The government is spending money like water in a dangerous way. Its endless schemes to prop up the banks are wasteful, delaying the necessary changes in the banks to sort out their past losses and mistakes. Future generations of taxpayers are being lumbered with huge debts, whilst the economy continues to decline rapidly.
I have set out an alternative much cheaper way of handling the banking crisis. The one helpful change so far in the government’s conduct is the realisation that RBS, a bank larger than our national Income, has to reduce risks and try to control its losses better. I regularly speak in the House when there is opportunity on the damage done to savers by the very large cuts in interest rates, to taxpayers by the profligacy, and to the economy by delay in tackling the underlying monetary and banking crisis.
There is no one single quick fix, no easy way of sorting out the excesses of the past. As a country we need to save and export more, and spend and borrow less. The adjustment is painful., At the moment government action is serving to delay it, and serving to penalise savers and exporters, the very people who we need to encourage.
Parliament has been badly damaged by this government. I am not allowed to table questions on where all our money goes in these banks, as the government claims they are “at arms length”. Yet we learn that a Minister demanded the sacking of the CEO of RBS without asking the right questions concerning the man’s pension arrangements. We are told by another Treasury Minister that they are going over all the bonus and pay arrangements in the state owned banks. That does not sound like arms length to me. In view of the colossal sums being spent and lost, Parliament should have a right to be told and to cross examine those responsible.
The government is undertaking too many expensive initiatives without giving any of them time to work. It needs to calm down, and do just two things well. The first is to get the money supply right, which it has messed up both ways in the last four years. The second is to get the banks to work their way through their portfolios of bad loans and poor investments, cutting risk and taking losses where necessary, with minimum recourse to public money. It should not be buying any shares in banks, given the scale of the losses. It needs to give powers back to the Bank of England so it can run our money markets properly and supervise our banks sensibly. The Brown reforms both wrecked our money markets and our banks.
I keep people up to date with the twists and turns of this crisis daily through www.johnredwood.com. There is a palpable and justified anger now about the incompetence of the authorities and the huge waste of money. The old rules have not been suspended by the crisis. It is better for governments to live within their means. Every penny spent should get us value. The money should be concentrated on front line staff, good service provision, and benefits for those in need. So often the deserving do not get enough, whilst spending on the government itself runs amok.
I look forward to some commonsense returning. If it does not we all end up the poorer, heavily in collective debt. You cannot solve a problem brought on by borrowing too much by borrowing more. You cannot mend the banks by transferring all their problems to the taxpayer. You need to work patiently away at every loan and every investment, to try to get the best result you can. You cannot create a sense of fairness if you reward those who made enormous errors and penalise those who try to take responsibility for their own lives and pay their own way. Today it is savers being attacked. Tomorrow it will be taxpayers, as the bills come in for all the debt this government is busily amassing at the taxpayers expense.
March 5, 2009
“You cannot mend the banks by transferring all their problems to the taxpayer. You need to work patiently away at every loan and every investment, to try to get the best result you can.”
It’s simpler than that actually. Up until a couple of weeks ago, the Northern Rock was effectively doing just that – it was encouraging good borrowers to remortgage elsewhere, so that the rubbish was all concentrated in one place, and to be fair, was repaying the taxpayer loan ahead of schedule. If any bank asks for a penny of taxpayers’ money it should be subjected to the same treatment, i.e. turned into a closed fund or run-off fund.
“Future generations of taxpayers are being lumbered with huge debts”
As long as UK governments and voters have this obsession with keeping house prices as high as possible (through light taxation and very restricted supply, with correspondingly heavy taxation of turnover, employment and profits) the corresponding debt burdens are always a transfer from future generations to present generations – they pay off their inherited share of government debts via income tax and VAT, and out of what is left, they have to pay off another load of debt (purchase mortgage) to buy a house, the subsidies to which helped create that government debt mountain in the first place…
March 5, 2009
I haven’t heard many shouting up on behalf of savers who took no part in the crisis and are yet we’re living on dwindling savings. The government should do something here to help protect those who’s incomes depend on savings as many millions could see their savings wiped out altogether simply for reason there’s no choice but to use the capital to survive.
When lenders reduce their own interest rates to homeowners, only those on flexible rates will feel any direct benefit. A rate reduction won’t make a scrap of difference to fixed rate homeowners, savers or pensioners, which together form a rather large portion of the population and will not be coaxed into spending by this plan.
The government has to reach more people in a direct way in order to make a success from quantitative easing otherwise it’s a half cocked measure.
Secondly, government has to seek to get the money out there, but when you put yourself in the position of a banker lending money, then think why would they would risk loaning money to someone who could lose his job, or to a business which is struggling and you see the problem that the debt the government is asking banks to create, could rest with the banks themselves to simply make their losses worse not better. This is why loan guarantees are so important if the government wants businesses and consumers to ‘borrow’.
However, there isn’t a fairer or quicker way to distribute more cash into the system than to place it to people directly at least in part, in the form of tax rebates to people and to businesses. Doing that would help struggling homeowners, stem repossessions, help businesses survive and potentially increase the bank deposits of those who would inevitably not spend, and thus banks would be in a stronger position to lend to others.
Dropping interest rates is a complete waste of time.
March 5, 2009
An excellent appraisal of the situation as usual.
March 5, 2009
Do you not think that this marginilisaton of Parliament is an integral part of Brown and Labour’s control freakery and a major cause of our troubles? I do.
March 5, 2009
This government is making No attempt to save money or cut back.
Have you noticed how much government advertising there is on TV?
And all the daft new posts being advertised with huge salaries?
And the astronomical amounts being spent on consultants? And so on…………