Tim Almond

So, the government is now going to take a controlling share in RBS. This plan seems to be more prone to catastrophe than those that have gone before. The central points of the plan seem to be:-

1. Government doesn’t want to run a bank.
2. Board members not to get bonuses this year.
3. “remuneration will be based on performance and long-term value creation”
4. Lending to stay at 2007 levels for 3 years
5. Required to offer help to homeowners who are struggling.
6. Accept government-appointed non-executive directors.

In case you’re reading this and not entirely awake, you might like to spot the conflict between 1 and 2,3,4 and 5. The government clearly thinks that as at day 1, it can intervene in how the bank is to be run. Each of these policies is a long-term disaster.

Lending at 2007 levels for the next 3 years is just madness. That was the all-night Tequila party that gave us this hangover in the first place. It’s not going to do anything but delay some crashes, but make them even worse than they would have been. This suggests either incompetence by the chancellor in not understanding markets, or a deliberate attempt to keep things going as long as possible for political reasons.

Allied with that, the requirement to offer help to struggling homeowners sounds like a subsidy for bad debts. Lenders already try and help homeowners, and the most common way is by reducing the mortgage so that they are just covering their interest. If the government is suggesting going beyond that, then it means that either RBS (and their shareholders) or we, the taxpayers are going to pick up that tab. And, of course, many of those who are struggling aren’t just going to be someone who’s lived responsibly and just hit a bad patch. Many repossession cases are simply people who lived way beyond their means, and events caught up with them.

Tags: Politics, bailout //