From the BBC:
The public could be offered discounted shares in state-owned banks under a "people's bonus" plan outlined by Tory shadow chancellor George Osborne. Mr Osborne told the Sunday Times: "The bankers have had their bonuses. We want a people's bank bonus for the people's money that was put into these organisations."
It was expected people would be offered shares worth between a few hundred and few thousand pounds at a discount on the market price, the paper reported. There could be extra discounts for young people, low-income families and parents saving for their children...(1)
"The man who would be chancellor wants a new generation of mass share ownership," said BBC business correspondent Joe Lynam, "And he wants to create a new culture of saving rather than borrowing."(2)
... Chief Secretary to the Treasury Liam Byrne said: "When it comes to the shares in the banks the public expect us to focus on getting their money back.(3) That means selling them at a time and way that maximises their value, not an irresponsible and expensive political gimmick."
RBS and Lloyds shares are currently worth about a third of the prices paid by the government.(4)
1) Hang about here. Taxpayer's money has been used to prop up banks, how about giving taxpayers x shares in RBS or Lloyds for every £100 tax they pay in the next couple of years, that seems to be the fairest way of repairing the damage.
2) I'll come back to the 'savings culture' later on, this is more lies and spin.
3) That's the beauty of plc's - it doesn't matter who owns them. If I, as a taxpayer, get given a few hundred RBS or Lloyds shares (see 1), then it's my decision whether and when to sell them. As like as not I'd dump them on Day One, but others may wish to hold on to them, and if they later sell them at a profit, well good luck to them :)
4) OK, the government cheerfully and deliberately pissed £30 billion of taxpayers' finest up the wall to try and keep the credit and house price bubbles inflated (rather than letting the banks sort themselves out via debt-for-equity swaps), does that not smack of 'expensive political gimmick' to anybody? Sure, the Tories don't really know a way out of this, but they've been given the shitty end of the stick - there is no longer a 'right' answer (short of doing what I said in 1) above).
Stormlight
4 hours ago
9 comments:
Well said MW. You just highlight what a shambles Tory policy is and they deserve the grave they appear to be digging!
It basically boils down to one thing as I have posted - change their leader!
http://witteringsfromwitney.blogspot.com/2010/02/too-true-blue.html
The confusion in the debate about "bailing out the banks" is between the twin objectives which were 1. to kick-start the interbank market, and 2. (for almost purely party political purposes) to keep specific banks from going under.
Policy 1 was inescapable if we wanted to retain a banking system. However, in reality, it only meant that the BoE acted as intermediary in the interbank market: the banks lent to the BoE, the banks borrowed from the BoE. Yes, there was a theoretical risk and the BoE was on the hook for a lot but, in the end, once the interbank market started functioning again the BoE's liabilities in this market effectively disappeared.
As MW has written - and keeps writing - there was no need to rescue any bank per policy 2. The UK has a perfectly adequate system of dealing with companies that are broke: the same should have been applied to the banks. Of course, the depositors up to £50,000 each should have been protected but that would have been the limit of any taxpayer involvement. I suspect that, in any event, the unwinding through normal bankruptcy procedures would have seen even that guarantee (if called by the depositors) being repaid by the realisation of the broke banks' assets.
How typical of the Conservatives to jump on a collapsing band-wagon and attempt to replicate the popular (and, God help us, Thatcherite) privatisation programme. This failure of imagination and competence matches the "sharing of growth" theme stolen (more or less) from Labour and vaguely popular (before people realised it still meant an increase in the share of GDP spent by the government) at the time it was promulgated. The Conservatives deserve to lose the election. The pity is that we all go down with them.
WFW, ta.
U, your point 1 is sort of true, but the inter-bank market used to be just a daily or weekly thing to tidy things up.
For example, if more people move money from Bank A to Bank B than vice versa on a particular day or week, then Bank B would lend Bank A the difference, knowing that this would normally cancel itself out in the next day or two.
It was not an actual source of long term funding.
