Sunday, 25 November 2012

Casino capitalism

Spotted in a Newport Pagnell pub recently:

It's a terrible quality photo, taken in poor light with cheap phone camera, but just in case you can't quite make the words out, the fruit machine is called 'Banker's Bonus'. I am not authorised to give specific financial advice, so cannot recommend using this fruit machine as an investment vehicle for maximising the return on the contents your back pocket.

If I was in the financial advice biz, though, I'd probably recommend this fruit machine as a safer bet than buying shares in the Royal Bank of Scotland or Lloyds, at least now I've read this post which is well worth a few minutes of your time, especially for its account of how the Spaniards, desperate to privatise their own failed, bailed-out bank, Bankia, flogged it piecemeal to the public by misrepresenting the basket-case organisation as 'solid, healthy and with a vast capacity for generating resources.' The unfortunate punters quickly saw their shares in this 'solid, healthy' bank shed 70% of their value. Standard and Poor's cut Bankia's credit rating to 'junk' earlier this year. Hence the suggestion of that out own government might seek to offload its own toxic waste on the suckers active citizens of our glorious share-owning democracy:

So there is the answer for the UK government. My guess is the government will either try to sell shares in RBS and Lloyds directly to the public, or in the case of RBS buy the rest of the bank first, nationalizing it, and then sell. Nationalizing it first would allow the government to split off the worst parts of RBS’s debts, leaving them on the public’s purse forever, and then privatize the ‘new, clean’ RBS. This way the  public would buy the bank twice (that is what privatizing is – you buy shares in something you already own) AND leave the tax payers to pay off all the bank’s worst losses as well. Of course it won’t sound like that when they come to advertize it. Much like Mr Rato’s Bankia didn’t sound bad.

Don't say you haven't been warned.

Apart from interesting speculation on what might happen, there are some relevant points about the mess we're already in, which undermines Boris Johnson's fatuous quip about  Head Boy Cameron being 'a broom that is cleaning up the mess left by the Labour government':
— the bulk of UK debts is ‘lending’ from the banks. We borrowed it but the loans were made by, OFFERED by,  and remain at the banks. Sure we have a role. We have to pay. But if we can’t, then bye bye banks. No matter how you spin it the debts were created by and are at the banks.  Back to the report.
  • By comparison, UK government debt was relatively low and stable as a share of GDP from 1987 to 2007 and, despite rising sharply due to the recession, was still less than a sixth of total private sector debt in 2009. (My emphasis)
Another problem for the official line. Where is the mention of the out of control public spending and greedy nurses?!!! Apparently it was all less than a sixth of private debts. The long and the short of the PwC report is that the huge rise in UK debt has been due to increases in debts owed by,
… households, private companies and financial institutions rather than increasing public debt, which only started to rise materially during the recent recession.  (My emphasis)

Mind you, as the bankers' most enthusiastic cheerleader, you can see why BoJo would be keen to find someone else to blame.