Sean O'Grady: First the £1.2 trillion bailout. Now it's payback time
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Independent Minds
When was the last time a British bank offered you some exciting new product? Have a think.
No? Proves the point: too much power has been held in too few hands for far too long in banking. Since the cataclysms, collapses and forced mergers of the past two years that lack of competition has grown grotesque.
Now the Treasury is about to change that and do something rather clever. Wave your cheque books in the air and rejoice.
First, ministers are sensibly going to follow the "good bank/bad bank" model, split up Northern Rock and secure for the taxpayer some return on our vast "investment" in it. It is making the best of a bad job. As critics of the good bank/bad bank model argue, it will leave the taxpayer holding a stinking pile of what are euphemistically termed "troubled assets", that is, worthless paper. But no one is ever going to want those anyway. Best to cleanse the Rock and create a vigorous competitor for the big banks, either independently or owned by the likes of Virgin or Tesco (though some of us worry about how much power Tesco is developing over our lives).
Second, the elephantine banks now semi-nationalised – RBS and Lloyds – are to be broken up. Let us recall that RBS includes NatWest, and Lloyds, amazingly, owns Bank of Scotland, TSB and Halifax. All of these "brands" were once sizeable independent entities. That variety needs to be re-established. But the new retail banks that will be created must be kept as "narrow", utility-like, banks. They must be kept out of casinos. Given the pain of our £1.2 trillion banking bailout, it is not much to ask.
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The 1.2 trillion is largely made up of contingent liabilities based on the assumption that the insured "assets" are worthless together with the money created by quantitative easing. Although the latter has helped the banks a bit, the real beneficiary is the government.
In effect, money has been printed in order to buy government debt - i.e. to lend to the government. The sums expended on buying other assets like commercial paper are insignificant when compared with the amount spent on buying gilts.
The Lloyds TSB shareholder can justifiably feel aggrieved. The government forced Lloyds into a shotgun marriage with RBS. Since RBS was virtually bankrupt, the Lloyds TSB shareholders were ripped off in order to provide some money for RBS shareholders. If the merger had been allowed to stand, then it is just possible that the increased scale of the new bank could have resulted in some sort of decent return. The forced break up is simply theft. But what would you expect from a government that robbed our pensions!
More FI's that need to be integrated into a networks such as faster payments and e-banking, banks that cannot make money from the investment markets, nor make money from bank charges(soon to be), nor make money from charging customers as at the moment people generally don't pay for an active current account.
What will happen is that the price of products will go up, that products will actually have to be paid for and that we will still have the major clearing banks that are to big to fail as these will act as the payment engines and clearing banks, they will always be able to do it cheaper and so will just grow and take back the market share.
End result, more costs, still banks that are too big to fail and no real change in the end.
Poor Lloyds though, asked to take on HBOS by the government, then told to get rid of it again(the market share gained), after having to deal with all the pain of the HBOS bed debt.
Surely this is just an innocent oversight.
Commenting is usually disabled on anything to do with Gaza or the Israeli/Palestinian conflict.
More recently comments were disabled on all articles attacking Nick Griffin, including the article advertising the 'I Am Nick Griffin's Brain' poster which the Indie wanted to publicise (rather childishly in my view - I thought it was pathetic and said so, but lo, the comments bit disappeared after a while).
Sometimes the comments will come and go as well, which may be due to server/web-programming issues.
The Independent may well be 'Independent' in name, but for some reason it doesn't like people challenging its views much!
Oddly enough it tolerates spam from 'dudemalls' and other bot-marketed websites.
I would be uncomfortable if Tesco's gained more than, say, 40% of market share in a particular market but I think the management of the company realises this. As a company with a good growth model, it only makes sense then to branch out into other markets like banking, motoring and insurance. Good luck to them - perhaps they will inject more competitiveness into those markets.
Second, The ONS document to which Prayle refers assumes that the "toxic assets" are worthless - which is what I stated. Of course they may be - but, then again, they might be worth something closer to face value. Certainly Barclays and HSBC, (neither of which had to be bailed out), would appear to think so!
Most of these "assets" are mortgage related. Even if the mortgages are greater than the value of the properties to which they relate, it is unlikely that these values are zero!
What happened was that the FSA, (yes, the same FSA that failed to spot the problems in so much of the banking system), suddenly and arbitrarily decided that some banks, including Barclays, needed more capital. Of course, Barclays results shortly after showed that they did not need any new capital at all! But the FSA, however incompetent, had to be obeyed.
As you say, the Arabs got their money back - and I did quite well too, (on a much smaller scale!), as assiduous readers of my comments will remember. I only wish that I had been bolder and used all my liquid assets. This would have made me a multi-millionaire!