Osborne backs Labour's "trillion pound bailout"

Interviewed on the Today programme George Osborne said that the Government had run out of options and has little choice but to underwrite the so-called toxic assets of the British banking sector.

Ahead of announcements from the Government expected later today, which will see further steps towards full-scale banking nationalisation, the Shadow Chancellor said that he didn't like what was happening but he saw no alternative.

He criticised Labour for being "distracted" by the VAT cut when energies should have been focused on the real issues of the banking crisis and the continuation of the credit crunch.  He called for a full and independent audit of Britain's banks so that taxpayers had a true understanding of the nature of banks' liabilities.

John Redwood MP, writing on his blog, is far from convinced that Labour needs to act today in the way that it is.  He calls for a radical climming down of RBS; including the sale of its insurance and manufacturing divisions, a reversal of the "foolish acquisition" of ABN Amro, and the sale of the US Citizens Bank.  Mr Redwood concludes:

"There is no need to panic today. The falling share price does not undermine the bank. The depositors are not in a panic as they assume the government stands behind them and the bank has substantial liquid assets. What needs to happen is the production of some sensible figures on the current state of the loans, and some active management of the bank to cut our risks. We need to see a string of disposals of the non banking interests and the overseas banks. We need some serious cost cutting starting with the top executives pay. We need some intelligent new UK lending to re start the business."

> Andrew Lilico on CentreRight: "Why neither loans nor recapitalisation nor underwriting is going to correct matters."

Comments

[GB£.com]

Each State intervention is a direct consequence of the previous one, and each step will make things worse.

Darling does not understand this and neither does Osborne and thus their actions will continue to make the situation worse.

Still, I look forward to Osborne criticising Darling in 8 weeks time, when the latest steps, fully supported by him, fail to work.

[David Cooper]

Brown and Darling would probably have been only too pleased to have labelled themselves as modern day Red Adairs at the time of the last attempt to save the banks/world. As they drown in a toxic tidal wave of their own creation and encouragement, are they not now simply behaving like King Canute?

The serious point, of course, is that John Redwood is most likely going to be proved right here once more.

[Malcolm Dunn]

You may be right Chad, but I hope for all our sakes that you're wrong.

[The Bishop Swine]

Osborne maybe recognises that it is important not to further undermine the Nations stability. I do not believe for one moment that had he been chancellor he would have gone down the road that Labour has. However once Darling and Brown started lending t o the banks it would be foolish to pull the plug now. Lets be clear our Nations money is far safer with our Banks than with this government. In that respect this 2nd loan of billions makes good sense.

[Tony Makara]

It would have been far less costly to let the bad banks fold and set up a state bank to mop up and protect existing savers accounts. If we already had in place a state bank then the problems of the credit crunch could largely have been avoided and government would even be in a position to create a new issue of money for short-term loan to business, thus providing much needed liquidity. However instead the government prefers to borrow itself to death and saddle the taxpayer with a generations worth of debt.

[dave williams]

There is an alternative. That's the whole point of two party politics. The only person saying that at the moment is John Redwood. Only when the Conservatives start disagreeing with the government will we know that they really do think this crisis is serious

[Onnalee]

This insurance proposal is a FUDGE. The 90s Swedish Model the politicians cite was the creation of a separate vehicle to house the bad debts. The only way to start sorting out this mess is to force the banks to own up to the true extent of their losses and then force them to sell their bad debts to a separate model.

Liam Halligan's article in the Sunday Telegraph is excellent.

The true size of the credit derivative market created in 98, has pumped false liquidity into the system amounting to $70,000bn.

LTCM, a US hedge fund was bailed out by the US Banks at the behest of Greenspan in 1998 for Alan Greenspan believed the failure of LTCM would cause systemic risk and contagion that threatened the very survival of the global capital markets.The hedge funds and credit derivatives were in their nascency then. Since then the regulators have permitted these markets to grow exponentially. The credit derivative market alone amounts to circa $70,000bn.

