Board index ‹ Off Topic ‹ The Sin Bin ‹ Osborne Anounces Another £140 Billion Bank Bailout

rhino phil wrote:

if there was a sensible time for government borrowing it is now when govt debt is as cheap as it as ever been. That ability to borrow at record lows should be used to finance capital projects not just poured into banks bottom line, There are two fundamental flaws with this current plan to inject capital that must be relent. Firstly the condems have scared any confidence out of the economy which has suppressed demand. Secondly the banks wont pass the low interest rates on. Thye will profiteer by charging ridiculously high rates and charges on any money they do re-lend again suppressing demand. I think its a safe bet that in twelve months the banks will come out pleading that they wanted to lend but nobody wanted their money just like they did with project merlin. If gideon had any sense he would have taken advantage of the state owned banks to get this money into the economy at sensible rates the competitive pressure of a state bank lending at reasonable rates would also push the others into lending at sensible rates.

There was a young man on one of the news channels yesterday. He ran his own computery business and had approached a couple of banks for finance to expand. They were willing to lend but at rates of over 20%. Considering they are borrowing at next to bugger-all, that is close to usury

cod'ead wrote:

There was a young man on one of the news channels yesterday. He ran his own computery business and had approached a couple of banks for finance to expand. They were willing to lend but at rates of over 20%. Considering they are borrowing at next to bugger-all, that is close to usury

No it is usury.
I suppose the simple answer is the old Irish answer, it would be easier not to be starting from here, it would be easier if Osbourne hadn't done what he did two years ago and kill the little growth there was stone dead. It was a bright wheeze, get all the pain out of the way, a boomlet and a successful general election (for the Tories anyway) Balls said it wouldn't work and it hasn't.
What is needed initially is a temporary cut in VAT - which despite all the naysayers, is what stimulated the economy in 2009. The increase to 20% was the exact opposite of what was required. And as has been already said on here - get some investment in housing, in much needed public works, restore the schools rebuilding programme. If you get constructon right the rest will follow. When the Tories came in crying woe, woe and thrice times woe they overegged the pudding and scared everyone. Time to back down. Solution no 1? Sack Osbourne, it may not be entirely his fault but for credibilty of the the government he has to go.

Standee wrote:

you clearly have anecdotal knowledge of the sector, so I'll leave you too your Indy informed rants, I KNOW the sector and I KNOW how it works.

You may know how the sector 'works' now but its not working that well. It's not how it worked in the past or, hopefully, in the future. Cod'eads suggestion has been put forward by serious individuals.

cod'ead wrote:

There was a young man on one of the news channels yesterday. He ran his own computery business and had approached a couple of banks for finance to expand. They were willing to lend but at rates of over 20%. Considering they are borrowing at next to bugger-all, that is close to usury

Banks are paying more than peanuts on the markets for money to lend, that's the main reason for this Bank / government initiative - to give them cheaper money to lend on more cheaply.

The young chap may have no track record and be considered high risk by the bank.

So many of the hard-pressed small businesses that bemoan banks not lending to them are not actually borrowing to expand but are basically not viable.

major hound wrote:

Solution no 1? Sack Osbourne, it may not be entirely his fault but for credibilty of the the government he has to go.

Osborne won't go and neither will many, if any others. This lot know they are a one-term government, they knew it before Cameron accepted the Queen's invitation to form a government. They are making the most of getting as much out of the state and into the hands of their chums as they can. The old tory grandees know this and are fuming at what is going on because many of them know that it could well be their seats that are lost.

Dally wrote:

Banks are paying more than peanuts on the markets for money to lend, that's the main reason for this Bank / government initiative - to give them cheaper money to lend on more cheaply.

The young chap may have no track record and be considered high risk by the bank.

So many of the hard-pressed small businesses that bemoan banks not lending to them are not actually borrowing to expand but are basically not viable.

