The Bank of England’s Report makes gloomy reading. Why didn’t they foresee more of these problems a year or two ago when they could have taken better evasive action? Today we learn of possible future losses from banks, more difficulties for hedge funds and continuing trouble with derivatives.
If the Bank expects further losses from British based banks, it leads one to ask if the government factored this in properly when promising to buy shares in banks at stated prices. The market prices have fallen below the government price, so the taxpayer is facing an immediate loss of more than £5 billion if and when the deal goes ahead. The share subscriptions are of course subject to shareholder votes, and the HBOS/LLoyds deal has already been renegotiated once.
Some people think that the government is buying very valuable assets at very low prices. Evidence of past nationalisations tells us that all too many nationalised businesses do not run their assets well, and can end up losing substantial sums. Northern Rock lost two thirds of a billion pounds in the first half of this year, and needed another £3 billion of share capital from the taxpayer. This was to support a balance sheet of a mere £50 billion, plus the £50 billion funded off balance sheet. We need to remember that just one of these additional banks has a balance sheet of £1.9 trillion, or 38 times the on balance hseet assets of Northern Rock. That’s a lot of risk for the taxpayer.