"The most expensive cocktail party in history" is how Michael Fallon rightly characterised the discussion between Gordon Brown and Sir Victor Blank, Chairman of Lloyds Banking Group, over drinks in September of last year. It was at this cocktail party, just a few days after the collapse of Lehman Brothers, that Brown strongly urged Blank to have Lloyds absorb HBOS (which was on the verge of collapse). Brown dangled the carrot of waiving anti-competition law. With Brown breathing down thier backs, Blank and his team spent less than a week looking at the books of HBOS, and were effectively left with little choice by the government. It was a decision that would lead to its own collapse within months and, eventually, will contribute to the collapse of Brown's government.
Brown was the father of the tragedy at Lloyds - responsible for taking a relatively decent bank that avoided many of the policy mistakes of RBS and HBOS, and forcing it into a shot-gun marriage of death. Lloyds too has now effectively collapsed with the government taking a majority stake of up to 77%.
As I have argued in these pages before, Bust Banks are Better than Nationalised Banks:
"The few banks that are not (yet) insolvent should be pro-actively helped through a combination of the state buying their most illiquid assets, asset price insurance and equity capital injection.
Leaving the banks (largely) to mercy of the free market may seem irresponsible, but all other alternatives are far worse. The less the government meddles in the operation of the free market, the quicker the UK will recover. Beyond pre-emptively helping (not nationalising) the few remaining solvent banks, any further government help is better directed towards bottom of the credit chain (homeowners, the labour force), not the top. There is no question that our economic predicament will get worse before it gets better. But by sticking to our free market ideals, that have never let our great nation down, we will recover far quicker. Eventually the system will reboot and we will begin anew."
Brown should have let HBOS go (with some protection for UK depositors only). Now, we have not only lost RBS and HBOS but, thanks directly to Brown, Lloyds too.
Unfortunately, Barclay's is next in the firing line. Lets hope Brown doesn't screw that one up to.
