Titanic rescue bid

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 couldn’t 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 it’s good news? We won’t lose out? Public exposure might be limited as the package doesn’t mean full nationalisation and the money isn’t being stuffed down the banks’ throats if they don’t 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.

  • lafcadio

    I think the FTSE traded off this morning mostly after poor performance of US & Asian markets overnight, not necessarily in reaction to the bail-out. The banks have found some support but it remains pretty volatile to say the least. hbos has shot up, looks like the markets think the merger will go ahead now. details are still a bit sketchy, but i’d say overall the plan is being well-received.

    on a related note, i would have serious reservations looking to Simon Jenkins for economic/financial analysis.. i find him an interesting read occasionally, but his grasp of things economic is pretty poor (to be fair in common with much of the non-specialist media). As for willy hutton, he’s pretty much a laughing stock in the city – that article is actually pretty decent by his lamentably low standards, but he has clearly been spoonfed by someone who had had a peek at the proposals..

  • Brian Walker

    lafcadio, On Will Hutton (oh do you know him personally as “willy”)? “As for willy hutton, he’s pretty much a laughing stock in the city -” between Will and the City WHO’S the laughing stock please, (or crying stock?). Simon Jenkins I agree likes taking flyers but he’s been around a bit, as a former Economist writer and editor of the Times. And you are again??

  • Rory

    Brian in his introduction having linked what we might put into our stomachs with the current crisis, I was reminded of this morning’s Thought for the Day on Radio 4. Be warned – it is best not listened to on a full stomach. While listening to it I almost regurgitated my breakfast gin.

    http://www.bbc.co.uk/religion/programmes/thought/index.shtml?focuswin

  • Ann

    <>lafcadio, On Will Hutton (oh do you know him personally as “willy”)? “As for willy hutton, he’s pretty much a laughing stock in the city -” between Will and the City WHO’S the laughing stock please, (or crying stock?). Simon Jenkins I agree likes taking flyers but he’s been around a bit, as a former Economist writer and editor of the Times. And you are again??

    LMAO Brian !! Very good.

  • lafcadio

    oh sorry are these your mates?? you seem to be taking it rather personally!!!

    jenkins was political editor at the economist – and on politics i enjoy reading what he has to say. his grip on economics and finance is tenuous to say the least.

    hutton caught the mood of the country nicely with the state we’re in, but lacks any kind of tool-kit or technical understanding to add to any debate on econ/fin. he tried his hand at stock-broking and lost his shirt. he has little credibility outside obs/graun.

    explain what you mean by ‘the City’?? are you suggesting that I’m proposing that instead we look for commentary to the guys in banks (not to forget the govt, regulators and borrowers) who kicked this all off?? nice false dichotomy – good journalism on finance and economics is available, and most commentators (that i read anyway) have been openly worrying about house price bubbles/bank, corporate & consumer leverage/limits of risk dispersion via securitisation/loose monetary policy for years now.

    FT’s Alphaville blog is a pretty good news summary every day; Martin Wolf at the FT is excellent (although I think subscription is required); the economist’s free exchange blog is relatively accessible and also pulls together a lot of material from the econ blogosphere; Jeff Randall’s a decent financial hack.

  • Brian Walker

    lafcadio, I’m just gently pulling your leg after your very lofty analysis.

  • “When people lose confidence in banks, they put their money under the bed or send it to a better-ruled nation such as the Republic of Ireland.

    Fodder for the next round of election literature from FF methinks 🙂

  • econokensei

    Actually, I thought the US TARP approach was generally regarded by economists as stupid, and that the best way to go was a Swedish style rescue. Some praise for Brown here:

    http://krugman.blogs.nytimes.com/2008/10/08/to-do-not-to-do/

  • Romo

    Mark
    “The good part of Ireland” to quote Homer Simpson

  • lafcadio

    econokensei – I wouldn’t say TARP was viewed as stupid, just flawed, and likely to be less effective in isolation. I’d say generally Brown’s plan has been very well-received in the states, as well as Krugman, Brad DeLong and Barry Eichengreen also praised it this morning, and Paulson raised the prospect of morphing some of his TARP plan into a recap of the banks..

    brian, fair enough 🙂 it was rather lofty i suppose..