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Comment on a Guardian editorial

\”Then there is the small print: the lending \”will be subject to its normal commercial objectives … as well as the availability of the required funding\”, while that £190bn will only be lent \”should sufficient demand materialise\”. Nor is there any way of enforcing this target.\”

How could it be any different?

No, seriously, think about it for a moment.

How can you enforce a lending target if sufficient demand doesn\’t materialise? And why on earth would you want banks to lend without it being subject to normal commercial objectives… the borrower being able to repay the loan?

Seriously? You\’d like the banks to be just shovelling the money out the door any old how, to anyone at all, whether they can repay or not? You know, so that we can rescue the banks again in a couple of years\’ time as £190 billion of loans don\’t get repaid?

And you have noticed that the corporate sector is sitting on more cash than it ever has done before, yes? That by and large companies don\’t need to borrow as they already have stacks of cash to invest?

5 thoughts on “Comment on a Guardian editorial”

  1. I wouldn’t be as much of a critic of the banks as is so currently fashionable but
    “.. just shovelling the money out the door any old how, to anyone at all, whether they can repay or not?”
    does seem to encapsulate banking policy a few short years ago.
    Put it this way, harassing a customer to take out unsecured 5 figure loans & continually upping that customer’s credit card limits isn’t the wisest course when said customer is purely a fiction built upon easily available documentary validation & a carefully managed credit record ¦;¬)

  2. Agreed. It’s all bo**ocks, isn’t it?

    A further relevant point is that there is a wealth of evidence I could cite that where big banks fail to lend, smaller banks and other institutions step into the breach (and indeed are currently stepping into the breach). In other words, Osborne the Twit should simply raise demand (if that can be done without exacerbating inflation) and leave the free market and private sector to sort out who lends how much who.

  3. I agree that the banks should not be forced to lend to people but in my experience its not that they won’t lend its that the terms they offer are uncompetative and they have no need to compete for buisness as they can make easy money from lending to our beloved government!

    At the moment I have no problem getting banks to agree to lend money for me to invest in new projects (housebuilding mainly) I have decent land bank with no borrowings on it and am expected (Quite rightly) and able to provide a significant proportion of the build cost as well.

    The problem is that though the banks will lend they want to charge so much in arrangement fees, will only lend short term (two years then more arrangement fees etc) and are charging such a high rate of interest above base (might be cheap at the moment but if rates rise we’d be very exposed) that its not worth doing the projects as by the time the bank have had their cut and the tax man has had his there’s fuck all left in it for me despite the fact that i’m the one putting in the majority of the capital.
    This means that I and I suspect many buisness do have money in the bank (which is earning little interest)but are not able to invest it as we usually would as the banks will not make up the difference at acceptable terms.

    I appreciate that in the long run this could be a good thing as it will reduce the dependence of firms on the banks, but it won’t help us get out recession in short term.

  4. This is why the NZ government would never do anything about the capital account deficit, beyond running budget surpluses (which, really, it did for other reasons). Every option apart from running government surpluses basically came down to reducing the supply of credit to NZ businesses and voters, and the political incentives on governments is to increase the supply of credit.

  5. Agreed Tim. No point whatsoever in ‘forcing’ banks to lend to businesses that wouldn’t otherwise pass their credit scoring.

    We only have to look at the effect of the US Community Reinvestment Act and how it stoked the sub-prime mortgage problem to learn that the last thing any government is interfering in the credit markets.

    Too much hubris – by half.

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