Interesting piece by Simon Jenkins

[policecar]

Common sense has no place on the Brown-Darling Titanic

As the economic ship goes down, all lifeboats are for bankers, however hopeless they might be. Let the steelworkers
Simon Jenkins The Guardian, Wednesday 28 January 2009

The British government will do anything, absolutely anything, to avoid boosting demand in the recession. Yesterday's frantic rescue package for the car industry will boost profits (or reduce losses) but not sell a single extra car. As for the steelworkers of Llanwern, on whom such sales depend, the policy can only be to retrain them as hedge fund managers. Billions in subsidy is now rescuing hedge fund managers, nothing to rescue steel.

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[flatandy]

The Brown-Darling policy is archaeo-Thatcherism. It is to regard the steelworker as a residuum of an economic downturn. The government has decided to aid not Corus, but Corus's bank. It has hurled money at banks in the vague hope that some might stick to Corus and thus to its workers. Without demand this is pointless. No bank lends to a bankrupt foundry.

Sadly very, very true.

The initial problem Brown had was to keep some banks in business and lending.

It would have been easy - nationalise NR and B&B and get them lending.

Instead, he doesn't get the banks he's nationalised to lend. Instead he throws tens of billions of quid at the private banks who promptly sit around not lending it. He could easily have let HBOS and Lloyds go bankrupt, and just had his nationalised banks take up the slack.

And now, instead of offering £30bn in proper spending to drive the economy, he's still trying to bail out the banks even though it's still obvious they're unwilling to do anything to help him.

As usual with Brown, he only understands and helps the giant corporations. And as always it's an entirely one-way deal - like with PFI - where he gives them loads of cash, and they do nothing at all of any use.

[flatandy]

Actually, that article is spectacularly spot-on

[omnipleasant]

Well I kind of agree with some of that.

Just a couple of things though. He rightly points out that this has been caused by the "drying up of credit". But then he criticises the govt for supporting the banks to try and get credit going. Seems a bit odd. He's falling into the lazy trap of thinking that banking support is about "saving the bankers", which is wrong - it's actually about boosting demand in the real economy for real folk.

And this thing about "boosting demand". Doesn't he realise that's exactly what the govt have done? They've cut taxes, they've increased public spending. To the tune of £20bn so far - not enough in my opinion.

I agree that something along the German lines would be a good idea though - actually subsidising consumers to buy certain things, rather than simply cutting taxes. Horribly expensive of course, and will mean more govt borrowing - but there is room for more, and needs must.

[flatandy]

Jan 28, 2009 15:04:31 GMT @omnipleasant said:

Just a couple of things though. He rightly points out that this has been caused by the "drying up of credit". But then he criticises the govt for supporting the banks to try and get credit going. Seems a bit odd. He's falling into the lazy trap of thinking that banking support is about "saving the bankers", which is wrong - it's actually about boosting demand in the real economy for real folk.

Well, what he's saying is that by nationalising the banks he should also have actually dictated terms, and got them lending. Rather than giving them a wodge of cash with which they can pay off a ton of debts to other bankers, and still not bother to actually lend or do anything useful.

And he's saying that if the banks aren't going to lend or do anything useful you may as well let them go to the wall, which is entirely fair.

And this thing about "boosting demand". Doesn't he realise that's exactly what the govt have done? They've cut taxes, they've increased public spending. To the tune of £20bn so far - not enough in my opinion.

So, £85bn to the banks.

£15bn spent over the long term on tiny increases in public expenditure.

£5bn on a miniscule VAT reduction, also paid over a full year.

Do you really want to defend the massive dose to the banks and the pitiful one on boosting demand?

[omnipleasant]

Andy I think you know that the govt hasn't simply handed over cash to the banks. I think you probably understand that it's in the form of recapitalisation and loan guarantees - i.e. the money will come back to the treasury.

Tax cuts / spending increases are different - once you spend the money, it's gone.

[omnipleasant]

I agree that if the govt are going to fully nationalise in terms dictating the policies of banks as well as owning them then they might as well have gone bust, though.

Lending is getting slightly better at the moment, though.

[flatandy]

Details, details. Brown's still guaranteeing loans which is, of course, shovelling cash into the greedy maw of the bankers; and he should still have let them go to the wall. And he should still be using the nationalised banks directly to kick-start lending rather than pretend they're still private.

[flatandy]

By the way, any comments on the government's farcical guaranteeing of PFI debts?

[omnipleasant]

It's a pretty bloody important detail!

[flatandy]

It doesn't make Brown's actions any more defensible.

[policecar]

Brown's still guaranteeing loans which is, of course, shovelling cash into the greedy maw of the bankers; and he should still have let them go to the wall. And he should still be using the nationalised banks directly to kick-start lending rather than pretend they're still private.


Possibly the most spot on thing you've ever written Andy. Use Northern Rock as a launch pad for government backed cheap mortgages and provide savings accounts with a decent interest rate. As Joe Public votes with his feet and deserts the private banks in droves they'll either buck up, re-engage and compete or if they're RBS they'll die.

[omnipleasant]

It makes supporting the banks perfectly defensible, because we will almost certainly get the money back.

It doesn't make the timid fiscal stimulus any more defensible though, I agree.

[omnipleasant]

"Possibly the most spot on thing you've ever written Andy. Use Northern Rock as a launch pad for government backed cheap mortgages and provide savings accounts with a decent interest rate. As Joe Public votes with his feet and deserts the private banks in droves they'll either buck up, re-engage and compete or if they're RBS they'll die."

Agree.

The competition lawyers would have a field day though. If the govt could get away with it, I think they probably would have / will do it.

[flatandy]

Change the law, then, Omni. Simple.

[policecar]

It makes supporting the banks perfectly defensible, because we will almost certainly get the money back.

snigger


The irony of MONG and his Sunshine Variety Bus Cabinet toadying up to the fat cats and propping up a rotten system is delightful. Let the fuckers burn. Put an alternative in place and then facerape their market share by undercutting their lending rates, savings rates and business rates.

[omnipleasant]

You'd think so, Andy. I don't know much about competition law but I suspect it's EU / international stuff that is the sticking point.

[omnipleasant]

It's not the Fat Cats that would suffer if the banks went under though, PC.

[flatandy]

Jan 28, 2009 15:30:06 GMT policecar said:

The irony of MONG and his Sunshine Variety Bus Cabinet toadying up to the fat cats and propping up a rotten system is delightful. Let the fuckers burn. Put an alternative in place and then facerape their market share by undercutting their lending rates, savings rates and business rates.

Possible the most spot-on thing you've ever written, PC.

I do wish that chinless-Dave and his Eton wonders would offer a sensible approach like this, rather than their pathetic "More Mong Than Mong" approach currently offered.

[jonren]

An ordinary Nissan worker said yesterday to the BBC. The money promised will not sell a single car. Now where did you hear that first?

I said before on hear, that 18 to 25 years old, including student loans, have an average personal debt of £18,000. Twenty-five to fifty-five year olds, the figure is circa £35/49,000

Who will buy cars?