Bank nationalisation

The reaction to Barclays has told us a lot about the agenda of Vince Cable and some Labour figures. They clearly want the taxpayer to end up owning more banks. Their anger that Barclays have paid more to keep their freedom, tells us the UK taxpayer is getting a rotten deal from the proposed share purchses the government wishes to make. The way Vince Cable was allowed so much BBC airtime to front run nationalisation, without any Labour slap downs, tells us it was a policy they favoured. He was a useful front man to avoid accusations that Old Labour had been rehabilitated. Meanwhile, all sensible proposals to avoid state owned banks were studiously kept off the airwaves to avoid complicating the argument.

It all worked so well. The Regulator demanded more capital at a time when it was difficult to raise it quickly. Someone leaked the talks to the media, driving the share prices of the affected banks down, making it even more difficult to raise the money from the market. Then the banks were presented with a take or take it offer which three accepted. The government meanwhile was busy nationalising the assets of Bradford and Bingley, but never told the media directly that that meant taxpayers borrowing £18 billion to send to Santander to take on the deposits.

Taxpayers will rue the days that the government was so liberal with their money in the banking sector. All these banks had a future without state equity, if the Bank of England did its job as lender of last resort, and if the Regulator worked quietly behind the scenes on a timetable for strengthening their capital. Assurances that the government stood behind the weaker banks was a good idea. Loans were helpful. There was no need to add state equity, which will prove to be a bad idea for taxpayers. Just look at the firest half results for Northern Rock – large losses – and get ready for the next results from state banks. The treat is on you.

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20 Comments

  1. Tony Makara
    Posted November 1, 2008 at 11:12 am | Permalink

    Extraordinary isn't it? How Vince Cable has been nominated by the media as economics spokesman for the nation. Particularly odd seeing as Mr Cable's chance of ever being chancellor is less than zero. There is clearly an agenda at play here, we only ever seem to be hearing one argument. I say that as someone who would like to see a new state bank, as a home to modest depositors, possibly as an emergency issue of credit in the event of a crisis, but I don't believe the state should be trying to buy up existing bad banks. Vince Cable does not speak for the nation, and we need to see other views being aired. The more minds we can bring to the debate the more chances we will have to find solutions.

  2. Colin
    Posted November 1, 2008 at 1:15 pm | Permalink

    So, if this is the case and I have to say it's starting to look increasingly likely, why aren't you and your colleagues working harder and smarter to EFFECTIVELY hold brown to account?

    It's no use tailoring a message to suit a sophisticated city audience or your perceived friends in the Westminster Village; most of them have already worked out who's to blame for the UK's woes. You may say that you're communicating the message on a broad front. However, you may be transmitting loud and clear, but if the intended recipients are not receiving, that's a problem. Ordinary people are starting to "RE-BELIEVE" that brown was actually a decent and prudent Chancellor.

    Mandleson and Campbell are running rings round the Tory party and it looks like you don't have that many friends in the media any more. You need to get a grip and a strategy, and soon…

  3. oldtimer
    Posted November 1, 2008 at 1:44 pm | Permalink

    The financial and political engineering behind this "rescue" looks sinister to me. No doubt Brown and Darling hope, in time, to asset strip at least Lloyds-TSB, if not RBS, when they come to dispose of their stakes in these companies.

    It was notable that neither Cable not Peston, in the interviews I saw, commented on the fact that the Barclays recapitilisation saved the taxpayers from having to stump up cash they do not have.

    The whole episode has been another kick in the teeth for savers and pension funds.

  4. Acorn
    Posted November 1, 2008 at 1:54 pm | Permalink

    John, please read Bill Quango, "I see no HIPS". Prepare for war at home. The US will win the global economic war they have started using WMD, (Weapon of Mass Dollars) against those troublesome lefty states like Venezuela, Cuba, Russia … etc, etc.