What have the FSA been doing for the past 10 years? How have we enabled the boards of our once great banks to hoodwink the FSA and the auditors? Surely they understood the risks they were taking? Surely they understood that when leverage enables banks to multiply returns it conversely exposes banks to multiply potential losses at the same speed. If they did not understand these basic facts they should be fired for negligence. If they did understand these basic facts they should be fired for negligence.

[resident leftie]

John Redwood said:
"He calls for a radical climming down of RBS;"

These aliens do speak strangely.

[The Bishop Swine]

"saddle the taxpayer with a generations worth of debt." Only if the Banks are useless. If the Banks prosper the loans will be paid back with interest. That is Labours hope as I understand it. Now I would not have done it (maybe that's wrong) and maybe a few banks would not still be trading. This is a very difficult problem that Brown is trying to address. G.O. seems to have understood the problem better than many of us. I hope he (G.O.) has got it right as what Labour is trying goes against the Conservatism I feel is right. One thing is certain we need to stabilise the markets and continually putting down Labours sincere attempts to bail out the bank’s is not an effective way of encouraging that much needed stability. I would also encourage people to listen carefully to what George is saying. He is after all closer to the permanent civil service, which is the real author of these plans. Despite everything I do not want Labour’s plans to fail as that will mean all of those Billions have been wasted. I think George is just being pragmatic and in that regard I applaud his honesty

[David Belchamber]

Onnalee at 10.01:

"This insurance proposal is a FUDGE. The 90s Swedish Model the politicians cite was the creation of a separate vehicle to house the bad debts".

Absolutely right. The good John Redwood, I seem to remember, was advocating getting liquidity to the banks but not capital for them to repair their balance sheets. He was of the view that the banks had to live with their mistakes. Therefore, as the Swedish model which Brown has copied was available, why did we not try their idea in the first place back in October last, making the banks sign up to agreements to use taxpayers' money solely for lending on?

The conservatives, as far as I am aware, have said little about the failures of the FSA and auditors as well as the failing banks' executives; are they all to escape censure for their parts in this fiasco?

Why doesn't Osborne suggest giving back to the BoE the responsibility for oversight of the banking sector, why not press for the renegotiation of the 12% preference shares for RBS and Lloyds?

The fact is that Britain is deeper in the mire than other countries because of the credit crsis fuelled by Brown, which, naturally, he tries to ignore.

[JS]

Again this morning in his Today interview Osborne showed just how far he is out of his depth over all this. He should immediately be replaced by Redwood who has a most excellent grasp of the situation.

[John Moss]

To be fair to Osborne, he slapped Humphreys down this morning when he tried to say the liberalisation of the banks was our fault.

He made it very clear that the regulatory framework was Brown's and Brown's alone. There was then a very grumpy aside from Humph about Thatcher, which probably tells us all we need to know!

[The Bishop Swine ( the one nation clergyman)]

"Again this morning in his Today interview Osborne showed just how far he is out of his depth over all this. He should immediately be replaced by Redwood who has a most excellent grasp of the situation."

This is not going to happen. I tend to agree with what you are saying BTW but G.O. is an important part of Dave's team. I do not think he could be moved sideways without it damaging the top table. It appears that The Eton group is a very tight nit team. Maybe to tight and full of nit’s I hear some of you say. We have to accept that Dave wants his friend to be chancellor and Hague is his deputy. I am behind Dave and Hague is pretty much doing a good job (other than on Israel which he got wrong). At the moment at least in public George is the weak link, and he does appear inexperienced in comparison with Brown. I do however think he is being a responsible opposition, even supporting policies, which he must personally despise in the interest of the Nation. At the moment we are still on the very edge of a National disaster and we certainly do not need the shadow chancellor to spook the market. So George is stuck in a very difficult place. Redwood, although brilliant has all of the subtitles of a bull in a china shop, he could inadvisably say to much. I would like to see a role for Redwood but like Ken he is a two edged sword. In Redwood case its his very lack of Charisma , and his tendency to be far to blunt that works against him.

