Help us to understand whats going on Mr Brown

chopperharris

Could you in plain speak explain for us great unwashed in laymans terms exactly what is going on?

Now its in todays "papers" that it wont be a true nationalisation of banks , but prefferential shares that the govt owns in return for these funds.This obviously has to be repaid at a later date , so its basically its an assured loan , ie the bank gives the govt these "prefferential shares" to be bought back by them over time?

Is this then really more like putting the banks back in credit , actually refunding thier reserves as a creditor , a replacement if you will for the interbank lending that we hear isnt happening just now?

Nationalisation means worthless shares to the stock market.No doubt this one thought led to the nosedive in those share prices last week as both individual shareholders , and fund managers , jumped ship and had a knock on effect in the stockmarket itself.By avoiding any real nationalisation , and by putting the banks books back in the black , should shareholders/fund managers now feel more confident about these "ordinary shares"?

Thats some interest rate though , 9-12 percent is quite high.Would that not make the banks paying the govt back much harder/longer , also resulting with customer credit being less affordable/available?

Will ORD Shares in these banks be suspended until refinancing has happened , or is it until totally repaid , or are they hopelessly lost forever?

What about those holding now nationalised Northern rock shares , will they ever be allowed back onto the market , assuming the shares actually still exist?

To entice savers back to the banks , will there be a cut in savings tax , surely this would increase savings thus speeding up paying the govt back?

With the recent incidents of iceland banks , what is next for prevention of it happening again.It wasnt all that long ago with bcci yet the same mistakes have happened again.How about tightening up banking codes for foreign banks operating here , insisting on 100 percent coverage is not too much to ask given hindsight?

Why is it not easy to get 100% savings safety for all bank deposits in the uk?If the govt say backed 1/3rd , the banks always need to have 1/3rd held in reserves , and the compensation scheme covering the other 1/3rd , then surely thats a simple solution to a big problem.

thank you for your time.

mrposhman

Firstly, the compensation scheme is paid for by the banks, where did you think the money came from??

Your question about preference shares is interesting but preference shares are different compared to general loans which you compare them to. Preference shares are a fixed dividend paid from profit, these can be delayed though the % has to be paid but usually during periods of profit. A loan is the opposite, it cannot be delayed and must be paid to avoid default, therefore capital through preference shares is good for the bank and good for the government.

Reaper

They are getting both preference and ordinary shares in the banks in exchange for their aid.

In theory this is a very smart move. If it saves the bank then they are getting the shares at rock bottom. If it means the city now gains confidence in the assisted banks and their share price goes up then when the government eventually sells their shares on the markets they stand to make a healthy profit on behalf of us tax payers.

Of course there are "ifs". If the action fails to reassure the markets the price might continue to go down and the government might never be able to offload them.

Only time will tell whether it was a good or bad idea.