Ms. Coppola directs me to one that I\’d missed.
Of course we can save the banks, again. We can print money. We will have to.
But this time let’s get real. This time we don’t lend them that money. Or give it to them as quantitative easing.
This time we nationalise.
Frances points out that this will cause problems:
However, correcting Murphy\’s errors isn\’t the point of this blogpost. It\’s the appalling suggestion that the UK government should take over organisations whose collective assets total more than four times the UK\’s GDP.
When I pointed this out to Murphy he brushed it off, claiming that of course when you nationalise you only take on equity, and no compensation would be paid to shareholders. This is true.
Two things here. The first is that yes you do pay shareholders when you nationalise something. Not to do so has a special name, all to itself. \”Theft\”.
Now, if the bank is already bust, if the shares are worth nothing, then sure, you pay what the shares are worth, nothing. But if they\’ve a market value then you really do have to, by international agreement, pay that market value. Quite apart from anything else not to do so would be a breach of the Human Rights Act and the security of property.
The second is that, yes, well, but we don\’t really care all that much about the assets. What we really care about is the liabilities: not what is owed to the banks but what do the banks owe to others.
If we nationalise then, just as some of the semi-nationalised banks liabilities appear on the public books, then all of the bank liabilities appear on the public books.
So, disaster strikes, the asset values go south, the liabilities don\’t and who has to cough up? Yup, the taxpayers who own the banks. Unless we let them go bust which is the whole thing that we\’re trying to avoid.
I\’m sure that Ritchie at this point would just repeat the mantra that we can print money. Uhn Hunh?
But this refers to all banks in London, whether owned by EU countries, America or Japan. These foreign-currency liabilities are £4.6 trillion, which is indeed about three times our GDP. But they also have foreign-currency assets of £4.7 trillion.
British banks account for less than a third of these liabilities, just under £1.5 trillion, with foreign-currency assets of more than £1.5 trillion. Compared with Switzer-land, where such liabilities are 2½ times GDP, or Iceland’s seven, the UK’s liabilities – roughly equal to GDP – look comfortable.
We have a $,€, CHF etc printing press or two do we?
So, if we nationalise the banks then we\’re on the hook for the liabilities of the banks unless we let the banks go bust. But the whole point about nationalising the banks is to stop them going bust. And we can\’t print our way out of foreign currency liabilities because we don\’t have foreign money printing presses. \’Coz it\’s foreign money, see?
What\’s really amusing about this is Ritchie\’s joint Eire/UK citizenship. It is generally agreed that the single most stupid, lunatic, decision of the entire past five years was Eire guaranteeing the liabilities of the Irish banks.
Presumably in sympathy with his distant family over the St George\’s Channel he wants the UK to repeat the trick. To do what is generally agreed to have been the most stupid, lunatic, thing anyone has done in the last five years.
And people wonder why the English spent a couple of centuries telling Irish jokes.