In the last 24 hours the Governor of the Bank of England has declared that the government does need to do more to fix and sell the assets of RBS – reinforcing a view expressed here ever since the crisis first hit.
Dr Cable has wrritten a long and thoughtful article in the New Statesman. I agree with much of it. He too accepts that the commercial banking system is not operating in the way we need. He also accepts that his approach of developing state banks cannot do nearly enough quickly enough. There is no substitute for fixing RBS, and that should entail a transfer of as many of its risks as possible to the private sector.
The press have lasered in on Dr Cable’s question whether the UK state should borrow more long term to finance infrastructure. I agree we need more infrastructure investment, starting with energy, broadband and roads. However, I think given the state’s balance sheet it is vital this should be wholly or largely fiannced by the private sector. Fix the banks, and use the markets. At current interest rates it could be made to work. Offering longer term infrastructure bonds to private investors could also help them, by delivering a reasonable quality covenant with a higher income than is currently available on government or high grade corporate b onds.
Indeed, I would save the money being spent on the state banks which will remain too tiny to have much impact, fix RBS, selling as much as possible to the private sector, and let the government lead a move to launch substantial bond issues for infrastructure to private sector buyers. That way we cut public spending a little, cut public sector liabilities massively, and have more capital spending.
March 7, 2013
I see the anti business secretary has been writing very tedious articles for the new statesman hinting that Osborne should be borrowing more to waste on trains lines and new school buildings (doubtless with green roofs, PV panels and wind turbines to push up their building costs).
If he were to suggest borrowing more to get rid of employers NI, sort out RBS and other things to release some private sector growth he might have a point. But borrowing to fund absurd white elephant train schemes!
March 8, 2013
lifelogic: “But borrowing to fund absurd white elephant train schemes!”
There may even be a case for the HS2 on the basis of technological advance, but no our brain dead civil service – allied with the dead hand of the EU insist we should build a HS2 with two hundred year old technology.
March 7, 2013
I am afraid I cannot comment on whether fixing the RBS would make any difference . People are the same everywhere what ever insitution they belong to and I wonder whether a quicker bank than a state bank would be any more careful in its dealings or whether they would massage rates for their own interest . The Libor rate scandal can’t go on , but what else can arise that we the uninformed public are not aware of?
March 7, 2013
Vince Cable’s article is very tedious. The problem is what you actually borrow it for. If you use it to release the private sector, encourage them to employ people, invest and expand and stop the banks (RBS/Natwest in particular) from sucking back funding from them, then that would help greatly.
But the Libdems and Cameron would just borrow for quack greenery, silly train schemes, pointless Olympics stadia, new schools (doubtless loaded with green bling), pr gimmicks and more jobs for the bloated, over paid, largely dis-functional state sector. This will clearly just do harm.
Borrowing to keep Osborne’s IHT promise (or better still abolish IHT completely) would pay back well setting a proper uplifting smaller state vision for a change. As would borrowing to pay redundancy payments to much of the overpaid state sector workers – so often pointless or even worse counter productive in their activities.
March 7, 2013
12 weeks for payday loan companies to sort out their act I see.
At least the government are finally doing something, but almost all of the loans they issue are surely not in the interests of the borrowers. How can 4000% be in the interest of anyone. Even Warren Buffet only gets about 20% return. These firms are purveyors of misery for the dim and desperate.
Why do they still exist? Do they give to party coffers or pay MP consultancies fees one wonders?
reply No.
March 7, 2013
No doubt these Pay Day Lenders could be improved and my days of figuring interest rates are over but I think I remember enough to know that even for the small (in absolute terms) interest amounts, for the short periods involved (two or three days is typical I understand) it is easy to throw up tendentious and misleading large percentages especially when a fee, even if very reasonable and relatively small, is charged. Percentages are not always best. There is self-evidently a need for the service. “Perfection spells paralysis”. And could we place at least some of the responsibility on the borrowers (to understand what they are doing) instead of allowing the cry of mis-selling to go up at every turn?
March 7, 2013
The are not misleading figure that is what you are actually paying in interest. Many cannot repay after the short loan period anyway.
