Nationalising the banks would just create new problems 

Hawkeye

The biggest danger with nationalising the banks is that their debt then becomes sovereign debt that UK PLC has to honour.

Far, far better to split the banks back into retail and investment banks, guarantee the retail side (savings etc) tell the investment ones to sink or swim.

The dodgy ones would fail and the administrators would sell off the functioning portions. The rest of us would then have some confidence that the banks that survived were viable and to be trusted.

This is not a GOOD solution... there are no good solutions. Whatever is done will inflict pain. The question is which inflicts the least pain for the shortest time?

TomTom

The Chinese and Arabs would no doubt find it disheartening to be expropriated. Those betting against bank shares in order to short sterling would have their fun.

It would be unlikely that any future privatisation of those banks would find them with British shareholders.

Nationalise the banks then join the Euro because Britain would cease to be an independent economic unit - it would be an implosion leading to economic subserviency to more powerful economies

Short the UK

Willem Buiter wrote a piece on the 20th:

My proposal:

(1) Take into complete state ownership all UK high street banks. This has to be mandatory, even for the banks that still like to think of themselves as solvent.

(2) Fire the existing top management and boards, without golden or even leaden parachutes, except those hired/appointed since September 2007.

(3) Don’t issue any more guarantees on or insurance for existing assets - regardless of whether they are toxic, dodgy or merely doubtful. Issue guarantees/insurance only on new lending, new securities issues etc. A simple rule: guarantee the new flows, not the old stocks. This will reduce the exposure of the government to credit risk without affecting the incentives for new lending.

(4) Transfer all toxic assets and dodgy assets from the balance sheets of the now state-owned banks (or from wherever they may have been parked by these banks) to a new ‘bad bank’. If possible, pay nothing for these toxic and dodgy assets. Since the state owns both the high-street banks (I won’t call them ‘good’ banks) and the bad bank, the valuation does not matter. If the gratis transfer of the toxic or dodgy assets to the bad bank would violate laws, regulations or market norms, let an independent party organise open, competitive auctions for these assets - auctions in which the bad bank, funded by the government, would be one of the bidders. Whatever price is realised in these auctions is paid by the new bad bank to the old banks.

Capitalize the bad bank with the minimum amount of capital required to meet regulatory norms. Fund the rest of the assets through a loan from the state to the bad bank or through a bond issued by the bad bank and bought by the state.

As regards the bad bank, that’s effectively it. With toxic and dodgy securities on the asset side of its balance sheet and with the state owning all the equity and as the only creditor, the assets can either be sold off, if a market develops again, or held to maturity, earning whatever cash flows they may yield.

(5) As a special case of (4), take the high street banks into full public ownership and treat these existing banks in their entirety as bad banks. Close the existing banks for all new business. Transfer the deposits of the high street banks (now the bad banks) to new (state-owned) ‘good’ banks (or perhaps rather, not yet bad banks). Replace the deposits on the books of the bad banks with loans from the state to the bad banks or with bond issues by the bad banks purchased by the state. Let the new banks (New Lloyds, New RBS, New Barclays and New HSBC) acquire, in a competitive bidding process also open to other market participants, any of the assets of the old banks. Run the new banks as competing publicly owned, profit maximising banks until they can be privatised again, when a sensible regulatory regime for banks is in place and the market for bank shares recovers. Don’t guarantee or insure any items on the balance sheet of the old banks. Use guarantees/insurance exclusively for new lending and new investments by the new banks. Gradually run down the old banks as their assets mature, as under (4).

Ian C

Public ownership is as identical to the re-arrangement of the deck chairs on the Titanic as you can get. It means the same management remains in place, apart from the recent departures, and transfers the responsibility to the one profession who have proven over the past 60 years that they cannot be trusted with our money - the politicians.

Buiter and co are academics who do not have a real world responsibility. Once the politicians control our banks on a day to day basis we are deader than we are at the momemt.

Yes a massive injecion is needed but this is too large in individual countries for any one country to sort it (apart from the USA). We need to bring in the people with the money - the surplus countries and come up with a 15/20 year plan for financing the toxic removal and re-cap. needed.

As I have said earlier today - raise a bond from the G7/20? (source: long terms funds and printed money in each country according to what they can sensibly do now and roll it among them for the period). Use the money to buy out the toxic stuff (only c 10% will default in the long run) and create a special 'IMF' to run it out and off over 15-20 years.

All of us thrashing around as we all are in our own little ways will lead to a far bigger problem.

Obama - by putting this you can earn and deserve your "saviour" status and hope to keep it if something 'outside the box' like this is pulled off.

TrevorsDen

So Mr Short - the route to salvation is to put Gordon Brown in charge of our banks?

Who let you out of the asylum?

As a comment on the article says of the author ...
"most of them (the banks) are not bust and as a member of the MPC during the locust years you share responsibility for setting the wrong guidelines."

Verity

TrevorsDen - Gosh, do we still have asylums (places of refuge) for crazy peeps? I thought all he weak and confused were all out fending for themselves in "the community".

TomTom

Current Board of RBS

Sir Steve Robson* (age 64)

A
Picture of Sir Steve Robson

Appointed to the Board in July 2001, Sir Steve is a former senior UK civil servant, who had responsibility for a wide variety of Treasury matters. His early career included the post of private secretary to the Chancellor of the Exchequer and secondment to ICFC (now 3i). He was also a second permanent secretary of HM Treasury, where he was managing director of the Finance and Regulation Directorate. He is a non-executive director of JP Morgan Cazenove Holdings, Xstrata Plc, The Financial Reporting Council Limited and Partnerships UK plc, and a member of the Chairman's Advisory Committee of KPMG

The "genius" who pushed PFI/PPP down the taxpayers throats

Peter Sutherland* (age 62)

KCMG

N, R
Picture of Peter Sutherland

Appointed to the Board in January 2001, Peter Sutherland is an Irish national. He is a former attorney general of Ireland and from 1985 to 1989 was the European Commissioner responsible for competition policy. He is chairman of BP plc and Goldman Sachs International. He was formerly chairman of Allied Irish Bank and a director general of GATT and its successor, the World Trade Organisation.

We want more like this atop our banks ? Can't we have real people from industrial companies ?

Short the UK

TD,

I personally would put them into administration, wipeout the equity holders, cramdown the bondholders in a debt for equity swap. Then re-float the banks with the new capital structure. I can't see that happening but that is a true capitalistic way of cleaning out the balance sheet.

I figure they will do something similar to Buiter's plan. The UK will lose it's AAA and there will be a gilt strike.

I think the more important point is by how much is GDP going to collapse in 2009 & 2010. This will be the nail in the coffin for GBP paper.

If you google 'Nadeem Walayat Bankrupt Britain' you will see a horrific graph and an estiamte of our liabilities.

I once thought we had a chance of averting Depflation but no more. It is now just a matter of time.

Rhoda Klapp

"I thought all he weak and confused were all out fending for themselves in "the community"."

There's a big place in Westminster where they go. Portcullis House is the residential annexe.