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Bailout MkII, Monday: what I know....

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Paul Mason | 18:34 UK time, Sunday, 18 January 2009

Here's what I've gleaned about the bailout the UK government is set to launch on Monday morning. There are two elements, the long-touted insurance scheme for toxic debts, and a range of measures to free up sources of funding for banks.

Significantly, the government will not be announcing a fully fledge asset insurance scheme, as trailed in various papers. It will announce the principles and then "if the banks are interested" they will be negotiated with on a case-by-case basis I've been told.

Frankly, what I surmise from this, is that the much hyped discussions with the banks this weekend have not produced agreement. If there was industry-wide agreement on a bad debt ringfencing scheme it would have been announced tomorrow. Also, clearly, there is no "bad bank" going to be set up for the taxpayer to buy toxic assets.

The more interesting aspect of tomorrow therefore looks to be a raft of new govenrment guarantees on funding. The Crosby report recommended the taxpayer underwrite new mortgage issuance, and Darling accepted this in principle. If, as I expect, this is announced concretely tomorrow the question is, does the UK get an activist, publicly controlled mortgage originator as per Fannie Mae, or a "power". If it is the latter, who wields the power and do they do press interviews is my first question?

Anyway there you have the latest: no bad bank, no industry-wide insurance scheme but a commitment to provide asset insurance to any bank that wants it, and a far-reaching but unspecified provision of further billions of funding sources. Clearly, the taxpayer exposure involved in all this will need to be calibrated.

I think we need to see the details of Bailout MkII before saying anything more: they will be complex. I will try to unpack them on Newsnight tomorrow night, which will mean junking a long-planned feature on the economic legacy of George Bush. See you at 1030pm GMT Monday.

UPDATE: It seems the government will also up its stake in RBS, as reported in the Telegraph. We are now looking at owning 70% of the bank's shares (compared to 60% before).

Comments

  • Comment number 1.

    "Long planned" on your part.

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    Paul Mason:

    Thanks for the excellent reportage on the Bailout of British Banks Part II....

    [Taken from your remarks: 'If it is the latter, who wields the power and do they do press interviews is my first question?'

    That is an excellent question to ask at this question time (not Prime Ministers time)....

    ~Dennis Junior~

  • Comment number 4.

    Paul:

    [I think we need to see the details of Bailout MkII before saying anything more: they will be complex. I will try to unpack them on Newsnight tomorrow night, which will mean junking a long-planned feature on the economic legacy of George Bush.]

    I am very sadden that it could mean, you are not going to use the footage on the Economic legacy of George Bush...]

    ~Dennis Junior~

  • Comment number 5.

    Paul:

    [From your post: UPDATE: It seems the government will also up its stake in RBS, as reported in the Telegraph. We are now looking at owning 70% of the bank's shares (compared to 60% before).]

    That means in reality the government of the U.K. pretty much owns the RBS stock or does it?

    ~Dennis Junior~

  • Comment number 6.

    A bit of a cock-up by Cameron isn't it -announcing Clarke returning to his shadow Cabinet on the day that Brown and Darling had to go to the Headmaster's study and admit that they are continuing to cock-up the economy and allow the banks to get away with quillions of our cash?

    All you journos are having near-orgasms over Clarke that the news of the near bankruptcy of the country is already slipping down the airtime minutes. No lashings of lemonade to Cameron for his poor timing as today is bad news day and you don't help the Government out by helping to dampen it with your own news.

    Oh well, the rest of us take delight in knowing that all your Westminster Village types will have your own little part of eternity to spend together in!

  • Comment number 7.

    Try imaging the economy as a pyramid - a pyramid predicated on risk. The pyramid is organised so most risk accrues to the base, the least to the peak.

    At the top are the mega rich, essentially stateless with wealth accrued in tax efficient havens. They have always maintained effective risk management strategies.

    Also near the top are politicians, who are essentially an aristocratic priesthood to the above. They can maintain their priviledge by careful expedient of a party political system. Once politicians control both the executive and legislature there hegemony is assured.

    As we go down to the base we reach the the masses. Those with no choice but to work in the economy set up for them and pay tax in return.

    If we use this model as an intrument to view our economy then its function comes into clearer focus.

    Risk is percolated to the base, and wealth sucked up to the apex.

    Today U.K tax payers are increasingly acting in a role akin to Lloyd's names. They are underwriting the risk of the corporations which comprise the economic mechanism . What's more they are providing unlimited liability and they are unlikely to receive a premium.

    A Free Ride ? What do you think ?