March 8, 2013
lifelogic–You surprise me. The point is that it is very easy to come up with percentages that look awful solely because of the ultra short periods but based on in fact relatively small interest payments. To make the point consider an emergency loan of £100 made for one day with interest of £1. Interest per diem is £1 so per annum is £365 so APR is 365 times 100 divided by the £100 loan = 365% which looks terrible but is still only £1. E & O. E. On your other point I am in the camp that says the borrower (just like the UK) should not borrow if he will not be able to repay, apart from all else because he is spoiling for others what is a very popular and worthwhile service. As I started off saying, no doubt one or two rough initial edges can be smoothed off and the unscrupulous end of the market controlled.
March 8, 2013
And if you cannot repay what is the default rate?
A loan of £100 might grow to £160,000 at circa 4000% interest rates after a couple of years. Do we really want these loans to exist at all?
March 7, 2013
http://www.dailymail.co.uk/news/article-2289337/Payday-loan-firms-told-clean-act-face-closure-Companies-given-12-weeks-sort-practices.html
(See this article about lobbying and Mr Cameron’s adviser-ed)
zorro
March 7, 2013
Steady, John, I’m not sure that being associated with policies that King and Cable also advocate will do much for your reputation for sound banking and economic management. Remember all those tv leaders’ debates when we continually heard “I agree with Nick”?! Now your saying ” I agree with Vince”. What hope is there?
Reply I am trying to widen the support for my proposition that we need to sort out RBS.
March 7, 2013
Sort out RBS! Well most of the damage has already been done. They have behaved abysmally to good solid customer, reducing growth, killing jobs and reducing government tax take. So the government shooting itself in the foot as per usual.
Why on earth was it not sorted nearly three years ago? I suppose gay marriage, royal succession, gender neutral insurance, no retirement laws, green deals, HS2 and ratting in Lisbon and IHT were far higher priorities?
March 7, 2013
John is wise to broaden his support base, even King and Cable can be right sometimes…..not often mind you….
zorro
March 8, 2013
I did hear Vince Cable say something sensible once but cannot now remember what it was. The main thing that comes to mind is his pathetic silly grin and complete non answer (with an irrelevant reference to Mrs Thatcher) when asked about the renewable agenda and the lack of any warming for 14 years. Billions wasted, jobs destroyed and exported on a Libdem/Cameron religion and he just grins and fails to answer.
March 7, 2013
it is interesting that the argument you have been making for several years that a break-up of RBS is essential, and would provide a boost to the economy, is now becoming mainstream. Mervyn King’s solution is not the right one though. It could be the Govt does need to keep the bad debts, but if that’s the case there needs to be a root & branch look at the bank before the taxpayer assumes open-ended liabilities. That exercise would be an opportunity to break it up into several separate, competing banks (an offer has been made for a small part, Williams & Glyns, today). Unfortunately it is highly likely we will discover that the market clearing prices in a break-up mean there isnt much equity value, and almost certainly a big loss for the Govt as shareholder. That is not a reason not to do it – its just another reminder what bad news it is to have Labour politicians such as Gordon Brown (assisted at the time by Ed Milliband and Ed Balls) holding ministerial office. Vince Cable should be drawing that conclusion also.
March 7, 2013
A few things that were obvious at the start such as:- daft EU regulations, the mad “loans” to the PIGIS, the size of the bloated state sector, the cost of the bloated state sector pension, the need for deregulation, the need to stop tax, borrow and waste, the need to control immigration, the discovery that AGW is a gross exaggeration/guess, that the EURO is a disaster, the absurdity of green energy & the green deal, the need for real banking………… are now slowly becoming more main stream – but alas there are only two years left.
Cameron has blown it, his only chance is a deal with the people he slanders as ‘fruitcakes, loonies and closet racists’
The closet EUphile/socialist will just have to do a deal I suppose – even then I suspect he will still lose (or rat again post election even should he win). But talk of Theresa May as leader makes you realise Cameron is perhaps the best available alas – he just need a working compass.
