The bills just keep coming in
Mark Bathgate 6:27pm
Two years after Northern Rock became the first bank failure of this crisis, another £30 billion of taxpayers’ money needs to be thrown at the banking system. Behind all the noise about improving competition and the European Commission lies one core fact: the UK banks have lost an astonishing sum of money. The above chart shows bank losses as a percentage share of GDP, and illustrates the scale of the crisis that has overwhelmed the banking system and the taxpayer. The IMF estimates that losses could be as high as 25% of UK GDP.
UK banks went on an orgy of lending around the world, becoming the biggest source of credit growth in many countries. RBS trebled its total lending in just three years, expanding its balance sheet to almost 1.5 times the size of the UK economy. Egged on by Gordon Brown – in whose tax receipts he felt he had found the “New North Sea Oil” to fund an ever grander government sector – money was thrown in almost every conceivable direction. In common with their cheerleader Brown, the banks decided there was no reason to worry about the day when the economy could decline because ‘boom and bust’ had ended. This led to many UK banks – the largest lenders at the height of the boom – facing the downturn with the lowest bad-loan reserves and the weakest liquidity position of any banks globally.
The list of bank failures that started with Northern Rocks is now long: Bradford and Bingley, Singer and Friedlander, Dunfermline Building Society, RBS, Lloyds, HBOS. With over £30 billion handed over today, the direct cost for the taxpayer approaches £90 billion, with no certainty of these sums being recouped. On top of this, there are still over £1 trillion of other subsidies being provided to these banks and others who have not needed direct bailouts, like Barclays, to try and hold the system together.
This is not the end of the bill – most people will have noticed overdraft charges rising and the gap between mortgage rates and the Bank of England Base Rate soaring. UK banks have increased their margins to UK customers to pay for their losses. This is one of the key reasons that the UK economy remains, alone among the major economies, in recession. It’s not smart economics to refund the taxpayer the cost of the bailout by simply ramping up the costs of banking to the same taxpayer.
The UK bank crisis ranks as one of the most serious shocks to hit a developed economy in the post-war period. The scale of bank losses may even eclipse those of the Japanese banks in the 1990s - losses that cost the Japanese economy more than a decade of growth. Fixing the problem is every bit as important as addressing the government debt crisis, and will likely be the difference between stagnation and recovery.
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pete-s
November 3rd, 2009 6:48pm Report this commentI have for years been speculating that there was an unholy alliance between the banks and Gordon. Of course he always blames someone else. 'It was nae me', says Gordon, I wonder if one of his coterie of scottish bankers will spill the beans on his connivance. Or have they been too well bought off?
Hugh
November 3rd, 2009 7:01pm Report this commentPlease always remember who is the architect of this fiasco. The man who neutered and abolished the Board of Banking Supervision, the man who encouraged capital ratios to be kept too low, because he had abolished boom and bust; the man at the apex of the new tripartite regulatory system.
Our current prime minister.
2trueblue
November 3rd, 2009 7:19pm Report this commentThe above is worrying but alongside that is the credit card problem. No one has even touched on that, and that debt is unsecured.
The myth that we are the only ones still in recession is just that. The results from elsewhere are coloured to provide some aspirational element as people have a very low tolerance for austerity without hope.
Labour are the really nasty, uncaring party, who made no plans for the future. They just lived in a transient world and hoped that it would all turn out ok. They will leave office and the country will take more than a decade to recover, if we have the stomach for it. Scorched earth comes to mind, thanks Labour.
In2minds
November 3rd, 2009 7:27pm Report this commentFunny how a government that bangs on relentlessly about “lifting people out of poverty” should saddle the people with so much debt. Who and how is going to pay this debt off?
dilys
November 3rd, 2009 8:02pm Report this commentJust when did Gordon stop listening to Prudence and why aren't the Tories making more of yet another Labour governments failure with the economy?
Tankus
November 3rd, 2009 8:05pm Report this commentGordons been working on a well paid post election bolt hole , just like Blair .
For both of them, this is the only long term financial plan that can work .
I expect , that just like Blair , his last few months will be spent glob trotting for his own future personal benefit , not the country's ....
A traitor !
TrevorsDen
November 3rd, 2009 8:08pm Report this commentBrown and Darling talk proudly about the taxpayer (via them) charging a fee for all this bale out.
Did nobody tell Darling that there is no such thing as a free lunch.
The fee will be charged on the profits the bank makes on lending - to us. So we pay. The fee is paid out of profits which will thus not attract tax (thus furthering a drain on the taxpayer). So we pay again.
This bale out is costing us, thats you and me, in every aspect of our lives. Impoverishing us all. And thats before the inevitable inflation to come.
Moraymint
November 3rd, 2009 8:17pm Report this commentI'm not an economist (no bad thing probably) but isn't there something a bit gravity-defying about all this?