I'm glad you agree with me on point 2. The world would not have come to an end had we done it my way, as the real life examples of NR and B&B in the UK or CIT-Group in the USA illustrate.
MW
"It was not an actual source of long term funding" Isn't that still true?
As you wrote, the banks use the interbank market for, essentially, book-balancing purposes to smooth out anything from overnight to about 3 month fluctuations. However, raising long-term finance on the wholesale finance markets (which involved borrowing from other banks) was not a phenomenon which policy 1 was aimed at solving. Without BoE intervention the whole "bookkeeping" interbank market would have collapsed. Interposing the BoE kept it going.
As to longer-term bank-to-bank lending in the wholesale markets (by which the banks avoided raising new money through, for instance, selling debt paper or new shares) was, as I understand it (and, of course, I may be wrong), to a large extent, effected by trading dud and (as it turned out) little understood derivatives. When the banks' assets, either those underlying the derivatives or remaining on the banks' books (particularly mortgages to people with no income as required by US law or, as in the case of Northern Rock and HBOS, to anybody who could sign their name) turned out to be crap, the bank-to-bank wholesale debt bubble deflated. This caused both enormous capital losses and stasis in the "normal" day-to-day interbank market. The latter was dealt with by what I have called policy 1. Policy 2 was implemented to deal with the former whereas (as you and I, I think, agree) "normal" bankruptcy procedures would probably have sufficed.
Orderly liquidations of RBS, HBOS and Northern Rock would have - in one of the government's favourite phrases - "sent a message" alright: the message that no bank is too big to fail and that the taxpayer, although rightly required to step in to prevent long-term damage from a short-term, clearly self-righting problem (eg absence of liquidity in the short-term interbank market), is not there to preserve bankrupt entities in being against all commercial logic.
U: "As to longer-term bank-to-bank lending in the wholesale markets (by which the banks avoided raising new money through, for instance, selling debt paper or new shares) was, as I understand it (and, of course, I may be wrong), to a large extent, effected by trading dud and (as it turned out) little understood derivatives."
Exactly! My chum's wife works for [a large UK bank] and she said that one team of traders in Room 34 was busily parcelling up their crap and selling it on to other banks, while another team of traders in Room 47 was busily snapping up AAA-rated RMBSs from other banks.
It was all a negative sum game, as we have now found out.
As to policy 1, while the normal day-to-day smoothing is very useful, part of the MW manifesto is of course that banks will not be allowed to invest in securities issued by; or to borrow from other banks (above and beyond day-to-day smoothing).
Interposing the BoE is probably a good idea, as at least it can keep tabs on what's going on.
In any event, the government's left hand does not know what its right hand is doing - the government is currently underwriting about £300 billion in UK mortgages (a quarter of the total outstanding!) via Special Liquidity Scheme, mortgage guarantees - while simultaneously (via QE) the commercial banks have got £150 billion of proper cash deposited at/lent to the BoE.
Just about sums it up.
Umbongo, you said, "the "sharing of growth" theme stolen (more or less) from Labour and vaguely popular (before people realised it still meant an increase in the share of GDP spent by the government)"
Nonsense. Do the maths. Example:
GDP = x
Public spending and taxes are (say) 40% of GDP = 0.4x
GDP grows by 2% to 1.02x
You grow spending by 1% to 0.404x
Spending is now (0.404 / 1.02)x = 0.396x
Spending has reduced to 39.6% of GDP.
And that means you can cut taxes by 0.4% of GDP.
Woops - the last bit should be
GDP grows by 2% to 1.02x
You grow spending by 1% to 0.404x
Spending as a proportion of the new GDP is 0.404x / 1.02x = 0.396
Spending has reduced to 39.6% of GDP.
And that means you can cut taxes by 0.4% of GDP.
Adam, little Georgie's "sharing the proceeds of growth" mantra was quite good - when he first said it.
What the Tories refused to accept at the time was that the problem would be how to "cut spending during a a recession", seeing as of how house price booms in this country are always followed by recessions.
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