Darling loans banks 50% of GDP

! This post hasn't been updated in over a year. A lot can change in a year including my opinion and the amount of naughty words I use. There's a good chance that there's something in what's written below that someone will find objectionable. That's fine, if I tried to please everybody all of the time then I'd be a Lib Dem (remember them?) and I'm certainly not one of those. The point is, I'm not the kind of person to try and alter history in case I said something in the past that someone can use against me in the future but just remember that the person I was then isn't the person I am now nor the person I'll be in a year's time.

Alistair McDarling has announced details of his master plan to save the banking sector.  He’s going to loan them 50% of the GDP of the UK.

I kid you not.  The taxpayer is stumping up £50bn now for the eight biggest banks and building societies and another £200bn is being given to the Bank of England for short term loans.  That’s a quarter of a trillion pounds in cash now.  Then a company is going to be set up – presumably along the lines of the DTI’s Small Firms Guarantee – to offer guarantees on £250bn of loans to banks and building societies.

Half a trillion pounds.  In 2006, the purchasing power parity GDP of the UK was $1.93 trillion – just under a trillion pounds at todays prices.  The Chancellor is loaning 50% of the Gross Domestic Product of the whole country to the banking sector.

Official national debt is £512bn.  The Centre for Policy Studies says that if Northern Rock liabilities and state pension liabilities (they’re taking money to pay into the state pension, it should be reasonable to expect it to be paid out) are added to the official figure then it’s more like £1.3 trillion or 103.5% of GDP.  Add this half a trillion on top and national debt is more like £1.8 trillion.  Count the zeroes – 1,800,000,000,000.  That’s 180% of GDP, 22% higher than Japan at the height of recession when banks were failing every few days and they were knocking zeroes off the Yen every couple of months.

What was it El Gordo said about not magicking money out of thin air?

But you know, when it comes to public spending you can’t just wave a magic wand to conjure up the money – not even with help from Harry Potter.

Quite.  So where the fuck did you find half a trillion pounds to give to the banks, eh?  Just to put a piggy bank-raiding session into perspective – half a trillion £1 coins weighs 2,090,000,000lbs.  That’s a seriously big piggy bank.

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  1. Toque (32 comments) says:

    He’s borrowing it, which begs the question: What’s he putting up as collateral?

  2. wonkotsane (1133 comments) says:

    And begs a further two questions:

    1. If the banks have half a trillion quid to loan to the Treasury, why don’t they loan it to each other and leave the taxpayer out of it?
    2. It the banks have half a trillion quid, why do they need money from the taxpayer?

  3. martha (2 comments) says:

    maybe the answer to #1 the EU made a new set of rules which came into force last year, drastically tightening up on the ability of banks to lend to each other

  4. Rob (27 comments) says:

    By some figures this would push national debt well over £2 trillion.

    They’re c**ts I tells ya…

  5. axel (1214 comments) says:

    Mangy scotch *un**!!!!!!!!!!!!!!!!!!!!!!!!

  6. axel (1214 comments) says:

    I’m being stupid but do the banks actually need the moneey for? most of our wages go into a bank account, that is, most of us have our wages paid into a bank account.

    So they get lots of short term money there.

    A lot of businness is done with credit cards, so that money, does’nt even leave the bank net

    Say i buy my morning paper and a can of coke and i pay cash, surely the shop keeper banks this?

    Is most money not invisible in a magical way, if you buy a house, you sign your life away on a bit of paper, you dont go to the lawyers office with a wheel barrow full of money and say, there you go.

    I dont understand, what they need the money for, is USA selling off cheep aircraft carriers, cash only sale, 1 previous owner, no questions asked.

  7. Andi (82 comments) says:

    Maybe the piggy bank was John Prescott? We’ve always thought he contained many many tons of partially digested pies, but it turns out he’s where the Treasury keeps its rainy-day funds…

  8. axel (1214 comments) says:

    The Jockistan banks lost circa 40% yesterday, tuesday. Is that 40% of fuck all, ie 40% at 8:30 yesterday?

