Saturday, April 19, 2008

Enron Bailout

Every one a winner

Our decrepit discredited rulers are leaking and dribbling all over the place. Last night, after the global financial markets had safely closed for the weekend, they leaked to BBC news that another £50bn of taxpayers money going to bail out Britain's largest banks (which is on top of the £100bn committed to the Crock, and the £40-50bn already supplied in emergency market liquidity).

Naturally, no official government spokesperson was available to discuss, so it was left to their unofficial spokesman J McFall to tell us via Newsnight that:

"If we don't have this what this will mean is that the whole mortgage market and perhaps the real economy will freeze up."

Yup, There Is No Alternative: unless we do exactly what the bankers say, the economy gets it.

For taxpayers, this sounds worse by the day. The bankers have clearly scared Gordo and Co to death with tales of terminal crashes. Which won't have been difficult, given there's just two years to run before an an election in which Labour was already facing disaster.

In his current final days funk, Gordo's pretty well given the bankers a blank cheque. £50bn? Sure... or would £100bn be better? Yes - let's make it a round £100bn, just in case (McFall actually conceded it could be £100bn, so it might easily be even more than that).

But although it's a ton of cash - our cash - we haven't been told anything about the terms.

According to the leak, the money will be lent secured against mortgages (presumably either straightforward mortgages or in the form of those toxic mortgage backed securities). But just as in the case of our Crock exposure, with the property market wobbling, we can take no comfort from that.

And also according to the leak, the loans will be in the form of swaps, in which we give the banks our high quality government securities in exchange for their dodgy mortgage securities, and agree that we will reverse the exchange at the end of a set period. Therein, lies the second concern.

Because in classic Brown style, he's going to fiddle the accounting. Rather than openly admitting these taxpayer loans increase our national debt - which they do just as certainly as lending money to mortgage holders directly - he's going to take advantage of an Enron accounting wrinkle. Another one.

Although the loans will be for up to three years (which is exactly what the bankers have demanded), he's going to pretend they're only for one year. Of course, at the end of each year they will be automatically rolled over into another one year loan, but for the usual abstruse reasons, under the Enron National Debt rules, that doesn't count.

If a private sector company did it, the CEO and the FD might well go to jail. In government it's just another day at the office.

Cost to taxpayers?

We still don't know.

But what we do know is the market value of Britain's five biggest banks shot up by around £10bn last week (see this blog). Even RBS, with its announcement of a vast multi-billion new share issue, was up by about £4bn.

It's as good a measure as any of how much taxpayers are handing over to the banks.

Well done boys.

1 comment:

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