No Bad Bank then – just the pleasure of paying some of the losses

We seem to have seen off the Bad Bank idea. Instead, as the papers reveal, we will end up with an “insurance scheme”. it will be very difficult to get it right. Either the taxpayer is going to be made to pay huge losses in due course, or the banks will be weakened further by high premiums.

My thoughts on the risks for taxpayers are in the Mail on Sunday this morning.

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  1. James Strachan
    Posted January 18, 2009 at 1:10 pm | Permalink

    And who will supervise the banks to prevent the banks taking the profits and the taxpayer taking the losses ?

  2. chris southern
    Posted January 18, 2009 at 1:17 pm | Permalink

    The tax payers will be footing the brown bill for a very long time.
    Doesn’t look like their will be much left of ole blightey by the time the conservatives get the chance to start the rebuild once again.

  3. mikestallard
    Posted January 18, 2009 at 8:46 pm | Permalink

    The article in the Mail puts this very clearly. We are in danger of doing an Iceland: small country, huge international banks going bust.
    We are on the tipping point now of losing everything. As you rightly remark, and I hope I have understood this, in another post, there is actually no need to panic (except that we ought to be unloading large chunks of RBS’ Empire fast).
    Mr Brown has been spinning the figures with “off balance sheet” for so long now that it must have become a habit. I notice, for instance, that most Labour people quote the vast numbers of people who pass A levels as if it were something to be proud of. The knife crime figures are another example of “off balance’ accounting. Not reporting the Trading figures is the latest example.
    The danger for politicians – especially ones as arrogant and so surrounded by toadies as Mr Brown – is that they come to believe in their own spin.
    Then they do something really silly.
    Stalin, for example, refused to believe that Russia was being invaded in 1941 for several days, even when his generals were reporting the attack.
    We shall see what Mr Brown does in the next few days, perhaps. (Unless that is off balance too).

  4. Stephen
    Posted January 18, 2009 at 11:33 pm | Permalink

    It is my understanding that an insurance scheme works because the premiums paid by non-claimants cover the payouts. Assuming the banks know which loans (etc) are bad will they not just ‘insure’ those, making it likely that nigh on all loans insured will go bad and require an enormous pay out by the taxpayer? It doesn’t sound like insurance to me, more like a fig-leaf to hide the real losses on the banks’ books which would have been exposed if they were to be purchased by a ‘bad bank’.

  5. Stephen
    Posted January 18, 2009 at 11:42 pm | Permalink

    The devious part of me wonders if this scheme creates an opportunity for UK banks to buy up bad debt from other banks at a healthy discount, ‘insure’ it and pocket the difference in the between the insurance pay out and the amount paid for it… Moral hazard anyone?

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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