Bravo Mr Hutton, Bravo!

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?

5 thoughts on “Bravo Mr Hutton, Bravo!”

  1. “whose assets are close to twice the size of our economy”: a statement so fucking stupid that he really should be kicked from here to Tuesday.

  2. What an incredibly muddled article.

    Does Hutton know that in both HBOS and RBS, excessive risk and fraud in corporate lending contributed directly to their failure? In HBOS’s case, corporate lending was such a major issue that the FSA has now struck off its then head of Corporate Lending, Peter Cummings.

    Tim, I must pick you up on one point, though. I agree that large corporations raise finance in the capital markets, but small and medium-size enterprises in the UK are largely dependent on banks for finance, and at the moment they are finding that finance hard to get and very expensive. Breedon’s report looked at alternatives to bank financing for SMEs. It does talk about pooling and securitisation of loans, but it is actually more interesting on other alternatives, such as peer-to-peer lending. One glaring omission is its exclusion of equity finance, because its scope is limited to lending.

    I have concerns about the consequences of relying on increases in capital and liquidity buffers to protect savers from losses. The cost of maintaining these I consider to be one of the main reasons why risk lending to SMEs is very expensive and returns to depositors very low. Put simply, regulatory requirements designed to make banking safer are making it prohibitively expensive and unprofitable. We really do have to find another way – but to my mind that involves getting rid of protections and associated regulations (the two go together), and letting zombie banks fail.

  3. in 1987 my father was liquidated by rbs for 60.000 with total assets of 1.5million. My father was inovative with a whole list of buisness acalades not to mention best whole food retaurant 1980-1987 but what interested rbs was that they could have it all for 60.000 so they did whilst my father was having his stomach removed in an emergancy op due to 15 stomach ulcers with the worry of dealing with rbs. it is true they have destroyed inovation in britain for the last 30 yrs all for the brick and the buck. I believe it was a mr hutton that told the bailiffs and the judge that my father was the very worst kind of buisness man and should be banned from ever doing buisness again. the courts and the baillifs tore my family to bits on the advise of a mr hutton of carlisle rbs 1987

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