Tuesday, 25 November 2008

Government fiscal policy :

"Pressure on the Government to do more to compel the banks to boost the flow of credit to business is also stepped up today by the CBI. In a letter to the Prime Minister, Richard Lambert, the Director-General of the CBI, calls for urgent action.

“The biggest threat hanging over businesses is cashflow. If they cannot get their hands on the cash and credit they need to go about their day-to-day business, there is a real risk that we could see healthy firms going under,” he writes.

“The next six months will be critical.

If we are to stand a fighting chance of preventing this recession from becoming longer and more painful, we need to act now to get the credit markets working properly.”

His call comes after Bank of England figures showed last week that the growth of lending to households and nonfinancial businesses fell in September to an annual rate of only 6.8 per cent, the lowest since 1998."

Dear bank manager:I dont have any money so i would like to take out a loan.I understand the you have been given my money that i dont have by the government so that you can lend it back to me with interest.I might not be able to pay it back either if the economic situation gets much worse so that means that i may not pay back my money that i gave to you to lend it back to me.

Or its giving money to shareholders.Public money funding private enterprise.
150,000,000,000 [bailouts] divided by 40,000,000 [taxpayers] = 375 quid each.Its not that much when its broken down unless my maths is totally out.Or 3,750 quid which means a 500 billion bailout means 12,500 quid pertaxpayer .

It seems that banks should not be PLCs because with PLCs so the profits are shared out with shareholders whereas if the bank was a limited company or whatever they were before they were privatised then the banks would accumulate profits therefore saving for a rainy day.

Banks have made huge profits year in year out and yet nothing has been saved by the banks as they are being given money to lend out.No reserves either it seems to fall back on.

So really a bank without reserves other than account holders money isnt really a bank because they dont hold cash and they dont have gold bullion in their basements.Yet they have lent out huge amounts of cash so it can only mean they have either lent out account holders cash or they have lent out virtual money that they never had to begin with.

At what point does a bank stop lending money ?Assuming they have money of their own should they have lent out their last fiver ?

How many borrowers can a bank lend to at any one time ? Is it finite or infinate ? also if that bank has x amount of existing borrowers and x amount are bad debts is it sensible to lend out even more even in this climate ?

Its a mindbender.

Low interest rates = Failure because to compensate for the low interest rates paid out the bankers have gambled on proliferating cheap easy lending and its unsustainable as all the cash has been lent out.Well actually its standard practice for a bank to lend out 6 to 10 times its deposits and it hopes that its deposit holders dont all want their money back at once.Fractional reserve lending plus low interest easy lending = Disaster but very profitable in a boom time so where have all the profits gone ? Shareholders.So in a sense re-nationalising banks isnt a bad idea as greed and stupidity has killed the banking system.The banking system has killed itself.Shareholders are like parasites who dont contribute anything back to what they feed off plus the fact that they must be all Morons because no one at their AGMs pointed out the fact their banks lending policy was completely flawed and stupid and questioned their Directors/CEOs at any time.So they let it all happen and just milked it for what it was worth.

Times online comments :Are you telling me that 125% mortgages, unverified self-cert and BTL mortgages are "normal lending"?

Anyone who thinks 2007 lending patterns were "normal" hasn't given much thought to the other 500 or so years of banking history since the BoE was established.

Dylan, Rossendale,

The banks have slashed their savings rates and those running them wonder why they continue to be undercapitalised. Did it ever occur to them that savers have simply abandoned them?

Paul, Coventry,

How can the Government finance Banks at a rate of 12% for their preference shares and yet expect the banks to lend at the rate applied before the catastrophe (less the reduction in Bank rate). How long can the beleaguered banks sustain such subsidy to SME without themselves going bankrupt?

S Yogarajah, Harrow, UK

give us all a million pounds each and see what happens, we may consider lending some of it back to the Bank....at a price!!

maddison, london, england

Take money off you to give to banks,so they can lend it to you at a profit. Remove future spending power to sustain the unsustainable for another month. Genius.

The article 'Banks to Lend You Your Own Money' in the magnificent Daily Mash should be on the National Curriculum.

dave hall, Stafford, UK

"Normal lending?" As in the frivolously irresponsible lending of the last decade?

Bruce Robertson, Brighton, UK

Banks' finances are backed by nothing. They create debt from nothing, and expect us to pay it back! Its called Usary. There used to be laws against it. So, how can banks borrow money from the people? We don't have money! But the government gives what we don't have, so they can lend it back to us!

Simon, Bristol, UK

Utter nonsense from another bunch of academics. Full nationalisation-where we have 4 bank branches we only need one-massive redundancies, no competition, what happens when Labour decides to double interest rates? What about the banks' global operations? The sector is 10% fo GDP-it would be ruined.

Janet, London,

If Bank lending to Households and non-financial businesses is still rising by 6.8% p.a. the last thing that the government should do is to pressurise the banks into more lending. This government is simply creating even bigger problems for the future.

David Apperly, Wicken, UK

I took out a loan to buy a German sports car. The loan was secured against the equity in my house. I feel very let down by the government now that house prices are falling. Why should I now suffer the possible loss of my house. It was Mr Brown who said that he had ended the boom-bust cycle.

Medhan, London,

Why can't they use some of the tens of billions in profits they've made over the years?

Steve, London,

I don't understand. If 110bn were given to banks to restore finances following dodgy investments, why should they start lending? Consumers aren't spending, no one wants to borrow money therefore no new money is being created.


  1. you paint too rosey a picture... for example the banks don't loan upto 10 times their deposits because remember the money you recieve as a loan recursively becomes a new deposit and so the money creation is actually much greater!
    strange that no one questions to logic of a government asking private banks to create money as loans with interest for us to pay in taxes.

  2. I didnt think it got any worse !!!

    You live and learn.