Going for broke

If buying one very large bank was careless, buying two is lunatic.

When the government bought RBS instead of assisting it short term and at least cost it bet the farm. Now buying control of LLoyds/HBOS it is betting the farm, the shop, the factory and everything else of value in our overborrowed country.

When I pointed out that buying RBS meant you could lose the annual defence budget with a 2% fall in the value of the bank’s assets, some Labour MPs looked worried. With both LLoyds and RBS as state pensioners we can now lose the health budget with an adverse movement of a little over 3% in their “assets”.

I used to ask where did they think all the money was going to come from to buy all this financial ironmongery. Surely there was some limit to the possible borrowing? Didn’t they realise it was the same money they borrowed to pay the nurses that they were now borrowing to pay the bankers’ bonuses? Which should be the priority? Can you really afford both?

Now we know their answer. They will print the money to buy “whatever it takes”. Your farm, your shop, your factory is now on the line for the biggest national overdraft in history. And if the global bankers and savers start to call time on the national overdraft, worry not. They have already borrowed the money to buy the electronic printing presses.

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24 Comments

  1. Stuart Fairney
    Posted March 7, 2009 at 10:20 am | Permalink

    “you could lose the annual defence budget with a 2% fall in the value of the bank’s assets”

    As the figures are now so high as to be monopoly, you need to give examples such as this to get people to realise the seriousness of the situation. Very well said indeed.

    Another such example, if you had 15 people earning £1 a second, (i.e. £60 a minute or £3,600 per hour), in order to pay back a Trillion of our national debt, NOT including interest, they would need to work 24 hours a day, 365 days a year, since the crucifixion. Quite unreal.

  2. oldrightie
    Posted March 7, 2009 at 10:22 am | Permalink

    I have this vision of a wrecking ball and two houses. On the right was the damaged and crumbling socialist state, Northern Crock and so on. On the left a pristine but small Lloyds house. Manic Brown in the cab of the wrecking ball is so enjoying the havoc wreaked, he gleefully took a mighty clunking swipe at the Lloyds structure.
    We now have virtually total destruction. That is if the idiot doesn’t see the houses presently not visible.

  3. Robert Searle
    Posted March 7, 2009 at 10:23 am | Permalink

    Dear John Redwood, et al,

    The economy is the basis of social, economic, and political progress. It is vital that it is restored to health ASAP!

    The government is now ofcourse using some “unorthodox” methods notably quantitative easing. This ofcourse as indicated is essentially electronic transmission of new non-repayable money.

    It beggars the question as to whether the colossal loans to help re-capitalise the banks should be converted into non-repayable money rather than its repayable equivalent. This could end the debt to the taxpayer.

    To me this is just common sense. Any government can create enough new money to stimulate the economy. How much, and how successful such transmissions depends on the quality, and accuracy of economic data with leading to serious inflation, or God forbid hyperinflation.

    At the present time, I am involved in the development of
    TRANSFINANCIAL ECONOMICS which is a global paradigm. The p2pfoundation entry (may need some more editing)is the most accurate, and basic up-to-date explanation of the subject. However, it may be “too advanced” for its time, but the implications of TFE is quite staggering when correctly understood.

    Unfortunately, it would take time to set up, and would require new bank legislation, and the introduction of advanced computer technology, and/or upgrading of present systems.

    RS.

    • Stuart Fairney
      Posted March 7, 2009 at 11:31 am | Permalink

      I presume this is irony, but if not, may I suggest the idea compares with Stalin’s avant garde agricultural policies of the 1930’s

      • Robert Searle
        Posted March 9, 2009 at 11:56 am | Permalink

        Dear Stuart Fairney,

        Transfinancial Economics has nothing to do with a command economy, or communism. It is neither right, or left wing in character. Inevitably, there will always be people who would misrepresent it parly out of ignorance, or deliberately to protect some kind of agenda be it hidden, or otherwise..

        R.S.

    • John of Enfield
      Posted March 7, 2009 at 5:14 pm | Permalink

      As Maggie once said: –

      “Socialism is running out of other people’s money”.

      Brown is spending OUR money in unprecedented quantities
      merely to have a very small chance of him staying in power.

      Please keep up the good work on this site of explaining where he is going wrong. Because – as you have also pointed out – he is dodging around all the other checks & balances we are supposed to have in our constitution.

