HOOD ROBIN
Labour’s commitment to bankers has reached a new scale of largess with English taxpayers’ money, verging on madness.
In a free market economy, if a company fails then it is either restructured, or taken over, or closed down. Labour are intent to keep the insolvent banks intact whatever the cost may be. They are quite open about this.
A failure of a bank might call into question the confidence in the banking system, and there is therefore some need for government intervention for the wider economic interest, which is why the banks should have been properly regulated. But that need only go so far as protecting the savings held by depositors. Rather than restrict themselves to that, Labour are trying to overcome the damage caused to the economy by the banks’ hording of cash by throwing so many £100billions at them that they will have so much money that they might start to lend some of it again. Yet the policy is not working.
In assessing the scale of the bank bailouts it needs to be remembered that the City pocketed £17billion last year in bonuses! With this level of reckless greed it is little wonder that the banks are insolvent. It is to be noted that Lloyds Bank has continued paying bonuses after receiving its first tranche of taxpayers’ money. Now it wants more.
Some of the measures announced make sense. The £50billion that the Bank of England might lend direct to large companies is good in that it by-passes the banks. The alteration of the terms of the Northern Rock bailout is sensible. If the main competition that the banks face is from a nationalized bank which is refusing mortgages and is withdrawing funds from the mortgage market then it makes it far easier for them to do likewise.
But to continue to pour good money after bad by offering the banks a blank cheque to underwrite their bad debts is irresponsible. The total cost, excluding that of the Northern Rock nationalization, is now edging towards £1trillion. It is predicted that even this will not be enough.
One needs to understand the logic. The government either prints money [a favourite socialist method of paying for things - although it is called quantitative easing in polite society] in which case savers will lose out in the following inflation, or uses taxpayers’ money, which the taxpayer must pay for, in order to give that money to the banks who in turn lend it back to the taxpayer and charge interest on it.
Oh wow! We can hardly wait.
Ordinary people are very unlikely to borrow money they cannot afford, and increasing living standards by borrowing more is a short term remedy. In the long term living standards are decreased as the borrowed money has to be repaid with interest. Taking out a mortgage is necessary to buy a house which, hopefully, will increase in value in the long term and provides somewhere to live in any case.
Firms borrow money to fund investment. Retained profits are their primary source for this. The do not borrow just for the sake of it. Returns on the investment should repay the initial cost and interest, leaving a profit.
If Labour decided to increase demand in the economy, then why were not these sums given to the private and business sector in the form of tax cuts - or else increase government spending on capital projects. That would have been the Keynesian approach. The Keynesian approach would not be to give even more huge sums of money to those who are insolvent and are hording cash.
Furthermore, Keynes was trying to solve unemployment which is not what Labour are doing. They are simply bailing out the banks in the hope that somehow, with all the printed money and taxpayers’ money circulating about in the banking system that it will eventually circulate out into the wider economy. They have not even demanded that the banks end their lavish bonus payments. Gordon Brown sees nothing wrong in taxpayers’ money being used to fund this [see the English Rights Campaign entry dated 21 October 2008].
This is not Keynesian economics, nor crass Keynesian economics [see the English Rights Campaign entry dated 12 December 2008]. This is spiv economics.
In a free market economy, if a company fails then it is either restructured, or taken over, or closed down. Labour are intent to keep the insolvent banks intact whatever the cost may be. They are quite open about this.
A failure of a bank might call into question the confidence in the banking system, and there is therefore some need for government intervention for the wider economic interest, which is why the banks should have been properly regulated. But that need only go so far as protecting the savings held by depositors. Rather than restrict themselves to that, Labour are trying to overcome the damage caused to the economy by the banks’ hording of cash by throwing so many £100billions at them that they will have so much money that they might start to lend some of it again. Yet the policy is not working.
In assessing the scale of the bank bailouts it needs to be remembered that the City pocketed £17billion last year in bonuses! With this level of reckless greed it is little wonder that the banks are insolvent. It is to be noted that Lloyds Bank has continued paying bonuses after receiving its first tranche of taxpayers’ money. Now it wants more.
Some of the measures announced make sense. The £50billion that the Bank of England might lend direct to large companies is good in that it by-passes the banks. The alteration of the terms of the Northern Rock bailout is sensible. If the main competition that the banks face is from a nationalized bank which is refusing mortgages and is withdrawing funds from the mortgage market then it makes it far easier for them to do likewise.
But to continue to pour good money after bad by offering the banks a blank cheque to underwrite their bad debts is irresponsible. The total cost, excluding that of the Northern Rock nationalization, is now edging towards £1trillion. It is predicted that even this will not be enough.
One needs to understand the logic. The government either prints money [a favourite socialist method of paying for things - although it is called quantitative easing in polite society] in which case savers will lose out in the following inflation, or uses taxpayers’ money, which the taxpayer must pay for, in order to give that money to the banks who in turn lend it back to the taxpayer and charge interest on it.
Oh wow! We can hardly wait.
Ordinary people are very unlikely to borrow money they cannot afford, and increasing living standards by borrowing more is a short term remedy. In the long term living standards are decreased as the borrowed money has to be repaid with interest. Taking out a mortgage is necessary to buy a house which, hopefully, will increase in value in the long term and provides somewhere to live in any case.
Firms borrow money to fund investment. Retained profits are their primary source for this. The do not borrow just for the sake of it. Returns on the investment should repay the initial cost and interest, leaving a profit.
If Labour decided to increase demand in the economy, then why were not these sums given to the private and business sector in the form of tax cuts - or else increase government spending on capital projects. That would have been the Keynesian approach. The Keynesian approach would not be to give even more huge sums of money to those who are insolvent and are hording cash.
Furthermore, Keynes was trying to solve unemployment which is not what Labour are doing. They are simply bailing out the banks in the hope that somehow, with all the printed money and taxpayers’ money circulating about in the banking system that it will eventually circulate out into the wider economy. They have not even demanded that the banks end their lavish bonus payments. Gordon Brown sees nothing wrong in taxpayers’ money being used to fund this [see the English Rights Campaign entry dated 21 October 2008].
This is not Keynesian economics, nor crass Keynesian economics [see the English Rights Campaign entry dated 12 December 2008]. This is spiv economics.
posted by erc @ 5:29 pm
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