Wednesday, 5 May 2010


The only debate on the economy during the election that got any profile was the shite over national insurance, which amounted to c.£7bn in potential government revenues. That was it for the most part.

Back in the real world the British banking system is being propped up by £320bn worth of emergency funding that starts to unwind next year. As someone who works in banking I’ve clearly got a distorted view as to which is the more important matter, but even allowing for that I still think £320bn is more important than £7bn. So there.

If the £320bn isn’t renewed i.e. if the government and Bank of England don’t keep Britain on the hook for all that dosh the British banking system will collapse. End of. Given that either/or scenario, the funding will be renewed, but perhaps the terms, conditions, duration and cost of that support was something worthy of political debate, even by bigots?

The other thing is what are banks actually doing in response to the basic challenge they have of HUGE balance sheets they’re having difficulty funding. They can respond to this in a number of ways. One is all the problem loans are called up, the loss taken and the assets taken as security then sold on at a loss, shrinking their balance sheets (and associated funding requirement) in the process. Or they can try and pile into areas that generate the cash needed to rebuild their capital bases, but don’t increase their balance sheets, examples here being as much advisory work as it’s possible to advise on. Third, they can raise the margin between what they pay to borrow and charge to lend; this does swell balance sheets, but more profitably, helping them rebuild their capital bases and reassure potential funders that they are indeed A-OK and worth taking a punt on.

Splitting out the forest from the trees for a mo, each of these options has obvious ramifications over a 1 to 5 year period. The first runs the risk of an asset fire sale as things like shopping centres and office blocks all over Britain are put up for sale at the same time; as prices crash construction firms and developers have no incentive to start employing people to build more things. The second saw some interesting shit recently when RBS took on some blerk with close links to Vladimir Putin to help its push into Russian investment banking, reminding me of a Woody Allen quote for some reason - “The lion and the calf shall lie down together but the calf won’t get much sleep”. Finally, as the current state of the savings and mortgage markets makes horrendously clear, the third option is already well underway to the detriment of people reliant on savings income and those wanting to buy or build houses.

But, aye, back to the election and the stuff that matters, I mean wots that all about eh? Cumming over ‘ere taking our council houses, getting jobs, paying our national insurance, ours mind, not theirs etc., etc. ad nauseum.

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