'Fairy godmother' taxpayer faces funding £200bn British bail-out for greedy bankers
By Daily Mail Reporter
Last updated at 9:08 AM on 22nd September 2008
Taxpayers could be loaded with up to £200billion of so-called toxic bank debts in a move to prevent a financial collapse.
Gordon Brown is under pressure from the City to follow the U.S., where the government has agreed to help bail out the banks.
But the calls provoked claims that Downing Street risks playing 'fairy godmother' to incompetent bankers.
The Government has refused to rule out a U.S.-style scheme, while insisting nothing similar is currently being planned.
City experts claimed that if the Prime Minister does not act, Britain could ultimately follow the U.S. into a financial and economic meltdown.
Such a move could ultimately load taxpayers with £200billion of stricken loans, City estimates suggest.
On Friday the White House stepped in to the market chaos with a pledge to nationalise American banks' bad loans, in an attempt to prevent a banking crisis rivalling that seen in the Great Depression.
Traders are braced for another stormy week on markets as further details of the proposals emerge.
Over the weekend U.S. Treasury Secretary Henry Paulson said his plan will be worth an initial $700billion (£382billion). Economists expect the bill to exceed $1,000billion (£546billion).
Crucially, British banking giants such as Royal Bank of Scotland, HSBC and Barclays will be awaiting news on whether they will benefit.
The U.S. Treasury said its fund will be open to firms with 'significant operations' in America, but Congressional leaders may try to block attempts to offload foreign banks' toxic loans on to U.S. taxpayers.
Mr Paulson said it was right that foreign institutions should participate.
He said: 'If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution.'
A draft of the U.S. legislation suggested the bailout will extend only to banks with headquarters in America - dealing a blow to British lenders.
Experts including former Bank of England official Willem Buiter and economists from financial giants Citigroup and UBS said Britain must consider a U.S.-style scheme.
This is because the UK faces its own spiral of soaring debt defaults and plummeting property values - a crisis that will be exacerbated by the events of last week.
Mr Buiter, a professor at the London School of Economics, said America is effectively 'socialising' its financial sector by creating a 'Toxic Asset Dump'.
He said: 'We can expect a similar proposal for a publicly funded TAD in the UK before long.
'Whether it will help or hurt long-run macroeconomic stability depends crucially on how it is designed and managed.'
George Magnus, economic adviser to UBS, said: 'If there are serious problems with illiquid and toxic assets on the books of banks that can't be unblocked, it may be necessary that other countries, including the UK, consider an option like this.'
Michael Saunders of Citigroup said: 'Official action (in Britain) in recent days has concentrated on palliatives, such as emergency liquidity provision and the short selling ban. These "sticking plasters" buy time.
'It is possible that time will allow the financial system to stabilise itself. But the system may not be self-stabilising.'
Any such move would dramatically expand upon the Bank of England's 'Special Liquidity Scheme' (SLS), which provides lenders with short-term, stopgap funding in the form of loans.
The value of this scheme currently exceeds £100billion, but analysts say it could ultimately reach £200billion.
The SLS will not address the root cause of Britain's woes because it only allows banks to temporarily offload their unmarketable mortgage assets.
As a result, they are withholding credit from firms and households, exacerbating the credit crunch and driving the economy towards recession.
Following in the White House's footsteps would be hugely controversial, and lead to claims that incompetent bankers are being saved from the consequences of their own failures.
It would also risk a 'blow-out' in the public finances, which are already under massive strain.
The UK budget deficit is tipped to approach a record £100billion in 2010-11 - even before any new bank bail-outs are contemplated.
In an article in the Daily Mail today, Lib Dem Treasury spokesman Vince Cable says: 'Gordon Brown does not need, and should not attempt, to play the role of Fairy Godmother to the banks.
'Governments have a duty to stop financial collapse from spreading to the real economy.
'But they must not encourage the foolish, greedy, financiers who caused this crisis to create the next one.'
A Treasury spokesman said: 'The UK does not have plans to implement a U.S.-style resolution regime.
'At the same time, the Chancellor and the Prime Minister have made it clear we are prepared to take whatever action is necessary in the interests of financial stability.'
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Actually people seem to forget that Northern Rock has alrady got £100 bln obligations - this £200 bln figure seems rather conservative.
