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Monday, July 26th, 2010

Who doesn't get it? posted by Andrew Lilico

From the FT article

Mr Cable on Sunday turned up the heat on the banks, telling the Sunday Times: “The banks are not acting in the national interest. I don’t think they get it.”

But how is it the task of private non-nationalised banks to act in the national interest?  They are private bodies, and their task is to act in the interests of their shareholders and according to their corporate missions.

The FT goes on:

He said bank dividends and bonuses could be used to support lending. “At the moment we are talking to them in an amicable way and we are monitoring them, but if this doesn’t work, there are combinations of carrots and sticks that can be employed.”

Among the possible “carrots” are an extension of state guarantees for loans to viable companies and the possibility of the government buying illiquid bank assets to increase the amount of money available for lending.

But if the government is to act as a guarantor for loans, why doesn’t it just loan the money itself?  Why waste profits on the banking middle-man, since the government, under this scenario, is already making its own assessment of whether companies are “viable”?  And are we really thinking of the government buying more “illiquid” (i.e. unsellable, since probably worthless) bank assets?

Apparently Vince Cable's officials describe this as a "very green" green paper.  More thinking to do, then, before the ideas floated can be regarded as serious proposals.

04:57 PM | Permalink