Treasury mulls new bank bail-out

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Chancellor Alistair Darling could inject more taxpayers' cash into Britain's banks as part of measures to boost the economy.

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[natweststaffmember]

Re: Treasury mulls new bank bail-out

i am pretty thick here, but how can Alistair Darling bail out banks when they are not in trouble? I don't get it. Banks not lending or people not borrowing? We talked about recession and job losses. You want to know why we are not spending? We fear for jobs not want to borrow money that we may not be able to repay. You cannot force an institution to accept money that it does not need to lend to people who do not want to borrow. It makes no sense to me.
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This is a commentary from todays Telegraph, which seems quite apt.

Second banks bail-out: Commentary

News that the Government is considering pumping still more taxpayers' money into our beleaguered banking system will prompt groans of disbelief from many quarters.



By Ian Cowie, Personal Finance Editor
Last Updated: 6:31PM GMT 03 Jan 2009


While individual insolvencies and home repossessions are rising sharply, many people will question why bankers are worthy of State aid and whether we are simply throwing good money after bad.
But, counter-intuitive though it may seem, Chancellor Alistair Darling is right to make it clear that the Treasury will do everything necessary to preserve confidence in the banks – because failure to do so would run a real risk of turning recession into a slump.
For example, at present it looks as if 2009 may be the worst year for the economy since 1991, when a total of 78,000 homes were repossessed by lenders.
That bald statistic represents a lot of human suffering, with an average of 1,500 homes being taken away each week during the nadir of the last housing recession.
But even that dismal prospect would be a far better outcome than a rerun of the 1930s when many banks failed and a complete loss of confidence caused credit to evaporate and economic activity to grind to a halt.
Credit is the fuel that powers the capitalist system and banks are in business to provide it. Without credit, the economy slows down and unemployment rises.
However, a primary cause of current problems has been the failure for more than a decade to encourage adequate levels of saving to fund the credit required by modern economies.
So, while it is true that you cannot borrow your way out of debt, these are extraordinary times which call for extraordinary measures. The Chancellor is right to consider providing further cash injections, relaxing rules which constrain balance sheets and even the creation of a 'bad bank' to mop up defaults and detoxify the financial system.
By contrast, being beastly to the banks is an easy way to court popularity but no way to get us out of this mess. Back in the boom years it was commonplace to criticise banks for making 'excess profits'.
I was one of the few commentators to point out that nobody would wish to entrust their hard-earned salary or life savings to a loss-making bank. At the time, that seemed a rather hypothetical concept.
Now the critics of profitable banks have their wish and some institutions have effectively gone bust, they do not seem to like it much. Perhaps they should have been more careful about what they wished for.
Here and now, Chancellor Darling must make sure that taxpayers' funds are not used to restore bankers' bonuses but to renew their businesses – by serving the many employers and employees who rely on credit to a greater or lesser degree.
To achieve that, the Chancellor must not only encourage banks to begin lending again but give individuals a good reason to begin saving again.
Stealth taxes and red tape have caused saving to collapse in Britain. While most attention has been focused on the credit crisis, relatively little has been said about the savings strike which has been under way for more than a decade. According to National Statistics, the average household saved more than 10 per cent of its income in 1997 but that had fallen to 0.4 per cent by last year.
Britain has saved too little and borrowed too much for far too long. The Chancellor must use his legislative influence and taxpayers' capital to restore both sides of our battered national balance sheet.



Source:Second banks bail-out: Commentary - Telegraph

[Tools]

Re: Treasury mulls new bank bail-out

This does not just relate to personal lending, it applies to all areas of lending. Fistly, without inter-bank lending the providers are reluctant to release funds from their coffers. The next main area of lending is to businesses, without the capital to invest or fund manufacturing/services there is a distinct unease regarding job cuts and therefore unemployment. Once the businesses have confidence resored, the knock on effect gives rise to employer confidence.

A personal example for you:

I work in the transport industry, we move a lot of machinery for companies such as printers, manufacturers etc etc. People imagine the printing industry to be limited to newspapers, magazines and the like but it affects almost every area of our lives from the cornflake packet you use for your breakfast to the label on your pre sleep cocoa. If consumers are buying less there is a reduced demand for products such as these, the print companies lose trade, the employees fear job cuts, they spend less in the supermarket..........the circle continues. The personal effect of this on myself? Print companies do not invest in new equipment, negating the need for it transporting, our lorries lay dormant, the drivers jobs at risk, the lorries do not need as much maintainence, I have less work, my job is at risk.......you get the idea. We also heavily rely on the building industry and while market confidence is low no new builds are going up, again reducing the need for our transport.

If the consumer, us, regains confidence in their own employer then in turn our jobs feel more secure, we begin to spend once again. When RBSG was looking shaky before the taxpayers bailout, you too questioned your job security. Now that RBSG has had that injection to "available funds" has it restored your confidence in your job (barring your own f**k ups) ? If that injection of funds is available then to other businesses and not just the financial sector, consumer confidence will return and spending will resume, helping the economy to recover once again. It's not just about personal borrowing, it's about restoring confidence.