    • Tony Makara
      Posted November 1, 2008 at 7:36 pm | Permalink

      Interestingly, the Chinese refer to their hoard of US Dollars as being their 'Economic Nuclear Option'. We have to understand where China is coming from, this is a nation that has talked openly about ending Western pre-eminence in world trade. A nation that has quietly and busily been engaged in the economic colonization of Africa. Refering to Africa as being the feeder nation for the great Chinese economic project. All this while the West has fallen over itself in its attempts to make sure that China has access to even more markets. Mitt Romney has said that the day may come when we, the West, will have to face China down. What a pity Romney was not McCain's running mate, for Romney is one of the few politicians waking up to China's ambitions. I've strayed off topic here I know, but the matter of the coming global economic war, the West Vs the East, is one that should worry us all.

      • mikestallard
        Posted November 2, 2008 at 9:59 pm | Permalink

        I am so glad you raised this important point. In the 1930s, when the last real recession was on, Japan was in the same position (roughly) as China is today.
        They were strong, exporting a lot and they needed raw materials urgently. They had two choices: cut back or expand militarily.
        Germany, too, was in the same boat. That is why they went for Russia.
        Today China can expand peacefully into the chaos that we left behind when we walked out on our responsibilities in Africa. The Chinese are not like us. The African are slowly learning this, to their cost.
        Luckily, the Chinese do not seem to be using their military muscle/economic mega riches to steal from other people – yet.

        • Tony Makara
          Posted November 3, 2008 at 1:09 am | Permalink

          We should certainly continue to develop good relations with China but in so doing we have to be watchful that this is a nation with a clear anti-western agenda. Their objective is to corner export-markets that have traditionally been our domain. Our shift to services and the decline of manufacturing has opened a window of opportunity for the Chinese. It will be interesting to see the reaction of Beijing when the west, as a response to savage trade deficits, moves back into exports as a way out of the recession. A great concern must be energy as Chinese consumption soars, Russia will be key here, a good reason why we need to improve diplomatic overtures with the Russians and stop any possiblity of a Sino/Russian strategic alliance. It doesn't help to have John McCain and others talking about the formation of a 'League of Democracies' because such a body would literally drive Russia and China into each others arms.

  5. Posted November 1, 2008 at 1:54 pm | Permalink

    I'm finding Northern Rock utterly baffling. We get media stories saying they aren't allowed to compete for any more deposits because of unfair competition which would weaken other banks and supposedly they are running down the mortgage book, yet I see that I continue to sponsor Newcastle United, which (even in a crowded field) maybe the worst spending of taxpayers money yet?

  6. Peter
    Posted November 1, 2008 at 3:59 pm | Permalink

    Keep it up John.
    Some of us are incredulous that the conservatives seem to have no answer to the crisis but echoing the government. I am shocked that Osborne is asking for 2% interest. Cheap money caused the crisis. Even the bansks won't lend to each other at this rate. What about those of us who have saved for retirement? Where is our extra income to c0ome from. It already erodes after tax at 5%.
    When the public realise that the bankers have been bailed out, the public sector left intact, private pensioners ruined by decimation of their savings and laughable annuity rates, the regulators and the Governor of the Bank of England still in post, not to mention that there have been no treasury resignations, there will be all hell to pay. I'm afraid the consrvatives will not get my vote. What are they for?

  7. Posted November 1, 2008 at 4:33 pm | Permalink

    I believe the FT gave a whithering view of Cables excuses over Barclays.

    But lefty Cable is an ideal front man for the lefty media – not least the BBC

  8. michael, islington
    Posted November 1, 2008 at 4:58 pm | Permalink

    Please offer an excuse for the Barclays' recapitalisation.

    From the FT: existing investors get hammered; the new investors get more or less control (31%) for a song (£6bn); the management get to keep their bonuses; the management also get to hide the true state of the bank's financial position which it would have to do if it went through a conventional share offering; and the taxpayer still takes the liability if this whole ricketty deal gets into trouble (because it's too big to fail).

    The FT is critical. Why aren't you?

