International banking

Whitehall sources said that they had discovered that some major UK lenders – including RBS, HSBC and Barclays – have had only 20 per cent of their balance sheets made up of "traditional" loans to UK households and firms.

Meanwhile, up to 80 per cent is tied up in loans to foreign nationals and companies, bond issues and other investments.

These "Whitehall sources" are even dimmer than we thought then. We all knew, although they apparently have only just cottoned on, what being an international financial centre meant.

Just as banks in the domestic economy are intermediators, they accept the savings of one group and distribute them to become the borrowings and investments of another, so do banks internationally. Chinese savers use a bank in London to lend to a Russian nickel oligarch. Now you can question whether that\’s a sensible thing for anyone to do but to say that savings, capital, should not be allocated internationally is to argue for economic autarky. We want investments to be made in other countries and someone, somewhere, has to provide the infrastructure to make that possible. And just as happened in the first era of globalisation, 1870-1910, it was London that became the centre for those who did so.

OK, now I do know that there are those who argue that this sort of international financing shouldn\’t be happening: but to be a "Whitehall source" and claim that you\’ve only just found out about it is to portray yourself as an idiot.

A Government source said: "It was pretty breathtaking to discover these figures. They provide further evidence that so many of the problems we are all facing started with bad banking practice on the international markets and were not simply caused by problems with the British economy."

Passing the buck this is called, no?

Ministers want to see banks focusing much more on old-style lending to British households and businesses in the form of mortgages and other bank loans.

And that would kill millions upon millions of people. Someone, somewhere, has to be moving capital from low return areas like the rich world to high return but risky areas like the developing world. That\’s how the developing world is going to get rich, when they have the capital available to build and develop. And it looks like "whitehall sources" are going to insist upon stopping London, the current world financial capital, from being the place where that happens and all so that domestic problems can, for political reasons, be blamed on those beastly international financiers.

Bastards.

11 comments on “International banking

  1. Agreed with your point. However, even the stupidity of the ‘Whitehall source’ pales into insignificance compared with the ‘government’s critics’ also quoted:

    The Government’s critics claim that one of the major causes of the current economic crisis facing Britain is high levels of government debt.

    Nobody actually believes that, do they? I mean, given that pre-crisis the UK’s government debt was 20% lower as a share of GDP than the Eurozone, the US or Japan, it’d be a breathtakingly, insanely ridiculous thing to assert…

  2. “Whitehall sources said that they had discovered…”

    “A Government source said: “It was pretty breathtaking to discover…”

    Discover! Ferdinand Magellan discovered. Isaac Newton discovered. These idiots threw billions at these banks without even “discovering” what they do.

  3. On the back of a fag packet I guestimate the following.

    If UK domestic debt is running at about £1.5 trillion and accounts for only 20% of bank lending, then the other 80% of potentially toxic debt runs into the 10’s of trillions.

    Bank bailouts just aint gonna work, are they? Taxpayers just dont have it.

  4. Bailouts of insolvent banks are madness. If the bank is insolvent, then it should go bankrupt, however specialist a sort of bankruptcy it may best be. The shareholders lose everything, the bondholders lose whatever the numbers turn out to be. If the shareholders and bondholders turn out to be my pension fund then that’s my tough bloody luck. We mustn’t bankrupt the State: however effing awful an enterprise it is in so many ways, things may become so bad that we’ll need it to impose order and to clothe, shelter and feed the poor.

  5. I mean, given that pre-crisis the UK’s government debt was 20% lower as a share of GDP than the Eurozone, the US or Japan, it’d be a breathtakingly, insanely ridiculous thing to assert…

    This debt value doesn’t include future liabilities for PFI (relatively small) and pensions and healthcare (very large). Of course, other countries (e.g. USA, Germany, Japan) are probably in an even worse position on the latter….

    However the comparison with other countries is irrelevant. Our debt is too high, and the government was borrowing ~3% of GDP per year at the height of a 15 year boom. If government is to fulfill its role to protect and assist in a real crisis, it must continually seek to maximise it’s resources and financial reserves in the good years. It must also refuse to accept an ever greater burden of taking responsibility for lesser problems that could be handled by individuals, families, companies and private charities.

    In my opinion, the last problem that justified the British government borrowing any money was WW2. We should have had budget surpluses, or at least a balanced budget, every year since.

  6. We should have had budget surpluses, or at least a balanced budget, every year since.

    Disagree: I’d rather pay tax later-and-possibly-never (i.e. if the national debt is still increasing when I die) than definitely now.

  7. Disagree: I’d rather pay tax later-and-possibly-never (i.e. if the national debt is still increasing when I die) than definitely now.

    Whether for a country, company or individual. financing purchases via debt rather than savings will surely cost more as one has to pay interest rather than receive it from others. It also restricts our ability to borrow very large amounts if we do really need it (again, see WW2). Finally, the lack of discipline this allows in government is the cause of many of the problems we now face, beyond the current financial crisis.

  8. financing purchases via debt rather than savings will surely cost more as one has to pay interest rather than receive it from others

    No, it depends on your personal discount rate. If personal interest rates were as low as they (still) are for sterling-denominated sovereign debt, almost everyone – given empirically observed preferences about the desirability of a pound today versus a pound in a year – would be better off borrowing.

    (that’s only true if the debt is long-term, can’t be rapidly cancelled by the lender, and you know that come what may, up to post-apocalyptic values of come what may, you’ll have the income to meet interest payments. All these are not true for individuals, but are true for governments.)

    And during WWII net UK debt went up from 150% throughout the 1930s of GDP to 250% (cite</a), so we’ve still got reasonable breathing space if we do want to fight another six-year total war.

  9. It’s also worth noting that for fighting wars its really external debt that is important, not internal debt, and that’s a whole different kettle of fish.

  10. I think it also needs pointing out that:

    Someone, somewhere, has to be moving capital from low return areas like the rich world to high return but risky areas like the developing world.

    is not in fact a good description of the City of London’s role in the last 10 years.

Leave a Reply

Name and email are required. Your email address will not be published.