thought - and it would have got retail banking focused on its core business of issuing credit to businesses and consumers. It would have also stopped banks culling staff in the retail business to subsidise jobs in their failed investment arms.

The Government could have got simple advice like that from any citizen in Britain but instead they paid some £50m in fees to investment bankers and lawyers to sort out the bank bail outs so it was obvious where the emphasis was going. The bankers even charged us for giving advice on how to sort out the mess they created - the joke was seriously on us, and not a scrap of that advice went on sorting out small businesses but how to kick start the financial world to make sure they all made obscene profits again.

It would have been like asking Hitler to help Jewish families after the War or for that matter asking Tony Blair to be a Middle East Peace Envoy.

But Darling will go with his wilting stick to the banks and they will serve him tea and buns, feign concern, show some remarkable big numbers and then clear him out making him feel he owes them something. Just like we all feel when we have left a bank even though they live on our money.

Welcome to the world he has sustained.

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