  • Comment number 8.

    who told gavin the 37billion didn't work? is it an in joke by the staff? don't worry we know from his jokes he doesn't read the boards.

    the 37 billion 'did' work in the sense it stabilised the banks and bought time. and buying time is what all this is about. buy enough time till things improve.

    so we all know where the doom and gloom is and everyone is now saying 'i told you so' but where are the green shoots?

    the way out will be through engines of growth. so things on the upside are things like computer games and entertainment and renewable energy - why no feed in tariff yet that would create hundreds of thousands of jobs?

    i see the govt are trying to hawk nuclear storage around the country but no county council are buying into the spin of 'jobs for life' as the govt trowel on the nuclear waste 'wonder product' speil.

    also another green shoot is the john lewis model of ownership. remember how all those building societies were bundled into becoming banks on the back of profits from the short term money men. well they have gone but the co operative model that does things in a conservative way are still working.

    so its a business model [where workers are the shareholders] that proves to work?

    so the way out is to focus on where the growth is.

  • Comment number 9.

    Bailing out the banks ? Again ?

    This may sound a bit 'mad', but I guess you could say we live in a mad world ! The government have committed Billions to saving the banks, and don't seem to have much thought for what is happening to Mr and Mrs Average.

    This is the mad bit ......... could the government gift a large amount of cash to each tax paying family in the UK ....... ?250,000 - ?500,000 ! These families would then pay off debt, buy property, invest, buy a car and would, dare I say, solve the problem on the High Streets overnight.

    This is quite a nutty idea, but would probably work out a lot cheaper than throwing cash at the banks etc ?

    What do you think ?

  • Comment number 10.

    PRAGMATISM v POLITICS (#8 and 9)

    Still totally with you bookhim, on the local generation initiative. The answer to foot-dragging just has to be the nuclear lobby.

    MNodrog: no idea if that specific alternative is either viable (or allowed by the EU masters) but I did recently ask if sticking (broadly) to the failed model, is more to do with vested interests than sustainability. I feel sure an alternative to the current debt and deceit riddled monetary syatem is out there.

    Decades ago we would say: "pull the ladder up Jack - I'm alright" - nothing changes.

  • Comment number 11.

    Post WWII the public 'invested' in the future of their children through nationalisation of the means of production (coal, electricity, water, post offices/telecoms, transport etc) - the Welfare State, later to become the 'patronising' unfree, oppressive Nanny State. Then, as the 'investors' got old and started losing their faculties (apparently), the so-called beneficiaries (those peoples' children, the supposed beneficiaries) entering the workplace in the late 70s got the opportunity to 'invest' in it all over again either as small share-holders, or if they had the opportunity to get big loans from banks (everyone being equal of course), outright purchases as the rest as the state was sold off because it had becoime 'so inefficient'...................

  • Comment number 12.

    Having just seen Yvette Cooper on Newsnight looking like a rabbit caught in the headlights, I wouldn't be at all surprised if the bank shares head even further south tomorrow.

    Absolutely clueless - zilch leadership and totally, completely and utterly lacking in any ability whatsoever to inspire any confidence that the Government knows what it is doing, is taking accountability, and will take charge of this situation and rectify it.

    Here's a clue Yvette - In the Oval Office there is a sign on the desk which is says 'The Buck Stops Here' - not at the 'Fed' or with the US banks. I believe there is also one there which says 'It's the economy, stupid'.

    If you haven't got a clue how to get on top of this problem, and you are meant to be 'in charge', what hopes for those of us who are not in the Treasury ?? If you are this far out of your depth, and claiming that some 'due diligence' is being done before the bank insurance scheme is implemented, when clearly none was done for the first bailout, why should we believe you second time around ?

    And 'bad news comes in threes' - so I have absolutely no faith in the belief that this is the last of these huge cash injections that we are going to see.

  • Comment number 13.

    Re: Tonight's piece about the bailout on Newsnight.

    I was especially interested by the one-liner to the effect that the Government/FSA is going to relax the capital adequacy requirements.

    Has anyone asked permission to do this from the EU? I was under the impression that the Capital Requirements Directive was binding on all Member States, just as the Basel Accord is binding on all its signatories.

    Or are we going to take a page out of our European partners' books and ignore the bits of EU legislation that we don't like?


  • Comment number 14.

    THE MARK REGEV SCHOOL OF PUBLIC RELATIONS?

    #11 erratum: "as the rest of the state was sold off because it had become 'so inefficient'...................

    These days we don't have unemptied dust-bins, we get an eco-opportunity to pre-sort refuse by type into colour coded plastic bags/bins, have this collected less often, keep stinky rubbish in our homes and get nasty letter if dare put it out in the street (so often take it to tips ourselves). We get post less often too.....and...

    It's more 'efficient' this way, and very 'green'.

  • Comment number 15.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 16.

    Paul

    I'd be interested to see Newsnight to follow up last night's piece on the banks with something on the impact of the banking crisis on sterling.

