Ed Balls has surpassed himself and made the emptiest promise of all time*
Ed Balls will bid to boost Labour's economic credibility by vowing to spend any windfall from the sale of bank shares on paying off the national debt.
Genius.
We know that it was Labour who a) allowed the banks to get into such a mess and b) made the decision to throw taxpayers' money at them and that as things stand, the taxpayer has suffered a huge loss from his or her forced investment in banking shares.
We also know that some pol's have been merrily promising to give the shares back to the taxpayer, or to create a People's Bank etc. So Blinky isn't promising this sort of thing, but under what circumstances will bank shares rise above the price that his government paid for them?
If the government were in a hurry to show a profit on the bank shares, what would it have to do? It would have to allow the banks to become much more profitable, by encouraging households to take out much bigger mortgages and get deeper into debt. But beyond a certain point, bank profits aren't profits at all, they are just rental payments extracted from mortgage payers. It's a negative sum game.
So it would be a lot cheaper and effective to increases taxes to repay the debt, rather than to blow another credit bubble, siphon vasts amount of money to the banks, a small part of which goes into increasing the share price in order to pay off a tiny fraction of the national debt.
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In any event, the total cost of the taxpayers' forced investment in RBS and Lloyd's is widely quoted as being £66 bilion, and they are currently standing at about half that; so even if they were to treble in value from today's date, the book profit would only be equal to six months' worth of deficit spending (or about five per cent of outstanding UK public sector debt).
* Since the last one and until the next one, at least.
Muh, Far Right
1 hour ago
7 comments:
UK banks make a significant portion of profit from lending on residential property? That's quitea statement. Pre 79, the Big Four (English) banks did little lending to that sector, and the Building societies were mutuals that were not profit making, as such. The incoming government shook up credit restrictions, and the market changed. I don't know the stats, Mr Wadsworth, but if things are as you say, doesn't that need further examination. Rgds
Anon, where did I say "Big Four"? If you go to the bother of consolidating all major UK banks and building societies (i.e. netting off inter-bank lending and contra entries etc), you will know that about four-fifths of their assets are loans secured on land and buildings (£1,400 bn on homes, £400+ bn on commercial L&B).
And BSs (mainly Nationwide) were and still are very much profit-making, it's just that the profits were paid to 'members' (i.e. depositors) rather than 'shareholders'.
one observation is that if the gvmt plan to sell at a pre anounced level compared to now then that level will be a big sell signal to holders.
Mr Wadsworth,
Thanks for your explanation in the comments.
"by encouraging households to take out much bigger mortgages and get deeper into debt... bank profits aren't profits at all, they are just rental payments extracted from mortgage payers..."
If banks have £1,400 bn secured on residential property, it does not follow that the purpose for which the secured loans/further advances were made was either to acquire/improve one's home, perhaps while hoping to enjoy owning an appreciating asset, or to finance personal consumption.
Loans to small businesses, SMEs will be secured on the owner's home (non-commerical L&B). Might they be a significant part of the bank's loan book? And such loans might be seen to have merit, right?
I was just surprised that you seemed to suggest that banks (Big Four was merely my own phrase, for banks as they were in the 70s and 80s)were making a high percetage of their profits from "extracting", from home owners, "rental payments"*.
My error in being "Anon", earlier.
Rgds
Will Williams
* charge for use and occupation of house, or "economic rent"?
Will: "If banks have £1,400 bn secured on residential property, it does not follow that the purpose for which the secured loans/further advances were made [etc]"
Regardless of the borrower's motives, the banks make these loans in order to make more and more money, knowing full well that they'll get bailed out when it does wrong. It's ironic that what you refer to as an 'appreciating asset' were to a large extent only going up in price because the banks were lending more and more on the same old houses.
"Might they be a significant part of the bank's loan book? And such loans might be seen to have merit, right?"
They are a tiny part and have no merit. What's the point in making somebody pay off a mortgage out of income and then take out a loan secured on the house to start a business? Wouldn't it make more sense if houses were cheaper in the first place so that people can invest more of their income into a business?
When it boils down to it, banks make about eighty per cent of their profits from pushing up the price of land and renting it back to people. And then of course banks themselves hold monopoly privileges compared to other businesses, so they are collecting rent to the power of two.
Den, correct.
The Lib-Cons are stupid, it might be their problem but it's not their fault, whatever they end up selling these shares for, they can heap the blame on Labour.
Balls, as all good socialists do, laid the blame at Brown's door. Not specifically but the insinuation was there whilst at the same time hoping we all suffer collective amnesia. I haven;t forgotten that Mr. Bollocks and his Aardman creation mate, Ed Millibland, were among Brown's closest advisers.
Balls is going to need much more than this if he thinks the shit he and his mates got us into isn't going to stick.
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