[m dowding]

"the Shadow Chancellor said that he didn't like what was happening but he saw no alternative".
Common sense says that "if in a hole stop digging".
Alternatives; let the toxic indebted banks go. £50K deposits underwritten, billionaire deposits, including many stupid and greedy bankers' deposits lost through their own actions. Outstanding mortgage book debt also reduced by direct taxpayers' money returned as debt reduction. Just re-instates mortgage tax relief!
Oh! Stupid me, that would help THE PEOPLE, can’t have that, can we. What a vote winner. The windfall to the populace would also reduce their liabilities and improve every area of the economy.
Again stupid idea if that helps the masses and not the privileged few.
Come on, Conservatives, think outside The Establishment box.

[Tony Makara]

"let the toxic indebted banks go."

Absolutely correct, we wouldn't want or expect a failed business to be propped up with taxpayers money, so why special rules for the money-lending community?

[James Maskell]

I dont understand how the insurance idea will help matters. Banks would pay a fee for the taxpayer to cough up the dough to cover the money the bank puts up in case it goes sour. But if thats the case, why shouldnt the bank just play safe and not lend the money in the first place? The insurance thing surely only works if the banks make a positive decision to lend the money in the first place. At this point I should add that I am no financial expert at all, so if I am wrong, my bad. Just off the top of my head that doesnt sound right.

£50bn for the BoE is pathetic really given the scale of this crisis. The idea is understandable but is that really enough to cvover the toxic assets?

Osborne has supported the Government because saying he doesnt agree with it and will oppose it will piss off middle England, sounding like he will abandon the country rather than work with the Government. Thats Labour's calculation and Osborne has to make it clear that while he supports any action Labour makes to improve things it doesnt mean Labour will always have the Conservative support.

[Adrian Peirson]

We spend #100 Billion per year on Quangos, 20B Net to the EU, Two Wars.
there is a saving of 150B.
If it were up to me, I'd have let the banks fail and declared all loans, credit agreements and mortgages null and void, let people keep their homes, their cars and businesses.
That would free up more household income to the tune of around 500 per month, they would have spent, and saved, so stimulating the economy, New banks would have sprung up from the ashes of the Old.
Other countries would have to follow suit, then Gordon Could truly have claimed to have saved the world.

[Adrian Peirson]

We spend #100 Billion per year on Quangos, 20B Net to the EU, Two Wars.
there is a saving of 150B.
If it were up to me, I'd have let the banks fail and declared all loans, credit agreements and mortgages null and void, let people keep their homes, their cars and businesses.
That would free up more household income to the tune of around 500 per month, they would have spent, and saved, so stimulating the economy, New banks would have sprung up from the ashes of the Old.
Other countries would have to follow suit, then Gordon Could truly have claimed to have saved the world.

[Adrian Peirson]

We spend #100 Billion per year on Quangos, 20B Net to the EU, Two Wars.
there is a saving of 150B.
If it were up to me, I'd have let the banks fail and declared all loans, credit agreements and mortgages null and void, let people keep their homes, their cars and businesses.
That would free up more household income to the tune of around 500 per month, they would have spent, and saved, so stimulating the economy, New banks would have sprung up from the ashes of the Old.
Other countries would have to follow suit, then Gordon Could truly have claimed to have saved the world.

[Deborah]

This news is awful.
The government action is just pouring more money that we haven't got down the drain, and Osborne's acquiescence provides little hope.
There is a choice.
When are the Conservatives going to stand up and be counted?

[B.Garvie]

Those who wish to criticise, certainly do not sound like they have Firsts in Economics or understand Banking Conventions. They offer conjecture, but no alternatives. G.O was right when he said the Government had nowhere to go. He is correct,he did not acquiesce, but agreed this was Brown's last chance to stop the ship sinking. If it continues to take water, the game is up. The next week will be crucial.

[Tony Makara]

B.Garvie, the government had a number of alternatives, including the establishment of a new state bank, not a buy-out of failed banks but a new bank to gather up existing viable accounts and to use that as a starting base to create a new financial model.

