Sunday, January 18, 2009

Why cant the Banks lend the £37 Billion to British Businesses that tax payers have already given them.

I am astounded that the Government is planning on risking more tax payers money to get banks to lend to British businesses. A disturbing number of small businesses are shutting down because the banks have pulled the rug from under their feet by withdrawing overdraft facilities that are essential to maintain their cashflow. Many of these businesses have solid order books and are needed if we are to rebuild our economy.

Haven't we already sunk £37 billion into our banks to get them lending again, what has happened to all of that! So why on earth should we risk a further £10 billion, just to get the banks to do what they promised to do in the first place. Surely the answer is to force them to keep lending the huge stake the Government already has in these banks to our healthy businesses and keep people in work.


Jock Coats said...

Because the first tranche of bail-out money has effectively been swallowed up rebuilding the banks' balance sheets.

When an asset (a loan to a customer or a financial instrument that's now worthless or heavily written down) goes bad they need t replace that on their balance sheet so it still balances. It's not available for new lending.

The big worry at the moment is that the holes, both real and potential, in those balance sheets are very much larger still than has so far been admitted, and that we are still in the downward phase in which more and more assets are still going to go bad.

It looks like we are perhaps getting close to a "second credit crunch". The first having been caused by interbank distrust so they wouldn't lend to each other and the second one due to real world principals - businesses and individuals - going bust.

IMHO they should not have been given that cash in the first place to solve the first crunch, but should have been forced in the first instance into det-for-equity swaps. But no, of course, that would have diluted shareholders' funds, and oh dearie me, no, that couldn't be allowed to happen when there was a government willing to pump money in to save their skins.

Alan Beddow said...

Thanks Jock, as I suspected all our taxpayers money has gone into the balance sheet black hole.