Congratulations on the most muddleheaded plan yet!
Let\’s start with finance. Britain now boasts two huge zombie banks, RBS and Lloyds, whose assets are close to twice the size of our economy. In particular, RBS, without government guarantees and support, could not continue to trade. The mistakes both banks made were so epic and the losses on the lending so huge that if the losses were crystallised Lloyds\’ capacity to trade would be questionable.
So, too much bank lending. Very bad idea. Gotcha.
But what is normality? British banks\’ total assets are around five times our national output and have barely contracted in size.
Oooh, very bad indeed.
Incredibly, only 5% of that lending was to British companies, perhaps 1% to innovative companies and sectors.
Er, hang on a minute. In our Anglo Saxon type economy we don\’t use commercial banks to lend, provide debt, to innovation. We use equity, derived through capital markets. You have heard of this \”stock market\” thing have you?
What\’s more, our regulators insist that banks must put prohibitive amounts of capital behind business lending. The successful applicant to succeed Mervyn King as governor must reform this system.
Err, but, up above you said that the banks went bust because they lent too much and couldn\’t handle the losses when they came. That is, they had too little capital. Now you want to lower capital requirements?
We then need to devise ways of encouraging new lending. Here, the state has to assume risk. Tim Breedon, the outgoing chief executive of Legal and General, has proposed that loans get aggregated into jumbo bonds that could be bought and sold by large investors. If, in addition, the state could guarantee part of the value of the bonds they would quickly have high-quality ratings.
Snigger. Fannie Mae and Freddie Mac for corporate bonds eh? That system really worked well, didn\’t it?
The government must create new public banks on top of the green bank that specialise in different parts of the market – some for housing, some for infrastructure , some for business lending.
Ooooh! Specialist banks. So, when one part of the economy tanks, say, housing, then all the specialists can go bust. As, umm, the specialists in aggressive housing lending all went bust in 2008?
I do wonder sometimes. Does Willy even read his own articles?