    Or 40% of their actual worth?

  9. jerry (78 comments) says:

    Did you see that brown is threatening iceland with a lawsuite if any money from british citizens is lost?
    I think this seems like a little to much involvement by the goverment and does anyone know if something like this has happend before?(A goverment threatening foreign banks with a lawsuite)

  10. IanPJ (6 comments) says:

    or has he had it on ice in Landsbanki/Heritage Bank like the councils…


  11. wonkotsane (1133 comments) says:

    More abuse of anti-terror legislation. Truly shocking. Although our relationship with Iceland hasn’t been rosy all the time – remember the Cod War?

  12. John Franklyn (59 comments) says:

    It seems that a little over 20 Councils have money Iceland banks, one is saying £12.5 million is exposed.

    What next, will they bail out councils if they loose that money?

    i’m really lost as to what direction this taking us, apart from footing a very big bill somewhere along the line.

  13. Charlie Marks (365 comments) says:

    In the USA, the bailout has failed. The Fed is now giving direct loans to corporate America.

    The government should have nationalised all of the banks (though not the mutually-owned sector, ie building societies) shifting deposits to a national bank and lending direct to consumers and businesses at the lowest possible rate of interest.

    In future years we’re going to have to have the government incentivise domestic investment in agriculture and manufacturing. Or else we are well and truly fucked.

  14. wonkotsane (1133 comments) says:

    All the banks Charlie? Isn’t nationalising the entire banking sector a bit like cracking a nut with a sledgehammer? And disturbingly soviet!

  15. Charlie Marks (365 comments) says:

    It may soon happen, Wonko. The only sound bank is HSBC – all the other big banks are in trouble. In the US, the Federal Reserve is lending directly to corporate America – the only way SMEs are going to get credit at a lower rate of interest from the 15% the banks have been charging is if the Bank of England were to lend directly…

    The government wants the banks to pass the rate cut onto consumers. Isn’t happening across the board, and god knows what the situations like for small and medium enterprises. If there was a national bank tasked with benefiting consumers and small businesses instead of shareholders it would have the same kind of stability the mutual sector has had – with building societies and the Cooperative Bank doing okay because they’re not driven to take the kind of risks that private banks are.

  16. wonkotsane (1133 comments) says:

    The Bank of England has only just withdrawn current account facilities for its last few customers – mainly government departments. I’m sure it’s not too late to turn everything back on and start taking customers but would we really want that? If the Bank of England offers loans and current accounts they need to invest that money to make a profit to pay interest or to raise capital to offer credit. Don’t you think that’s an unacceptable risk for a central bank?

    There are now two nationalised banks, use them. At least the shareholders might get some of their money back.

  17. Charlie Marks (365 comments) says:

    Make that four nationalised banks.

    But you are right, of course, Wonko. Although, isn’t the govt borrowing money from the Bank of England in the first place?

  18. wonkotsane (1133 comments) says:

    Ah, now we’re into the realms of phantom money.

    The government is giving money that doesn’t actually exist to the Bank of England. They’re going out into the money markets and borrowing billions from banks that are in line to receive billions of pounds of their own money back off the Bank of England.

    The money doesn’t exist, of course, it’s a promise of money. They’re all borrowing promises of money off each other in return for more promises of money and lending that promise of money to the government who are then giving them back a promise of money.

    In fact, since we came off the gold standard there isn’t really any money any more – it’s all just promises. A pound coin is only worth a pound because the Bank of England promises to give you a pound for it but that pound will only be a promise of a pound. This is the only reason why such massive sums of money can be thrown at the problem – none of it exists. Unfortunately, if this doesn’t sort it all out they’ll have to take the Zimbabwe approach and start printing more money and that’s not somewhere we want to be. But ultimately, printing a billion pounds of bank notes is still only giving you a billion promises a pound.

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