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Financial and Social Meltdowns Converge: Part I
UPDATE TWO Following Gordon Brown’s ‘Model’ Bailout Plan
by
Joseph BH McMillan
In the first UPDATE on Part I of this article, I analyzed Paulson’s statement of Friday evening (October 10, 2008), and concluded government was planning to purchase the phantom assets the Financial Institutions had built up over the years under the pretext of a share purchase.
I said this: “So we can now see what government is hoping for. Having bailed out Bank 3 by ‘purchasing’ its phantom asset, the government can only hope that Bank 3 will behave responsibly in the future. In that case, government must hope that having given the Bank a fresh start, its normal activities will begin to generate income that will, in the end, expand its capital base thus lifting the share price to a point where the government can ‘cash in’ and tell the taxpayers that it has recovered most of their money.”
I only had to wait until this morning (Monday October 13, 2008) to see that prediction, and my analysis, materialize.
Britain’s Prime Minister Gordon Brown (fresh from a Eurozone meeting in Paris), and Britain’s Chancellor of the Exchequer (Britain’s equivalent of Treasury Secretary) Alistair Darling (fresh from the G7 meeting in Washington DC), announced their plan to save Britain’s banks, and ‘lead the way’ for the world in sorting out the Financial Meltdown.
This plan is the same as the one Paulson is reportedly adopting for the United States.
Keeping in mind the above quote from my first UPDATE, here are some extracts from Brown and Darling’s Downing Street statement:
Brown: “We have agreed to make a series of commercial investments amounting to £37 billion of public money in a number of UK banks … The government will not be a permanent investor. Over time we intend to dispose of all these investments in an orderly way.”
Brown then went on to set out some conditions imposed on the banks “to ensure that the taxpayer gets a fair deal.”
The third and fourth conditions are these: “Third, and most important, we have secured strong commitments to immediately restore and maintain the availability of loans for home buyers and small businesses at competitive business rates. The government will appoint independent non-executive board members to the two banks in which we are injecting capital. And finally, the taxpayer will secure a full and fair share of the upside which will come over time as the banking system recovers its strength.”
In conclusion, Brown then said this: “We are showing today that we are willing to invest assets our country has to strengthen the banking system, but the most precious asset of all is something that if lost can only be restored, not by words but by actions, and that is the asset of trust and confidence”
Darling, in his short statement, said this regarding buying phantom assets from the banks: “The third element was to ensure that we helped banks recapitalise and build up their capital positions to take account of the turbulence that we see in the world markets today.”
In follow up questions, Brown and Darling expanded on this fiction that the British taxpayer was making a good investment.
Brown: “These are investments that we are making in banks. This is not just pumping money in, these are investments we are taking in the form of shares. We believe that these shares will grow in value over the next period of time, but whatever happens these are assets that we have taken in the form of shares in return for the money that government invests. … These are not payments that have been made without either strings attached or without an asset being taken in return, and we believe that this is the best way of safeguarding our banking system, but also a good investment for the nation that has become necessary as a result of events.”
Darling: “So the bulk of the shares in relation to RBS and to the Lloyds TSB-HBOS group are ordinary shares, but they are investments, you know when eventually we come to sell them we will get the money for them and of course we will get dividends.”
So, without getting too puffed up with vanity, it seems that I got it exactly right.
The taxpayer is being conned!
However, judging from the euphoria in the stock markets today, the financial folk are delighted – the gravy train is moving again.
Copyright © Joseph B.H. McMillan 2008 All Rights Reserved
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