March 7, 2013
Remember that David Cameron leads a coalition not a Conservative Govt. Politics is the art of the possible etc. It would be good if UKIP agreed not to stand against Conservatives who pledge to insist on an EU referendum (and say they will resign the whip if it doesnt happen). Otherwise, if UKIP achieve any showing at the General Election, the effect of it will be to ensure the election of LibDem and Labour politicians who will perpetuate the worst of current policy and deny the people a referendum.
March 7, 2013
It was perfectly possible to have won the last election outright.
Cameron leads a coalition only due to his absurd lefty modernist election strategy, his ratting on the Cast Iron promise and his giving Clegg equal tv billing. Low tax and growth should have been his promise and EU renegotiation. But it is not in his genes alas.
In Eastleigh it was clearly the conservatives who should have stood down, thus not splitting the higher UKIP vote. The problem is that over 50% of Tories are EUphiles as is their leader. They simply cannot be trusted. Winning next time will be very, hard after this dismal performance and against better opposition than Brown and with a leader who cannot be trusted.
And Cameron cannot even get a level electoral playing field agreed!
March 7, 2013
Has John R seen that Nigel Lawson urges full nationalisation of RBS? This surprised me somewhat. From what I gather, he thinks that there’s an argument that no bonuses should be paid at RBS, and if people want to leave, there’ll be plenty of younger staff willing to work there. Does he have a case or has he lost the plot?
March 7, 2013
He has a case. Break it up, give share options to the younger staff and stand back.
March 7, 2013
He’s right up to a point. But full scale nationalisation if it means the govt acquiring shares at the current (artificial) price is not a good use of public money. There should be a break-up, perhaps there should be a ‘bad bank’ as Mervyn King suggests, but there needs to be a proper evaluation before public money is deployed (as there should have been before Gordon Brown did it in 2008).
March 7, 2013
I am not qualified to say whether or not Drs King and Cable are right about RBS. But Dr Cable is completely wrong about more government borrowing to finance house building etc. Furthermore, he is wrong in going against the agreed cabinet line. But can we really expect anything else from our LibDem partners?
March 7, 2013
Well building social housing is not going to give much of a real return on “investment” is it . We need to charge market rents for all. Social housing is just unfair competition to non subsidised landlords. Also unfair to other who do not have a cheap flat and are perhaps £200PW worst off as a direct result.
If we charged market rent on all council flats people would not stay in them for ever more as they tend to do now.
March 8, 2013
The advantage of social housing is that the Government can control how much the rent costs, so housing benefit won’t constantly increase because landlords want more money.
March 8, 2013
Where do the people who cannot afford the market rent live? B&B? Many of the ex council houses are now in the hands of large landlords charging the government sky high rents for social housing with the tenant paying a subsidised rent. Square that one off.
March 10, 2013
As a landlord lifeoutc. Why do you not have a reply to this….?….Ram it….
March 7, 2013
Laudable but I can’t help thinking that the core problems (whatever they might be perceived to be) are being missed.
Certainly sell RBS assets and should the state care to it might buy the good assets in order to form a new bank they might float, then that would be an option. Liquidation of course would avoid the need for the government to buy the remaining shares (and cutting RBS loose would almost certainly lead to a liquidation in a short time).
Would this lead to an economic recovery? It might do, but an economic recovery depends rather on what the private sector do. Would they be persuaded to invest for the future just because the RBS starts lending again? Would they be persuaded to do so if HSBC starts lending again? Maybe.
Sorting out RBS is one thing but will not necessarily result in growth. I suspect the problem runs a little deeper and has more than something to do with the size of government having an adverse effect on the capacity of the private sector to grow.
We should remember that nearly all the massive corporations started life in someones garage and, to the extent that growth in the size of government affects the private sector, it will affect the man in the garage first.
This is not what the government wants to hear and it will try every other possibility before it looks to materially reduce its own size. So, I expect we will not be able to anticipate economic growth for some time to come.
