Sturdyblogger is perplexed

The answer is: we owe this money, primarily, to the financial sector we went into debt to bail out.

Err, yes.

That\’s what the financial sector does you see, lends money to people.

9 comments on “Sturdyblogger is perplexed

  1. Erm, wasn’t the financial system screwed because it had lent loans of money to people who couldn’t repay it? So the extra cost of bailing out the banks (estimated to be £5-10bn I believe, when its all done and dusted) is neither here nor there when compared to the £1.4tn of personal debt out there.

    Even if you think the taxpayer will not get any of the £150bn it borrowed to pump into the banks back, that would still only be about 10% of the personal debt out there.

  2. Err, no. He means:
    “we owe this money, primarily, to the financial sector that the Labour government bailed out with taxpayers’ money”.

  3. Aren’t the largest sectors holding UK debt pension funds and insurance companies? These weren’t bailed out.

  4. His posts are quite confused really. To give an example, Japan is one of the largest external debtors, but it has bigger external assets, so on a net basis it is a huge external creditor.

  5. Isn’t this concept that ‘we all owe the debt to each other, so its all OK’ a bit flawed? Just because all the debts and assets in a country (say) net off, doesn’t mean that everything is fine.

    The debtors and the creditors are usually totally distinct. You either owe lots of money (via your mortgage and/or personal debt) or you don’t have a mortgage, own your house outright, and maybe have some savings too. Thus if enough debtors default, the creditors lose out too. If a large enough proportion of the debt defaults then we are all screwed because all the money that debt represents is gone. The whole house of cards falls down, which is pretty much what happened in 2007/8.

    Hence the necessity to keep overall debt levels in society below a certain level (what that should be is open to question) in order to prevent it from destabilising the whole economy.

  6. I don’t really get what you’re saying, Tim…it seems a valid point:

    1) The Financial Sector needed a large amount of money as a bail-out

    2) The government paid the Financial Sector a large amount of money

    3) The government now owes the Financial Sector a large amount of money to pay back the loan for a large amount of money it paid to the Financial Sector

    Tim adds: Put that way it does seem obvious. However, after the financial sector pays back all those loans (and we sell the shares in the banks etc) we’ll have lost perhaps £5-£10 billion on the whole deal. Might even make a profit. And then after that there’s still the £trillion of the national debt to go….

  7. Hi Tim, thanks for your reply – you’re right, there’s a wider national debt problem (and even £5-10 billion seems quite high to my mind!)

    Genuine couple of questions –

    a) What is the interest on the loans from the government to the financial sector which they’ll pay back (i.e. the interest the financial sector has to pay to the government)?

    b) What is the interest on the loans the government took out to pay the loans to the financial sector (i.e. the interest the government has to pay to the financial sector)?

    The importance probably isn’t the actual figures but whether b) is higher than a); as I say, I genuinely don’t know.

    Tim adds: I don’t know the rates, sorry. Except, I think at least, the government’s not paying any interest because it didn’t actually borrow the money. It printed it. Quantitative Easing, wasn’t it?

  8. The banks didn’t get just loans – they got some money at base rate, some guarantees and the government bought a lot of shares. Of course, the equivalent to interest on a loan, with shares, is your dividend. But one of the conditions of the share purchase was that the banks wouldn’t pay a dividend.

    So, if the bank is profitable enough to potentially pay some money to the shareholders (90% RBS is govt?) but not yet able to buy-back large quantities of its shares (you can pay the ‘interest’ but not all of the capital), it can’t pay any ‘interest’. Hence, it’s shares are less attractive to the non-govt investor, so the share price stays depressed, so the govt can’t make a profit from flogging off the shares either.

    You knew the politicians had bolloxed this up – didn’t you? (And, despite owning bank shares – I think the right thing would have been to let them go under and then step in with the retail deposit protection scheme.)

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