Tuesday, November 04, 2008

Where Has All The Money Gone?

I've been watching the vid of yesterday's Treasury Select Committee, featuring Chancellor Darling, Governor King, and Lord FSA Turner - or See No Blame, Hear No Blame and Take No Blame, as Committee member Michael Fallon christened them.

The novel feature of this hearing was that we members of the public had been invited to send in questions, and 5000 of us had done just that: Committee Chair John McFall had a great stack of them on the desk in front of him.

The first one he read out was from a Ted Wooton, and it's one we've heard several times in recent weeks: “Where has all the money gone?” Actually, Mr Wooton also wanted to know something else - who are the winners and who are the losers?

Needless to say, he got no direct answer. But the responses from Darling and King told him and us all we needed to know, with Darling burbling that the banks are being charged for using taxpayers' funds (yeah, like about threepence per billion), and Governor King claiming that long-term, taxpayers might actually make money from the bank bail-out.

It's whistling in the dark - history tells us taxpayers are going to be big losers.

As we blogged here, the IMF's analysis shows that worldwide since 1970, taxpayer losses in banking failures have averaged 13.3% of GDP. In terms of the UK today that would mean a total loss of around £200bn. And even if we get away with the light scale of damage sustained by Scandinavian taxpayers in the 90s Nordic banking crisis, UK taxpayers will still take a £50bn hit.

Of course, there are other losers: bank shareholders, small businesses, and foreclosed mortgagees all spring to mind. But it's taxpayers who will take the biggest whack, and Darling/King/Turner know it.

As for where the money went, we can all think of winners. Bankers, hedge fund managers, private equity guys, property developers, estate agents, buy-to-let landlords, lawyers - they all took a slice, although their futures do look a lot less rosy now. And in truth, anyone who consumed on the back of overly-cheap credit also took a slice, although again, they may now be wishing they hadn't.

The problem is we can't simply get the money back again. It's gone. Puff!

Yes, some of it was invested in stuff that may pay back over the long-haul (eg bricks and mortar). But much of it was simply consumed - great while it lasted, but now just a fond memory (witness those massive UK and US current account deficits laden with goodies from the East). Truly, truly, I say unto you, we have wasted our substance on riotous living.

Except of course, not all of us did.

The people who should be seriously hacked off with this wholesale and costly nationalisation of private debt are those who didn't gear themselves up to the eyeballs during the fat years. Because they are now facing the sacrificial taxation of their own savings in order to refurnish a table stripped bare by prodigals.

We suspect Mr Wooton understands that only too well.

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