March 7, 2013
Mervyn King claims he proposed a split in 2008 as part of the rescue but was overruled by Brown and Darling. What, give the English back their banks? Now King asserts that RBS should be split into a good and bad bank. After all the writedowns and compensation payments and fines leaving a £5bn loss this year alone, the b/s has still not been cleaned up. How can they have lost so much money? How much more is currently being misstated?
As a result of yet another techological failure, 17.5M RBS customers were deprived of access to their money. Is Mervyn King exaggerating when he refers to a potential ‘good’ bank? As this site has frequently advocated, RBS should be split up into its aboriginal components. The problem is that this government is prone to stasis until the arrival of an injunction from the Bilderberger Group (EU) or the CFR (NATO); then suddenly we are extolling gay marriage, or fulminating against a ‘tyrant’.
March 7, 2013
Infrastructure spending has suddenly become everyone’s answer. If it was the answer Japan would be enjoying 10% year on year growth surely!
I agree that new projects must be undertaken by the private sector in this climate. Government can just help by getting out the way.
As for the banks, how about scrapping 95% of regulations for new banks who are very safe (e.g. full backing of savings or say 80% reserve ratios). Allow new entrants to boost lending to small businesses. Instead of obsessing about giant banks in london it might just kick start growth around the rest of the country,without touching the financial centre. The competition could just bring down pay as well without having arbitrary regulation
March 7, 2013
Investment is needed where real returns are very likely – in the private sector or in real redundancies in the state sector. All very simple, not tax borrow and waste on grand projects like HS2 and green Bling but real investment in a better trucks, ships, a new piece of plant, more efficiency, more sales activity, better buildings, better workforce, better gas turbines, new nuclear, fracking and confidence ……
Not more team building jollies and fewer silly green and HS train religions and PR drivel in the state sector.
March 8, 2013
If you chuck public money at the private sector with no reason you will be in the situation we are in, in many cases a private public sector. Nuclear is this, as would be transport such as better trucks? More sales activity? Better buildings, better workforce, better gas turbines, new nuclear, fracking and confidence. ……What does all this mean? Some sort of absurd religious right wing think I suspect, and that we as the taxpayer are expected to pay for by reducing jobs in services and services provided by the state and by tax cuts for these companies and their owners.
March 7, 2013
“If it was the answer Japan would be enjoying 10% year on year growth surely!”
If you measure GDP against people of working age, rather than total population, Japan is doing rather better than the UK. In the current economic climate, if the UK had the demographics of Japan, we would be doing a lot worse than we are, and we’re doing pretty badly.
March 7, 2013
100% Agree
But can you convince Mr Obourne & Mr Cameron?
March 7, 2013
No and even if he could they still have Clegg and the Libdums.
March 7, 2013
Though there is theoretical justification for spending on government infrastrucure projects to generate immediate growth there is an ovewhelming real world reason not to.
We know, from a long series of government projects that they average 8 times more expensive than they should be – the Dome costing £650 million but only £43 million on building costs; Crossrail costing nearly £1 bn a mile when Norway cust tunnels at £6 million a mile; HS2 beingh £80 million per mile; new Forthj bridge at £2,300 million when the inflation adjusted cost of the previous one was £320 million.
Clearly until government parasitism is eliminated we should not pour into this money pit. Indeed it is arguable that if only we stopped that parasitism the economy would grow automatically.
If we want to do something immediate produce lots of X-prizes, with time limited goals and let the marjet go free. Or even more simply cut business taxes and let the productive half of the economy have the money.
March 7, 2013
” starting with energy, broadband and roads.”
I agree, so why is your party so obsessed with airports and high speed railways.
March 7, 2013
For some airports there is real demand and lack of Capacity especially at Heathrow and Gatwick but HS rail is clearly a fake green government inspired nonsense.
March 7, 2013
Why do you think private banks will be more successful than the RBS at lending to business?
reply Because they woulod have sounder balance cheets and have to lend to make a profit.
March 7, 2013
The risk to rates is now that they increase. Lenders don’t like to lend when rates are likely to rise and incomes likely to fall. I don’t think any banks, private or state, will be inclined to lend much under those conditions. So, the central bank tells them they will guarantee rates do not rise as long as they print money (QE), and the banks turn around and say fine, let’s get into the risk free repo business with the central bank, why should we stick our necks out lending into the risky general market ? The unintended consequences of rigging the market.