Such a bank could support business by the issue of short-term loans by use of a special issue of money created for the purpose, which in turn would later be collected and destroyed, so that the money supply does not become unduly inflated.

The government has missed a golden opportunity to set up a waterproof banking system, part state and part private, made up of the good banks. The bad banks should have been confined to death and existing debt written off by act of decree.

Finally, don't look to the dilettantis with firsts in economic courses to save the system, these are the very people, with governments in tow, who have created the problem in the first place with their lawless lending and bad banking practices.

[Bankers are crooks]

"Those who wish to criticise, certainly do not sound like they have Firsts in Economics or understand Banking Conventions."

Writeing OTC Derivatives on a scale, that if they went wrong, would wipe out the entire bank, thousands of times over, just so you could collect upfront bonus', that would make Midas die of shame and then when it all does go wrong expecting the taxpayer, to bail you out, so that yr lifestyle is in no way compromised, does not require a first in economics, or an understanding of Banking Conventions.

All it requires is the greed and cheek of Satan.

[grumpy old man]

The Headline for this story is misleading on a Draper scale of 10+. Osborne didn't back Brown - he said that because of the Gov'ts previous actions, there was nothing else they could do. Rewrite, please, preferably by someone who didn't learn their trade in the Gaurdian (sic). "Osborne: Brown in a Mess of his own Making". would be more apposite, methinks. Better still, get John Redwood to comment on the Economy. George has got enough image problems without his freinds contributing.

[David Sergeant]

Read George's speech to-day. One or two more like that and he won't have an image problem. We really must recognise that, when the country and government run out of options, the oposition can't, in the way of the old Irish joke, say we should start from somewhere else.

[The Bishop Swine]

""let the toxic indebted banks go."

Absolutely correct, we wouldn't want or expect a failed business to be propped up with taxpayers money, so why special rules for the money-lending community?

Posted by: Tony Makara |"

It’s quite simple really, had one bank failed it would have been bad, two a national
disaster. The reality was that the all of Scotland’s Banks were on the very brink of failing and the knock on effect would have made the wall street crash look like a pleasant Sunday picnic. Not only would we have lost HSBC and RBS but also there was a very real danger of a meltdown taking all of our Banks. Lloyds and Barclays were far from secure. It’s becoming clear that the fallout from the sub-prime crisis was about to absolutely destroy our economy. I know it’s hard to swallow but we were (and to a extent still are) on the brink of an economic Armageddon. Of course none of us wanted to bail out the banks, but we were left with little choice. It appears that the sub-prime crisis is likely to cost us the equivalent of a year’s gross national product. The Americans are a little ahead of us in looking for those who should be prosecuted, for what may well be the crime of the century. Don’t blame George he is just like the rest of us an onlooker. Brown on the other hand was in charge during the whole of the housing price boom, which is the main cause of our current woe’s. A few people including myself were warning that the house price boom would end in tears, but even I did not realise just how out of hand lending had become. George Bush and Tony Blair should be brought to account. It’s interesting that Blair disappeared before the shit hit the fan. The blame lies fully with those in charge during the boom years and we should not be shy about pinning most of the blame for the British banking disaster on one man Gordon Brown.

[chris southern]

When will parliment stop the fabians from destroying the UK?
Who the hell throws money at a bank that is in serious trouble, then openly says how dire the situation is and then can't believe it when the situation all of a sudden gets worse!

Unelected people should not be allowed into positions of power, people without the qualifications or experience should not be allowed to work in said roles.

[Tony Makara]

The Bishop Swine, sadly what you say is all too true. As attractive an ideal as a property owning democracy may seem, the reality is that not everyone is in a position to buy a home. The only way we are going to become a nation of savers again, and less dependent on credit, is to have people renting rather than buying.

The number of people I know that own a home, but say they have absolutely no disposable income left for anything else, is very instructive. People are stretched to breaking point by mortgages, it is a crushing debt.