  9. duckworth lewis
    Posted November 1, 2008 at 4:58 pm | Permalink

    Furthermore, the state banks are being directed to pump 'cheap' money into failing businesses in order to massage the unemployment statistics. You can imagine what their balance sheets are going to look like in a couple of years time, so the idea of a speedy return to the private sector will be a non-starter for a government of either party.

  10. Ian Evans
    Posted November 1, 2008 at 4:59 pm | Permalink

    I have to say that for once I disagree with your analysis. By mugging the banks so viciously via Peston's partial leaks (i.e. the idea that the banks were insufficientlyly capitalised without informing us that this was only after the FSA had so drastically raised the capitalisation requirements), the government drove the bank share prices down to ridiculous levels. As a result the government are likely to obtain major shareholdings at a fraction of their realistic valuations.

    The shareholders have been treated with the contempt and level of abuse with which Brown seems to treat his aides (why is it that 'savers' chasing high interest rates in Iceland banks are so pitiable while small shareholders with the same aim seem to be treated as pariahs?). As Fred Goodwin (ex-CEO of RBS) said, the 'negotiations' were more like a drive-by shooting.

    Vince Cable's posturings are, of course, laughable and totally inconsistent – on the one hand the government was apparently chucking away taxpayer's money by offering to inject capital (for, as I said above, fantastic returns); but on the other hand now Barclay's has found an alternative source, which Cable should surely be delighted about, he comes over all affronted that Barclay's should be 'saving' the taxpayer. These LibDems should really get a grip on reality!

  11. Mark
    Posted November 1, 2008 at 5:02 pm | Permalink

    Vince Cable appears not to understand that it might be in the interests of existing shareholders to receive dividends over the next few years (although there are, perhaps, legitimate questions as to whehter existing Barclays shareholders should have had the chance to participate on the terms offered to the sovereign funds).

    And, of course, shareholders want their bank to try to make money, not to act as an arm of government.

    Nor does he understand that existing employees, and not just the main board, of Barclays might have an interest in not having their salaries fall under Treasury control.

    I fear it was just headline grabbing, feeding on the public's Pavlovian reaction to any mention of the words "banker" and "bonus".

  12. Bazman
    Posted November 1, 2008 at 7:17 pm | Permalink

    Rich bankers don't pay taxes. Why should I?

    America: Freedom To Fascism.
    http://video.google.com/videoplay?docid=-16568803

    • Posted November 2, 2008 at 12:14 pm | Permalink

      As the Adam Smith Institute confirmed, if Labour had only increased spending in line with inflation since 1997, income tax could now be totally abolished. So every time you hear those drones on the government benches cheering some spending announcement, they are applauding our tax serfdom. So forget Clegg and his 'Johnny-come-lately' calls to cut 2p off income tax, lets abolish it all together and be free men again

  13. mikestallard
    Posted November 1, 2008 at 9:29 pm | Permalink

    Are New Labour the new Nasty Party?

    • colin
      Posted November 2, 2008 at 8:08 pm | Permalink

      Are New Labour the new Nasty Party?

      There's nothing new about their nastiness…

  14. Michael W
    Posted November 3, 2008 at 3:01 am | Permalink

    Barclays have had to raise £3bn of their new capital (Reserve Capital Instruments) at an hair-raising 14% interest rate (payable through to 2019).

    It seems a huge premium to pay to avoid the clutches of Broon, or maybe it reflects their estimate of the kind of damage the Broon Plan is likely to do in the next few years.

    Either way it seems ominous…

  15. Ian Evans
    Posted November 3, 2008 at 3:17 pm | Permalink

    # Michael Won :
    Barclays have had to raise £3bn of their new capital (Reserve Capital Instruments) at an hair-raising 14% interest rate (payable through to 2019).

    Though it should be noted that this 14% rate is tax-deductible whereas the 12% the government demanded on the preference shares was not tax-deductible (Broon of course wanted to have his cake AND eat it!). i.e. the Arab loans are actually cheaper after allowing for tax. Even so it does seem an extortionate rate – I wonder who has just bought a new yacht?!

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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