By Daily Mail Reporter
Last updated at 9:08 AM on 22nd September 2008
Taxpayers could be loaded with up to £200billion of so-called toxic bank debts in a move to prevent a financial collapse.
Gordon Brown is under pressure from the City to follow the U.S., where the government has agreed to help bail out the banks.
But the calls provoked claims that Downing Street risks playing 'fairy godmother' to incompetent bankers.
The Government has refused to rule out a U.S.-style scheme, while insisting nothing similar is currently being planned.
City experts claimed that if the Prime Minister does not act, Britain could ultimately follow the U.S. into a financial and economic meltdown.
Such a move could ultimately load taxpayers with £200billion of stricken loans, City estimates suggest.
On Friday the White House stepped in to the market chaos with a pledge to nationalise American banks' bad loans, in an attempt to prevent a banking crisis rivalling that seen in the Great Depression.
Traders are braced for another stormy week on markets as further details of the proposals emerge.
Over the weekend U.S. Treasury Secretary Henry Paulson said his plan will be worth an initial $700billion (£382billion). Economists expect the bill to exceed $1,000billion (£546billion).
Crucially, British banking giants such as Royal Bank of Scotland, HSBC and Barclays will be awaiting news on whether they will benefit.
The U.S. Treasury said its fund will be open to firms with 'significant operations' in America, but Congressional leaders may try to block attempts to offload foreign banks' toxic loans on to U.S. taxpayers.
Mr Paulson said it was right that foreign institutions should participate.
He said: 'If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution.'
A draft of the U.S. legislation suggested the bailout will extend only to banks with headquarters in America - dealing a blow to British lenders.
Experts including former Bank of England official Willem Buiter and economists from financial giants Citigroup and UBS said Britain must consider a U.S.-style scheme.
This is because the UK faces its own spiral of soaring debt defaults and plummeting property values - a crisis that will be exacerbated by the events of last week.
Mr Buiter, a professor at the London School of Economics, said America is effectively 'socialising' its financial sector by creating a 'Toxic Asset Dump'.
He said: 'We can expect a similar proposal for a publicly funded TAD in the UK before long.
'Whether it will help or hurt long-run macroeconomic stability depends crucially on how it is designed and managed.'
George Magnus, economic adviser to UBS, said: 'If there are serious problems with illiquid and toxic assets on the books of banks that can't be unblocked, it may be necessary that other countries, including the UK, consider an option like this.'
Michael Saunders of Citigroup said: 'Official action (in Britain) in recent days has concentrated on palliatives, such as emergency liquidity provision and the short selling ban. These "sticking plasters" buy time.
'It is possible that time will allow the financial system to stabilise itself. But the system may not be self-stabilising.'
Any such move would dramatically expand upon the Bank of England's 'Special Liquidity Scheme' (SLS), which provides lenders with short-term, stopgap funding in the form of loans.
The value of this scheme currently exceeds £100billion, but analysts say it could ultimately reach £200billion.
The SLS will not address the root cause of Britain's woes because it only allows banks to temporarily offload their unmarketable mortgage assets.
As a result, they are withholding credit from firms and households, exacerbating the credit crunch and driving the economy towards recession.
Following in the White House's footsteps would be hugely controversial, and lead to claims that incompetent bankers are being saved from the consequences of their own failures.
It would also risk a 'blow-out' in the public finances, which are already under massive strain.
The UK budget deficit is tipped to approach a record £100billion in 2010-11 - even before any new bank bail-outs are contemplated.
In an article in the Daily Mail today, Lib Dem Treasury spokesman Vince Cable says: 'Gordon Brown does not need, and should not attempt, to play the role of Fairy Godmother to the banks.
'Governments have a duty to stop financial collapse from spreading to the real economy.
'But they must not encourage the foolish, greedy, financiers who caused this crisis to create the next one.'
A Treasury spokesman said: 'The UK does not have plans to implement a U.S.-style resolution regime.
'At the same time, the Chancellor and the Prime Minister have made it clear we are prepared to take whatever action is necessary in the interests of financial stability.'
-----
Actually people seem to forget that Northern Rock has alrady got £100 bln obligations - this £200 bln figure seems rather conservative.
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