    Whether or not we see full nationalisation of the banks, I think it is fair to say that the government is at least implicitly underwriting the main UK banks. What frightened me about last night's interview with Yvette Cooper is how little the Treasury seem to know about the potential extent of the bank's losses. Given the amount of taxpayer's money the goivernment is puuting into the banks or puttying at risk by way of guarantee or insurance schemes, this is truly shocking. The Government is effectively taking responsibility for unquantified amounts of the bank's debts. If the wholesale money markets won't lend to the banks becuase of this risk factor, will they lend to UK government if it assumes these risks? I see that the pound has taken a hammering overnight and my concern is that we are about to head down the same path as Iceland. The sterling issue is, in my view, just as or more important then the issue of "getting credit going again".

  • Comment number 17.

    nedafo (#16) "What frightened me about last night's interview with Yvette Cooper is how little the Treasury seem to know about the potential extent of the bank's losses."

    One can't tell.

    What surprises me is that Cooper says anything at all. Civil Servants normally vet Minister's speeches, and in the case of TV appearances like her's, where she is no doubt well informed, it would be highly irresponsible (and therefore unlikey) that she would ever risk saying anthing which might affect the sector/market. This is why I don't take a lot of what she says seriously, whilst at the same not criticising her unfairly for just doing her job, i.e. inconsequentially wafling in an effort to placate. This is why, paradoxically,it is probably better NOT to interview Ministers or anyone else who may be RELIABLY informed. Intelligent observers on the other hand can only provide educated speculation...

  • Comment number 18.

    at the m the markets are dominated by obamamania so its all a bit euphoric for the dollar.

  • Comment number 19.

    Jadedjean - I understand the point you are making and presumably this is why the senior management of the banks have been so unwilling to ne interwiewed over the past few months.

    Peston's blog this morning does deal with the effect of the banking crsis on sterling to some extent. My feeling is that there is a significant risk that we are heading the same way as Iceland.

  • Comment number 20.

    nedafo (#19) We've had years of anarchistic economics run on a misconception of cognition rather than behaviour. We're going to have to roll a lot back to the time when duty was as important, if not more important than rights, and people are going to have to get used to the idea that running societies on the basis of giving people what they want just reinforces divisive, self-centred, infantile, behaviours which always ends in tears. We've seen this in the fragmentation of society which is reflected in our crime and low birth-rates. I think you may be right, if we don't wake up to the core problem VERY quickly, and what we need to wake up to is that we have been rewarding the wrong people whilst also punishing the wrong people, for far too long. Much of this anarchism has come about through skewed breeding exacerbated by negative reinforcement, i.e relieving people of what at root are quite appropriate self-doubt/fears. Thatcher and Blair's anti-deference and naive egalitarianism in spite of the contrary evidence leading to their close to destruction of traditional higher education will be almost impossible to reverse in the short-term and until that happens, we'll be awash in spin/nonsense.

  • Comment number 21.

    NERVOUS COUGH (#20)

    Is 'duty' a permitted term JJ? Should it not be 'behaviour conducive to normative reinforcement' or some such? (:o)

    I'll get me come uppance.

  • Comment number 22.

    barrie (#21) No need to be nervous, I guess it could be put a better way, and I suspect Skinner did so in 'Beyond Freedom and Dignity' (which in the 70s sometimes featured as a finals paper question - it's not an easy book to fully understand, and Verbal Behavior' is even harder - Chomsky the anarchist never understood it, buthe wrecked havoc nonetheless).

    On the Berne PAC stuff - something to think about. If cognitive-behavioural development is not a function of the environment in any positive sense (clearly physical damage has a negative physical effect) those who remain somewhat infantile in their cognitive-behaviour may be largely incorrigible beyond a certain age/level of maturation. Admonition/punishment is no use in such cases asa they tend not to be aware of what they are doing or can not inhibit their responding which elicits punishment, but diversion and in some cases, containment/isolation works. Some have little in the way of 'conscience' (which requires an ability to cope with delayed reinforcement and inhibit some responding) whilst others simply plateau, i.e are big kids. In a socially just, mature 'democratic' society, people's behaviour would be managed by environmental continegncies according to their needs and abilities - and it would be the 'duty' of some to look after others, and others to do as instructed. It used to be that way before we embraced anarchistic 'Liberal-Democacy'. School kids were better behaved in those days, nd our birth-rate was not such a dysgenic disaster.

  • Comment number 23.

    Good idea for BBC's Paul Mason and Michael Crick to join forces on a subject that requires financial and political journalism to unite perhaps?
    As current government, as a united front, combine politics with finance, then BBC journalists are better placed to ask questions together?

    For example: government agree that bankers deserve high pay and bonuses? If those bankers not paid highly they will leave.

    OK, how about letting those bankers leave our banks and see how much they are allowed to earn elsewhere in countries who will not tolerate their demands and not bail our their taxpayers' salaries and bonus structure and undisclosed perks!

 

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