Three thoughts on the bailout…
1) Should the Lloyds-HBOS deal still go ahead? Originally, Brown agreed to waive the competition concerns because HBOS might collapse on its own – but after today’s deal, there’s no danger of that. The bailout gets HBOS out of the very particular pickle it was in. As Robert Peston notes, Lloyds is suddenly looking like getting a rare chance to hoover up a third of the market, based on an promise made for reasons that are no longer valid. So this “get out of competition commission free” card which Brown gave his friend Victor Blank may be worth quite a fair bit. Hence shares of HBOS have soared by 25% today – while the rest of the FSTE100 is down 5%.
2) Gordon Brown’s government doesn’t, of course, have £50 billion. It can only get this money by future raids on our income – aka taxation. Our MPs may be sanguine but I suspect there will be a public backlash against bailing out the bankers. Especially if the £15bn of taxpayers money Barclays is likely to use ends up – even in part – to give Lehmans’ staff a $2.5 billion bonus. The strings Brown attached should have demanded Barclays does not pay that bonus, if wants a penny of UK taxpayers’ money.
3) One of the strings attached to the £50 billion is that the banks soften the terms of borrowing to homeowners. I am deeply uneasy about this. House prices are still too expensive, unaffordable to many first-time buyers and, in my view, are only halfway down a 30% peak-to-trough decline. It is not in the national interest for house prices to start rising again, and nothing should be done to try buck the market – however hungry the Treasury may be for those luscious stamp duty receipts.
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