How the situation could change however if government itself got into the business of building homes with the express purpose of selling them on at reasonable rates of repayment? The longer deferred rates of payment would also create a culture in which a home really would become a place to settle for life, and put an end to the home-hopping that created so much inflation in the housing market.

[TomTom]

Alan Greenspan believed the failure of LTCM would cause systemic risk

Yes and Bear Stearns refused to join the bailout of LTCM despite being its clearer of trades - so a decade later Paulson (ex-Goldman) eradicated Bear Stearns and Lehman...but changed tack where Goldman Sachs and Morgan Stanley were concerned.

Funny how oil prices fell once Lehman was gone and banks cut back on credit....financing speculation on oil futures is hard without a credit line

Be interesting to see just how much fraud lies at the bottom of these collapses, what kickbacks to which politicians, and which regulators went blind - there is a backstory here which is very interesting

[TomTom]

Alan Greenspan believed the failure of LTCM would cause systemic risk

Yes and Bear Stearns refused to join the bailout of LTCM despite being its clearer of trades - so a decade later Paulson (ex-Goldman) eradicated Bear Stearns and Lehman...but changed tack where Goldman Sachs and Morgan Stanley were concerned.

Funny how oil prices fell once Lehman was gone and banks cut back on credit....financing speculation on oil futures is hard without a credit line

Be interesting to see just how much fraud lies at the bottom of these collapses, what kickbacks to which politicians, and which regulators went blind - there is a backstory here which is very interesting

[TomTom]

Alan Greenspan believed the failure of LTCM would cause systemic risk

Yes and Bear Stearns refused to join the bailout of LTCM despite being its clearer of trades - so a decade later Paulson (ex-Goldman) eradicated Bear Stearns and Lehman...but changed tack where Goldman Sachs and Morgan Stanley were concerned.

Funny how oil prices fell once Lehman was gone and banks cut back on credit....financing speculation on oil futures is hard without a credit line

Be interesting to see just how much fraud lies at the bottom of these collapses, what kickbacks to which politicians, and which regulators went blind - there is a backstory here which is very interesting

[TomTom]

Alan Greenspan believed the failure of LTCM would cause systemic risk

Yes and Bear Stearns refused to join the bailout of LTCM despite being its clearer of trades - so a decade later Paulson (ex-Goldman) eradicated Bear Stearns and Lehman...but changed tack where Goldman Sachs and Morgan Stanley were concerned.

Funny how oil prices fell once Lehman was gone and banks cut back on credit....financing speculation on oil futures is hard without a credit line

Be interesting to see just how much fraud lies at the bottom of these collapses, what kickbacks to which politicians, and which regulators went blind - there is a backstory here which is very interesting

[rugfish]

Brown and his cabinet are like 15 men on a dead mans chest !

A government cannot control financial markets by "insuring losses" in a free market and all Brown efforts will achieve if he continues, is to make us all suckers of the same free marketeers which caused the crisis. He should never have taken oversight from the Bank of England but he’ll never admit it. Without this level of competent general oversight, the free market becomes nothing short of a charter for marketeers to commit piracy against our nation.

Gordon Brown is behaving like a drunken sailor with our money. The cabinet are like 15 men on a dead man’s chest. Brown’s first incompetence of detaching the Bank of England from oversight of “the banks”, defies all sanity. “Insuring World Debt” without a reciprocal global agreement, is either utter madness or sheer lunacy, or it is criminal negligence and a waste of taxpayers money which WE, not him, nor the banks, nor the investors, will have to pay back when it fails. ( Not IF, but When it fails ). In no other walk of life would a government promise to pay the bearer of a dud note. He must let banks merge or sink or become nationalised WITHOUT those debts. He must shore up and guarantee only UK debts.

A National Bank could pick and choose its portfolio whereas an open insurance policy for the world, cannot.

He’s committed two wrongs and two wrongs never made a right.
He HAS to be ousted before he sucks the UK bottle dry.

It is obvious he has no purpose being there and he should be arrested by the electorate at a General Election forthwith before all our assets are completely worthless pieces of junk and all our gold sovereigns have been handed to pirates.