The problem is that we need some air to come out of the asset bubbles and non-economic companies (zombies)that resulted from too much prior lending, but this does not serve the politicians, debtors or the bankers, and so we muddle on.
March 7, 2013
There is plenty of money sloshing about, just not in the right direction …
Why not i) ask banks to offer 25 year fixed rate mortgages. ii) Stop them offering interest only mortgages over 5 years in duration (think thats the Aussie/NZ limit) and make mortgages non recourse.
You’d soon see retail banks less willing to inflate real estate and push money into investment.
Then you can say – people should invest in the pension portfolios properly – so tax buy-to-let income and increase the capital gains limit greatly – encourage people to invest in tangible companies.
As for RBS: shutting the investment bank (it was late to the party and a cut below its rivals), selling off bits and pieces at a quicker rate (Hoare Govett has already been sold), what is left can be left to its own devices and go bankrupt if needed – the govt. as shareholder can force of good bits of RBS (retail banking) to a government owned enterprise, ready for privitization.
March 7, 2013
But to let income is taxed heavily already as are buy to let capital gains! Anyway is there not a demand for houses and flats to rent? Do you want to stop the supply?
March 7, 2013
If I understand correctly Vince Cable wants to break up RBS into a good bank and a bad bank in the same way that Northern Rock was broken up. Though the good Northern Rock bank was sold to Virgin for a loss what happened to the bad Northern Rock? Does the UK Government still own it?
March 7, 2013
We need to wind the clock back a bit to the days of retail banks, building societies and merchant banks. If a merchant bank takes a punt on derivatives and it bankrupts them, then so be it.
Retail banks could concentrate on providing current and savings accounts etc. and providing mortgages based on prudent lending principles.
In future we need to make sure that we don’t allow people like Gordon Brown anywhere near the levers of power again. For now, we need to work out a way to move Cameron and Osborne a safe distance from said levers, and anyone who voted for them needs to have their head examined.
The country is broke in more than one sense of the word.
March 7, 2013
I would normally be the very last person to want to increase borrowing with the level already so high and would die in a ditch on the subject were we not already incontinently increasing our borrowing ANYWAY at a scarcely comprehensible rate. Given that we are thus increasing the borrowing as I say anyway I do not believe there is anything in Economics or anything else that says a little bit more would be the kiss of death. I have to admit that what clinches it for me is Cameron’s and Osborne’s saying the opposite. My faith in them is under the carpet. I just heard Cameron say he is going to roll up his sleeves and fight. That would be great if he was fighting for the right things which he is not. He is wrong on just about everything and a fraud as a Conservative.
March 7, 2013
Policy should encourage smaller and new banks and competition. Perhaps then the regulator/police may have the balls to regulate/prosecute and pull the trigger on (remove license or remove the board) , in your language, wayward banks.
March 7, 2013
In the Daily Mail article:
http://www.dailymail.co.uk/news/article-2288965/Split-RBS-good-bad-bank-urges-Bank-Governor-Mervyn-King-slams-current-nonsense.html
I see Mervyn King urging:
“RBS must be split into a ‘good’ and ‘bad’ bank …. ”
and
“… it was ‘not beyond the wit of man’ to split RBS into a ‘good’ and ‘bad’ bank to ensure the cleaned-up group could support lending and boost economic recovery efforts”
That doesn’t make a lot of sense to me, because my understanding was that RBS has already gone most of the way to being “cleaned-up”.
It may be recalled that in early 2009 Alistair Darling set up “Darling Insurance”, aka the Asset Protection Scheme, basically to offer insurance to banks against losses on the “toxic assets” which had turned them into “bad banks”.
At the time, Vince Cable correctly warned that potentially this could leave the Treasury with huge liabilities, but as it turned out only Lloyds and RBS took up the offer, Lloyds withdrew within a few months and RBS withdrew last October:
http://www.guardian.co.uk/business/2012/oct/17/rbs-leaves-asset-protection-scheme
And it said there about the “toxic assets” held by RBS:
“Some £282bn of troubled loans were first insured by the APS but this has now fallen to £105bn as the loans have been sold off.”
