Thursday, September 06, 2007

Maybe I Don't Understand Gravity


If you can keep your head while all around are losing theirs, then clearly you don't understand the gravity of the situation. We all know that.

But I'm still feeling very twitchy about the way "the authorities" are moving to bale out those panicky bankers (see previous blog).

There's no doubt the bankers are panicking- who wouldn't if they lent say $250bn to a bunch of people who can't pay it back?

But they did it, and they paid themselves the bonuses to prove it. So WTF should we taxpayers bale them out?

Ah well, because if we don't, global credit will dry up. Giant snakes will roam the streets eating babies etc. And most alarmingly, those golden bonuses will have to be slashed.

In fairness to the Bank of England, they have been following the Tyler line. Toughing it out, and letting the banks sort out their own mess.

However, they're now under immense pressure from the bankers to ladle out more of our money (or liquidity as it's known in polite banking circles). This morning on BBC R4 Today, private equity honcho John Moulton even had the cheek to claim that BoE officials were just dumb- he claimed that until the last few weeks they didn't even understand what a collateralised debt obligation is (having worked for one of the Bank's sharper deputy governors, I'd be amazed if that was true).

Let's just repeat- taxpayers should not be expected to bale out these high-rolling bankers. They took the upside, and now they and their shareholders must take the pain.

Sure, they're finding it much more expensive to borrow in the money markets, but as the Bank said in today's press release, there's no evidence that effect is feeding through into a lower availability of credit to companies and households- ie the real world.

And speaking as someone who is now a saver rather than a borrower, I embrace all those new higher rate savings deals from hard-pressed banks and building societies. I'm sick of only getting Bank Rate for lending to people who use the money to reap much higher returns elsewhere.

This is no time for Old Lady wobbles.

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