Call me Mr Whippy if you want, but current government policy appears to contain a glaring contradiction. You see on the one side there’s its intervention in the financial system, the was going to be £50bn but is actually £185bn SLS, then there will be asset g’tees on top of the bank recapitalisations plus a £50bn for starters kitty handed over to the Bank of England to buy up corporate debt, etc., etc., That plus a few nationalisations and semi-nationalisations and crikey have you got major support for banks and all done in a very flexible and creative manner as well (honest!).
So that’s the banks then and hopefully, if they don’t fall over, they’ll start lending again in due course. It’s just in the meantime we’ve now in a recession, hence on the other side government is wanting to get all counter-cyclical in its spending.
So what connections have been made between the support for banks and government capex plans given these are heavily dependent on borrowing from the private sector? I mean the learning and skills council has just appointed a troubleshooter to investigate why the renovation programme for all the English FE colleges has stalled (cos it’s a struggle to borrow money), the European Investment Bank has stepped in to bail out 5 building schools for the future projects I think it is (cos they couldn’t borrow money) and the M25 extension now looks like its going to be bailed out by government (cos its been a struggle to borrow money – see the pattern here?).
Err …. aren’t the banks currently umming and awwing about lending to governmental and quasi-governmental agencies the same ones getting recapitalised and/or loans from the Bank of England as well as having a floor put beneath their losses (for a fee)? Does this mean there’s no joined up thinking in government economic policy? I mean why aren’t the same banks being propped up by government happily lending to job-saving projects initiated by housing associations, FE colleges, local education authorities, strategic health care trusts, the highways agency etc.?
Perhaps government thinks lending to build a school is worse than or less important than encouraging banks to throw money at over-priced houses at the fag-end of a property bubble? I’d be very interested to hear what the Governor of the Bank of England has to say about this given he rightly criticised banks for lending too cheaply in the run up to the credit crunch. There again PFI, housing associations etc. capex was built on this same cheap credit. Oops!