      No doubt he & his fellow travellers will attempt to have you restrained or smeared in some way, but now is the time for us all to stand up and be counted.

    • chris southern
      Posted March 7, 2009 at 5:54 pm | Permalink

      This sounds like a badly ripped off version of binary economics.
      your system still allows peoples wealth to be stolen by constant credit creation, which steals peopls wealth via inflation.
      non money is still credit in the system, which creates inflation, it’s simple fact, we have that already (it’s still known as printing money even though no money is printed, it’s done via computer)

      don’t mean to be rude with my response, but all your idea does is combine banking as we have it with the retail system known as EPOS.

      if you wish to get rid of constant inflation then you get rid of fractional reserve banking.
      you put strict controls on govermental money/credit creation based on population of that nation which is measured every 20 or so years, this helps control inflation as well as working far better with supply and demand.
      for international trade currencies, i beleive the idea of the gold standard is being tossed around in connection with either african or eastern, asia currencies currently.

      • Robert Searle
        Posted March 9, 2009 at 12:09 pm | Permalink

        Transfinancial Economics is not the same as Binary Economics. The former is far more advanced, and can lead to all kinds of social, economic, and political reform on a national, and international scale.

        TFE is a new paradigm of huge global importance, and offers a comprehensive basis for real change, and more importantly real GLOBAL JUSTICE at record speed without the world being debt-based on interest, or taxation. Both of these are unnessary in the 21st Century.

        In TFE banks can either be private, or publicly owned, or a bit of both. It does not matter much. What does matter is a new, and more advanced financial system within a mainly capitalist, or socialist-type superstructure (or a bit of both ofcourse).

        It is best to re-examine the p2pfoundation more carefully rather than reaching hasty conclusions that are often, or not unfounded.

        RS

        • chris southern
          Posted March 9, 2009 at 12:36 pm | Permalink

          Hi robert, any new money into the system, even if created so as not to tax people (now known as quantative easing) robs people of their wealth through inflation.
          This is just a method of adding in the EPOS system as i have already stated.
          I have had a very good look at your writings that you kindly gave a link to.
          if you stabalize the credit creation, you don’t need interest as your not having to compensate for the inflation.
          No inflation (or extremely little than can be sorted out with a tiny tax that is indirect) means no debt based system and no theft of wealth via the banks or goverment intervention.

          The super computers just allow calculations for the banks to be done far quicker and projections to be far more accurate.
          if they are needed for instant inflation adjustments, that means the system is unstable as inflation must be so rampant that it is increasing faster than people can manage.

          i would be happy to chat to you over at your forum some time if you wish. 🙂

        • Robert Searle
          Posted March 9, 2009 at 4:20 pm | Permalink

          Chris Southern,

          Thank you for your remarks.

          i) It is not quite clear whether super-computers would be absolutely necessary or not in TFE. I would have to consult IT experts on this matter as my project progresses.

          ii) Super-computers notably appear in the kheper essay which is to be removed as its ideas about inflation controls are not advanced enough. Thus, the p2pfoundation entry is the main up-to-date authority on TFE. This may seem a little confusing.

          iii) Thus, it has since become increasingly clear in the p2pfoundation entry (as opposed to the kheper essay)that advanced computer technology could be developed to

          a) ensure sufficient capital can be electronically created so that supply, and demand can be properly balanced.

          b) …and that the electronic inflation controls are only used as a last resort.

          In other words, there is high fiscal stability. Also, as you should have realized there is lilttle chance of serious devaluation in currency. Adjustments if necessary could be undertaken by the click of a button as we all REALLY know that money is essentially ELECTRONIC DATA.

          RS.

  4. Brian Tomkinson
    Posted March 7, 2009 at 10:23 am | Permalink

    How much more of this are we going to be forced to take before those elected to represent us take action to stop it? Apart from your excellent but depressing blog, the Conservatives are fairly mute. Those who do speak are pretty ineffectual and those that I have heard speak do not give the impression that they see the dangers and have an alternative. If the democratic system is seen to be failing then the rule of the mob won’t be far away. Please motivate your colleagues; as Churchill would have commanded “ACTION THIS DAY”.

    • mike stallard
      Posted March 8, 2009 at 12:43 am | Permalink

      Alleluia!
      The Labour line is simple: “The do nothing Conservatives”.
      This is a little unfair since the Labour party took over the BBC (a willing victim) at the time of the David Kelly affair. Even the Times is pretty well a Labour party Broadsheet now.
      The Conservatives are not usually invited onto Newsnight.
      Where is the discussion though?
      Certainly not in Parliament where it ought to be.

