Osborne backing up to £40bn in 'credit easing' loans

So let me get this straight. We don't have enough money to give pensioners a proper living, or keep open libraries, or buy anti-cancer drugs, or build new schools, or to continue paying for a public sector pension scheme thats been in credit for the last 30 years (which governments of both colours half-inched the profit out of) but we do have the money to underwrite £40bn of debts which the banks consider too risky to lend to on their own.

Remind me again wasn't the credit crunch started because banks lent to people they shouldn't have but were able to pass off the risk to someone else? Well I suppose at least this time they've shortcut things a bit and won't have to ask everyone else to take the hit for them, because this time were being volunteered right at the beginning.

Sweet Jesus.

Banks just aren’t lending, and right now, our economic machine runs best when businesses are taking out loans. Until that requirement is ironed out, we’re stuck with it. And as banks aren’t keen to lend, it seems that the government has to foot the bill.

I really don’t see how this is any different to bailing out banks as they go under. It’s being done ahead of schedule this time. My concern is that if a bank does collapse, that we’ll be stumping up even more to keep it afloat. We’ll be paying twice instead of once.

It is, to quote one eminent economist, one joojooflop situation.

IMO, it's actuality worse than that. If just lending people money is the best thing to do, the government should do that - essentially a 'public loans' service would work just as well. In fact it would work a bit better than what they've come up with, as it could possibly generate a profit over time. What is actually happening is the government is saying to the banks 'OK, we want you to lend money to these people. We also know that you now think these loans are risky, which is a nice thing for you to do even though the stable door is bolted and the stable has in fact been burned down in a fire. So what we're going to do for you is this : make the loans. If you make a profit, you get to keep it, if you make a loss, we'll pay that for you! How does that sound?'

It's win-win for the banks and no win at all for the public. The government is basically just giving the banks even more money. Every time any other expenditure has come up in the last six months, the Bullingdon club mob have said 'oh no, we can't possibly afford it. There's just no money you see' but when the banks need it, all of sudden it's no problem at all.

For
[LIFTED]
Sake.

Merlin agreement? My Arse.


Yep. Great, isn't it?

Jon

It is a [LIFTED] mess. A genuine, 100%, A1 [LIFTED] [LIFTED] [LIFTED] of a mess.

It's catch 22.
They (politicians of all parties) want banks to lend more, but at the same time they say the banks should build up larger cash reserves so they don't need a bail out in the future. It's kind of hard to do both.

I couldn't have put it better myself.

Forecast to have a double dip recession as well, congratulations Cameron & Osbourne you complete feckwits.

We've already given them roughly £200b of cash in 'quantitative easing'. Which they've kept. They've got plenty of reserves, its just they know that this time if they throw billions of pounds at bad credit deals, the public won't stand for them being bailed out again. So they've become utterly risk averse. What the government has done is to tell them ahead of time if they screw up we'll bail them out again, so if it actually happens they can claim it isn't a bailout, just part of an earlier agreement. In theory this should make them less risk averse, but in practice puts no pressure on them to start lending at all.

Under project merlin, the government 'lent' the banks £190b (good luck getting any of that back by the way) on condition that they would then start lending to business. The banks took the money and did nothing. Instead of holding them to the agreement and, you know, maybe kicking a few arses along the way, the government has caved into them. Again.

It's a con. And, more's the point, it won't work; because as far as the banks can see, if they don't lend the government will just keep on giving them more money. So they've got no reason at all to do anything differently. It's long since past the point where there should be some stick to go with the carrot, but this mob simply don't have the spine for it. And besides, if they upset the banks they'll have to get directorships at only middling companies when they get kicked out and that's just not acceptable at all.

Jon

That's a bit unlikely. Banks want to avoid holding money they aren't lending or investing, it just sits there doing nothing and they don't get paid for that. In fact, if they have to park all that cash with the ECB or else buy the remaining AAA bonds that yield less than inflation, that is money out of their pockets come bonus time.

Economists said right from the start that if banks are required to hold larger and safer capital reserves, then one way they will go about this is to reduce lending until their balance sheets are in line with their reserves. One option is to somehow force them to use other methods, but that means selling new shares, and they won't be able to do that very efficiently because their shares are low already and fear of such a move would push them right down, making such a policy self defeating.

So governments will have to take action where they can to mitigate the effects. At least ours is able to take some action, France can't, it would trigger a new sovereign debt crisis.

These reserve capital requirements are never going to go down either. There's more sovereign debt crises to come even if the eurozone fixes its particular clusterfubar. LEvels of bad debt in China are building up far too rapidly. When that dam bursts it's going to eat money at a rate never before seen. India is looking shaky already under its own corrupt steam, Brazil is overheating and building up Spanish levels of inefficiency hedged against nothing more than an assumption of ever increasing oil prices - an assumption that China has the capacity to undermine. So the next big crunch is already on the horizon, we will need strong banks again, so this painful deleveraging is just something we will have to live with.