Yes the real problem is one of demand (businesses not even applying for loans as there is no point expanding) rather than supply of loans. Like you say many businesses especially small ones have no track record or collateral which is the market failure, the bank doesn't have enough information on them to make an accurate assessment. There is a scheme called Enterprise Finance Guarantee that small businesses can apply to where the government guarantees 75% of the loan to the bank in the event of default, so its still the bank that makes the decision on whether the business is viable, but it takes away some of the risk so the ones that are at the margin where the bank thinks they look like they have a good plan but feels its a bit of a risk, will get loans. There are limits as to the overall amount of cover any bank gets from the government though, so they can't just use this to guarantee all their loans.

the likes of lloyds are refusing to even read business plans or look through the books of businesses in certain sectors e.g anything property or construction related. liquidity is the life blood of any economy and the banking sectors refusal to release funds to viable companies strangles off growth and jepordises the viability of these businesses so the circle continues. The failure to lend on the basis that the economy is weak is a self fulfilling prophecy. The govt owning a section of the banking sector gives them a way of breaking this circle but its one the condems refuse to use

[DaveO]

rhino phil wrote:

the likes of lloyds are refusing to even read business plans or look through the books of businesses in certain sectors e.g anything property or construction related. liquidity is the life blood of any economy and the banking sectors refusal to release funds to viable companies strangles off growth and jepordises the viability of these businesses so the circle continues. The failure to lend on the basis that the economy is weak is a self fulfilling prophecy. The govt owning a section of the banking sector gives them a way of breaking this circle but its one the condems refuse to use

This why we need to do what I believe Cruddas is looking at in Labour's policy review. It is setting up regional investment banks based on the German model who's job it is to lend to businesses and take along term view. The idea may well be to not de-nationalise RBS but instead turn it into this kind of entity divided up into separate regional banks with this task in mind.

DaveO wrote:

The idea may well be to not de-nationalise RBS but instead turn it into this kind of entity divided up into separate regional banks with this task in mind.

Any hint of that happening and you can bet your life this bunch of shysters will have it flogged off to their mates, no matter what the cost to the taxpayer

rhino phil wrote:

the likes of lloyds are refusing to even read business plans or look through the books of businesses in certain sectors e.g anything property or construction related. liquidity is the life blood of any economy and the banking sectors refusal to release funds to viable companies strangles off growth and jepordises the viability of these businesses so the circle continues. The failure to lend on the basis that the economy is weak is a self fulfilling prophecy. The govt owning a section of the banking sector gives them a way of breaking this circle but its one the condems refuse to use

Which is why the government needs to start spending more in the economy to stimulate demand.

Osborne keeps saying his austerity plan has restored confidence on the markets, but what confidence is this? UK government bonds have low interest rates but thats a consequence of expectations of long term low interest rates from the B of E as much as confidence that we won't default, rates were never high anyway even when Labour were in power.

The 'market' has no confidence in the economy hence the private sector banks don't want to lend. They had all this supposed evidence that austerity can be expansionary because by cutting the size of the state it releases resources to the private sector so the private sector will grow, but it wasn't an issue of fighting over resources anyway because there are large numbers of unemployed workers and large amounts of investment funds being unused.

There are four components of demand, consumer spending, business investment, government spending and net exports. Most of our main trade partners are in a worse state or as bad a state as us so we can't expect huge amounts of exports any time soon, so if we're committed to cutting government spending we are relying on consumer spending and business investment - and where is this going to come from....?

The big joke is the government even rejects the tax cutting argument. If you want to stimulate demand then cut VAT and you get a direct effect on spending, because people only benefit from a VAT cut by spending. It's not like an income tax cut where people will save some of the benefit so it doesn't contribute to demand. But the Tories for some reason seem totally disinterested in this tax cut, the tax cuts they want is tax cuts for the top earners, which have the lowest effect on contributing to demand. The IMF has suggested the UK needs to look at VAT cuts as a stimulus but Osborne won't have it.