Wednesday, October 08, 2008

Brown Bails Out His Banking Buddies Again

More than £50 billion of taxpayers hard-earned cash is being pumped into the discredited banking system by Dithering Darling and Banksy Brown, along with £450 billion for bank borrowing and guarantees. What a couple of bankers. 

The High Street banks went cap in hand to the government for a blank cheque to oil the wheels of their day to day operations after it became clear they didn't have the cash to lend to each other. 

Now taxpayers have a stake in the part-nationalised banks and building societies to the tune of £2000 each, which is set to disappear down the black hole of smoke and mirrors accounting. 

The BBC reports a further £200 billion will be made available by the Bank of England for short-term borrowing to provide liquidity to banks and building societies. And, on top of that, there's a lending guarantee worth around £250 billion. All in all, a staggering £500 billion.

Time will tell whether this £50 billion bail-out on the hoof and the other £450 billion is too little too late or too much too soon. And, after the bail-out of Northern Rock and Bradford & Bingley, the question is where is all this cash actually coming from and where will it all end? 

In the US, Bush and his side-kick Paulson's cap in hand plea to Congress for $700 billion taxpayers bail-out cash had little effect. Now the Fed is being forced to pump billions more taxpayers cash into the US banking system. 

There's no reason to think the same won't happen over here, despite today's 0.5% cut in interest rates by central banks, including the Bank of England. 

Pumping taxpayers money into the banks means the taxpayer, not the bank shareholders, take all the financial risk. 

Shareholders still own the banks which can continue to make huge and risk-free profits, as well as paying themselves handsome dividends and director bonuses.

Brown and Darling are clearly out of their depth and the banks are calling the shots. 

Saving the banks in this way comes at a cost. The bail-out will bust Brown's golden rule on borrowing. The treasury will have to try to raise sufficient funds on the tight international money markets to pay our national debts. 

The BBC's man in the City and the treasury, Robert Peston, sent Downing Street into a spin yesterday when he leaked details of a secret meeting between the High Street bankers and government. This exposed a weak political leadership at the beck and call of the bankers. 

What is needed is bold, decisive leadership and a well-thought out economic recovery plan, not a bumbling and fumbling Brown and Darling. Bail-outs on the hoof are not the way to run an economy.

What is clear is that we have a chancellor and prime minister who are prepared to take risks with the economy and people's livelihoods, by using taxpayers money to prop up their pals in the banking system. And that could lead to political suicide.

1 comment:

crabbydog said...

We can all say how bad things are and how crap Brown and co are (and they are and I will be one of those voting them out) but in the meantime what IS the answer?

Any one can blog 'we need leadership' - but what policies can be pursued now that will resolve this mess and avoid another great depression?