  5. Richard
    Posted March 7, 2009 at 10:29 am | Permalink

    John, Is this a one-way bet? Can future governments change these agreements?

    Reply: See tomorrow’s post which will deal with the exit

  6. Robert Searle
    Posted March 7, 2009 at 10:32 am | Permalink

    Apologies correction to last post. The paragraph which says “…with leading to serious inflation…” should ofcourse read “…without leading to serious inflation…etc”

    I heard about Mr. Redwoods blog on the George Galloway Show.

    RS

  7. Ian Jones
    Posted March 7, 2009 at 10:33 am | Permalink

    The board of Lloyds must go, how can you merge with a company which effectively bankrupts the whole company less than 4 months later.

    The sheer scale is truly shocking, Brown has ruined the country.

  8. Gareth
    Posted March 7, 2009 at 10:49 am | Permalink

    Presumably this is all done with the prior agreement of the EU. As the original bail-out plan was.

  9. backofanenvelope
    Posted March 7, 2009 at 11:04 am | Permalink

    Although I only have a 50 year-old O level in economics, which is more than Gordon Brown has, I can easily predict this will all end in disaster. This prediction is based on the fact that The Great Helmsman has been wrong every time over the last 12 years. There isn’t a single thing he has got right.

    We should bite the bullet and take the hit and stop digging. Can’t think of any more cliches at the moment.

  10. Bernard Dugdale
    Posted March 7, 2009 at 11:42 am | Permalink

    Why will Governments never just do nothing?

    I wish David Cameron would respond to Gordon Brown’s taunts and explain they’d do nothing because its the correct answer, not because they can’t think of anything else!

    John, do you think there will be a point where the Govenment can’t raise the next tranche of borrowing? What will be the catalyst, and when might it happen?

    Reply: yes, we could reach the position where they cannot borrow easily or at the price they seek. However, with the idea of just printing it and by requiring the banks to buy more government debt they have delayed this event.

  11. Robert
    Posted March 7, 2009 at 12:58 pm | Permalink

    Yes John it only postpones the inevitable!

  12. Lola
    Posted March 7, 2009 at 2:01 pm | Permalink

    I am literally in tears of rage over the epic levels of economic incompetence demonstrated by the ‘clever and hard working’ Mr. Brown. Cannot someone with a modicum of sense get after him and winkle him out before he leads us even further into an abyss of debt that will haunt us for decades?

  13. R.Rowan
    Posted March 7, 2009 at 4:35 pm | Permalink

    I seems the only thing to do now is buy a wheelbarrow business for when people need one to shop at the bakers.Brown claims the world’s following him and he’s following Mugabe.

  14. Steve Tierney
    Posted March 8, 2009 at 12:39 am | Permalink

    I agree with everybody else here. I despair of anybody stopping the lunacy before it’s too late. It gets worse ever week.

    But what I despair of the most is the legion of supposedly educated ‘experts’ in Economics, Mathematics, Finances and Journalism that are (in the large majority) nodding sagely and agreeing with this every step of the way.

    What has happened to everybody?

    Or maybe it’s the small group of people who come to sites like this which are actually deluded? Perhaps, in two years time, we’ll be booming again and financially sound and everybody will agree ‘it was the QE what dunnit.’ It’d be nice to be wrong in that instance.

    I just don’t think that particular fairy-tale is likely.

  15. mike stallard
    Posted March 8, 2009 at 12:50 am | Permalink

    Now then, let’s not over react!
    Zimbabwe is run by a collection of extremely corrupt politicians. The army command and the Police command have been utterly debauched in ways which we cannot imagine. The farming industry was completely destroyed on racist grounds. Then there was a series of adventurous wars.
    And it has taken 20 years to complete.
    Mr Brown’s mob are not in that class.
    I wonder, however, what the new Icelandic PM will say when we do an Iceland? Revenge? I like to think not.

  16. The Half-Blood Welshman
    Posted March 9, 2009 at 9:36 am | Permalink

    How about “To nationalize one bank may be regarded as a misfortune, to nationalize two looks like carelessness, but to do it to four in less than a year suggests that something is stinking and stinking badly somewhere?”

  • About John Redwood


    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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