I just find this terribly amusing

\”Specific government institutions and programmes supported by the central bank must be targeted to the needs of the economy. For the UK, the primary need is investment for SMEs and new firms.\”

To ensure credit makes its way through to small businesses, he said the Bank and the Treasury should work together to \”set up two new public institutions\”.

\”One would be a public bank or authority for lending to small business [that] would in the first instance be choosing among loan applications already rejected by pre-existing banks,\” he said.

The other should be \”an entity to bundle and securitise loans made to SMEs\” – a \”good\” version of the US\’s Fannie Mae and Freddie Mac. \”Bennie\”, as Mr Posen dubbed it, would ensure the market has sufficient liquidity.

Two points.

Just how long does anyone think it takes to set up a new banking institution, staff it and get it making loans?

Making sensible loans that is? Anyone willing to argue for less than three years? I\’m not.

So leave aside entirely the question of whether such state backed banking is a good idea or not for the economy in the long term, it\’s simply not a useful response to a cyclical down turn, is it?

And Bennie of course: how amusing that securitisation has returned to the drawing board so soon. And if you thought that rating mortgages to put into pools was difficult, wait until you see how tough it is to rate small business loans…..

3 thoughts on “I just find this terribly amusing”

  1. I’m struggling to articulate the insanity of this. He wants the taxpayer to borrow money, and lend it to people who have already tried to borrow money from the banks and been refused. I wonder why they were refused? Could it be that their business proposal was nonsense? That the bank considered it would fail?

    The taxpayer would be subjected to the longest queue imaginable of every dreamer, chancer and failing business owner in the country (and a fair few criminals as well).

    The mind boggles. If this is supposed to actually be ‘supporting’ businesses its pointless. If its a thinly disguised way of getting shed loads of cash out into the ‘real’ economy, why not be honest about it? Put all the names on the electoral register in a hat, pull a million out at random and give them £10K each. Bosh. £10bn straight into the real economy. Fairer than handing out ‘loans’ to whatever businessman manages to oil his way into the good books of the State run banks loan officer.

  2. Given the levels of bank and building society “rationalisations” over the past 15 years, i suspect that there are quite a lot of former bank staff out there. So it might in fact be relatively easy to staff the bank. However, the basic concept is still bonkers. So bonkers that Murphy will probably pick up on it.

  3. Hang on a minute, guys. These two points are by no means unrelated. The state bank lending to insolvent and illiquid SMEs will be utterly dependent on being able to unload that stupidly risky debt onto the unsuspecting investment banking community. That, after all, is how America does things, isn’t it – lends money to people who really shouldn’t have it then exports that high-risk debt to the world through securitisation and capital markets. Posen is American. Not surprising that he’s trying to recreate the American banking model here. I’m not sure we really want it, though, do we?

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