That was over four months ago, so presumably the residue will now be lower than £105bn, meaning that maybe 70% of the job has now been done?
My own suggestion was that rather than or in addition to “Darling Insurance” there should be “Darling Waste Disposal”, a state body funded by new money created by the Bank of England which would offer contracts to buy up the “toxic assets” from the banks at provisional prices, gradually sort through them and sell them off at the best prices obtainable, and then to square the state’s books present each bank with a final account to be paid off over a number of years.
But even if that was the right thing to do four years ago it seems pointless to do anything like it now, when ostensibly most of the job has already been done and RBS is already well on the way back from being a “bad” bank to being a “good” bank.
March 7, 2013
It could all have been done 5 years ago had it not been for Brown then your friends Osborne and Cameron fiddling while Rome burns. Again, we need people there to act for the people, not against them. I think you are in the former camp but your leaders, along with the LumpDemLabour crowd, are not.
March 7, 2013
I note that Hughnes wife Vicki Pryce has been found guilty of the offence she was charged with. There is press speculation that her plea of being coerced by a bullying husband did not impress the jury. Perhaps not but I hope that this time the jury considered the facts of the case and decided on law properly directed by the judge. Lets keep sentencing and mitigation out of the jury room. This is not the USA and the jury is not considering financial penalties.
March 7, 2013
“At current interest rates it could be made to work. Offering longer term infrastructure bonds to private investors could also help them, by delivering a reasonable quality covenant with a higher income than is currently available on government or high grade corporate bonds.”
The money will come from the private sector whether it is borrowed from it by the government, or spent directly. The difference in income you point out here is the _extra_ cost (to the taxpayer) involved in getting the private sector to take the risk of up-front development and keep the numbers off the governments balance sheet.
It’s just PFI, in other words, and we all know how well that turned out.
Reply : Not so. The difference is that only volunteers would buy into these investments – not forced upon taxpayers. The risk would rest with the investors not with taxpayers. The government would not be involved as it is in PFI where it is the customer.
March 7, 2013
I did pick up on Mervyn Kings comments about RBS and thought it could have been a quote from Mr R. When a bank is that colossal that when it steps back from lending it affects the economic growth its must be time to break it up and create several small competing banks.
March 8, 2013
I believe that technically, this country is broke. So where will the money come from to fund the infrastructure plans? From the sale of RBS? I doubt there will be many bidders and those that do will expect to make a killing or not deal at all. So will it be another case of money printing to pay for new roads, when we do not need new roads?
Ultra fast BB is a desirable tool for example, to alleviate the necessity of travelling for meetings. They can be carried out on-line with little hassle and some decent software. But it all boils down to the business of Government funded projects with Tax Payers money. What ROI can we expect from it? What’s in it for us?
And that has always been the problem with the Public Sector. It’s always someone else’s money to fritter away without much care as to what happens to it and whether the tax payers can actually look forward to receiving something back for the investments. Why can’t the Government on such ocassions provide a low interest ‘loan’ repayable over time with interest? The Government provides a proportion of the costs to help the project get underway but the decisions and expertise remain with the Private Sector contractors and not some desk jockey in Whitehall. Until the Private Sector is allowed to get on with its work there will be no real growth in this country. Infrastructuring does not create growth as is clear from the empty office blocks, shopping malls and empty roads to nowhere, dotted all over the Chinese mainland.
March 9, 2013
In the past you’ve pointed to the current level of capital requirements as being a brake on bank lending. Is there any movement towards relaxing this requirement as part of a recovery plan to release some existing private sector capital back in to the market?
This time it should be with the priviso that no bank will be bailed out if they overcook things though.
It seems to me that the current strategy of forcing savers into the stockmarket will only benefit larger established businesss which are already accumulating capital for new plant and M&A activity. Don’t we need the banks to be getting money in to the market for the SMEs?