Some things are almost beyond comment, like what it felt like on a Titanic lifeboat waiting to be rescued by the Carpathia, but here goes. How real is this rescue, how will it affect you and me? It will cost every man, women and child sixteen hundred pounds, I hear them say.
On the BBC News last night they faithfully included Belfast in a regional roundup of the effects on the real economy. We saw a Belfast butcher, a real butcher, a small businessman in a particularly fine shop, showing off a juicy T bone steak and bemoaning that couldnt sell it. Does it spell doom for T bones and mean mince for years to come?On the real economy question Simon Jenkins in the Guardian is as usual is very brisk and certain:
The stupefying sums of money allegedly required to restore market confidence are not real. The indebtedness of banks is underpinned by real, albeit postponed, value in the economy. Assets “recapitalised”, or nationalised, by the Treasury are sellable as the economy improves – as was British oil in the 1980s – and taxpayers should be able to benefit from the risks they have been expected to take..
So its good news? We won’t lose out? Public exposure might be limited as the package doesnt mean full nationalisation and the money isnt being stuffed down the banks throats if they dont want it. But should they not take out the toxic debts away from the banks before they strike a deal with each one? Will Hutton the pacemaker of bank rescue plans thinks so:
It should establish a fund of up to £100bn, or “bad bank”, modelled on the US Paulson plan, that will acquire so-called toxic debt from distressed British based lending institutions. It will hold this debt for up to 20 years, aiming to sell it in a better economic climate for no loss – or even a profit. It should also say that it has opened negotiations for this fund to be combined with a pan-EU fund and IMF fund to buy toxic debt from the world’s financial institutions.
But the Financial Times thinks not:
A focus on recapitalisation means there is, in principle, no need to introduce a UK Tarp scheme. (US Paulson-type Troubled Asset Recovery Programme)
it can deal with the problem of toxic assets by writing down the values of dubious assets before topping the banks up with public money.
Peston tells us more about that top-up..
there will be a doubling from £100bn to £200bn in the Bank of England’s Special Liquidity Scheme – which allows banks to swap their mortgages for Treasury bills, which are the equivalent of cash. It’s a way of providing them with greater certainty about their funding for the next two and a bit years.
Update. Let’s just get the details of the package right as well as note the 50 point emergency cut in interest rates, co-ordinated with other central banks. “The UK government has announced a £50bn investment plan to inject cash into UK financial institutions, offered a further £250bn in loan guarantees, and increased another lending scheme to £200bn” That’s a £500 billion package. Within minutes of the noon announcement, mortgage rates started to come down and UK share values started to go up. After the cut London’s FTSE 100 index was up 0.5%, France’s Cac 40 was down 0.1%, and Germany’s Dax was 0.9% lower.” It’s the new lending that matters more. The continent still seemed to be reacting the Asian markets’ poor response to the US package which has still to make much of an impact. But on balance, this could be the first sign of hope.