How is that Gordon Brown can have so engineered matters that the British taxpayer is now the miserable owner of £2,354 billion of public debt and contingent liabilities (a cool 161% of GDP) and yet you could be forgiven for thinking that life in the UK was pretty much hunky dory (which it most certainly is not, of course)?
Today we learn too that the UK's financial deficit, as a % of nominal GDP, is the worst - yes, you read that right - the WORST in the whole of the developed world (check out Wat Tyler over at Burning Our Money). This, despite Gordon Brown reassuring (ie lying to) us that the UK was well placed to weather the downturn. Our Prime Minister is a barefaced liar.
As with the sub-prime mortgage, credit-haemorrhaging housing bubble ... before it blew up in our faces "without warning" (not really; a lot of people saw it coming) ... isn't this whole trillion-dollar-debt-house-of-cards thing just another total disaster waiting to happen ... suddenly?
It feels a bit like one of those cartoon scenes where we're all pelting along and looking in good shape before the road runs out. We all keep running into space until we look down and realise that, er, we've run out of road. At which point things happen rather quickly in a vertically downward direction.
I just don't see how we can go on like this. Common sense tells me that we must surely be approaching that time where we leave the road and start that furious leg action in mid-air.
Gordon Brown has created the absolute mother of all looming (if not actual) socio-economic disasters for this nation. Meantime, the Labour Party as a whole has connived with Brown to create a monumental mess of our constitutional and political systems. And to think, these Marxist nutters actually planned all of this; we are now living the great project.
I can't help thinking that gravity will be kicking in over the next 12 months and there's going to be absolute hell to pay for Gordon Brown's dismal legacy to this pathetic country of ours.
Vote Labour, eh?
Snowman
November 3rd, 2009 8:42pm Report this commentMark, a succinct and irrefutable take on what has gone wrong. Sadly, the man who should buy it, won't. The worry is that the worst is yet to come when the printing of money and the borrowing spree end. Who then the lender of last resort?
TomTom
November 3rd, 2009 9:49pm Report this commentThe IMF reckons European banking needs to write off $809 billion of which $650 billion is in Britain.....so $65 billion is only a downpayment. In reality they are trying to avoid crystallising these losses by injecting 'equity' to support the debt pyramid, but the real economy is being sacrificed to fund a pyramid or Ponzi Scheme which makes pensions and all forms of savings highly contingent and effectively insolvent
Stuart Beamish
November 3rd, 2009 10:57pm Report this commentThe last 10 years have done more damage to the British economy, our freedoms, and the British way of life than World War II.
How much longer must we suffer ?
dic
November 3rd, 2009 11:29pm Report this commentWe are still being told about the "disgraceful" (indeed "ludicrous" or "laughable") behaviour of MI5 in the 1970's when they thought Wilson might be a Soviet agent. I still do not know what was so implausible about MI5's belief, since Labour Governments have always been treacherously anti-British. Three times in the last hundred years they have taken two 5-year terms of office to wreck the economy - sadly, every time, it has taken the electoric three terms to realise.
These mad Marxists have deliberately destroyed our economy. It's a shame it's too late for MI5 to act this time...
Roy Smith
November 4th, 2009 3:02am Report this commentAlong with getting the finances in a unretrievable
Coney Weston
November 4th, 2009 8:47am Report this comment"Egged on by Gordon Brown"
Why isn't this phrase said more often. Everytime I hear him saying that it is all the banks fault I want to be sick. He loved all that wealth being created - he endorsed it calling for more in order to shore up the taxes. The U.K. is stuffed and will stay so until this lot go - please make it very soon!!
Agogo
November 4th, 2009 9:25am Report this commentSuggestion: someone like Dan Makina at UNISA or Ncube at Wits Bus School to compare these numbers to what happened in Zimbabwe. I'd like to see an informed comparison.
Frizby
November 4th, 2009 9:32am Report this commentObviously Brown is on the look out for a post sacking position in some international / EU context but the question remains, who would ever employ/appoint him? His references amount to little more than a hoofing out of he is previous job.
The fact that Blair got out before the sh*t hit the fan showed self-saving savvy but for Gordon - well... who the hell would pay to listen to him speaking about anything?
All these hostile acts against the UK perpetrated by the officers of this government should be made very clear and they and us should never be allowed to forget it.
Moraymint
November 4th, 2009 9:33am Report this commentConey Weston, "[Brown] loved all that wealth being created ...".
Please bear in mind that banks do not create wealth, they simply churn money.
To create wealth you either have to dig something out of the ground, grow something or transform something to add value. Everything else is just shuffling wealth around.
Gordon Brown, being economically illiterate, never figured this one out. Now, of course, we have to pay for Brown's incompetence.
michael
November 4th, 2009 11:14am Report this commentThe awful truth : Labour's Brown hole has left the Tories just as gob-smacked as the rest of us.
It stinks.
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