Why would they nationalise?

sh856531

Hi Guys,

I'm fairly new to investing but have always had a very strong interest in economics.

There's something I don't get about the nationalisation thing when it comes to the likes of RBS and Lloyds et al.

Given that the government is:

- Guaranteeing all desposits
- Insuring just every crap asset the banks now hold
- Insuring interbank lending between financial institutions

why would the government need to nationalise them?

It seems to me, with my limited understanding of such things, that the banks are pretty much operating under *complete* government protection anyway. The government has effectively said that they will back all banks without regards to the potential scale of loses.

So, can anyone tell me what nationalisation would achieve over and above what the government has already done?

Many thanks to anyone who can advise!

Best Regards

S

opinions4u

Banks are scared to lend at the moment.

For good reason - the economy is going tits up and the risks are high.

The Government wants to stimulate lending to keep the economy moving.

Nationalisation gives them absolute total control over their belief that lending will revive the economy.

My view? Balanced lending in good times and bad is better than silly lending in good times and no lending in bad times.

sh856531

Hi there,

Thanks for your reply.

So you're saying that the reason the government would nationalise the banks is to force them to lend? Surely they would need to have some sort of financial pretext to carryout the takeover? I suppose my question is, what would the financial pretext be given that the government has already pretty much insured every possible loss anyway? What could happen now that would force the government to takeover fully?

Many thanks

S

opinions4u

The banks are nearly all technically insolvent without government backing.

They can't replace the wholesale funding privately but still have debts outstanding that were originally funded this way.

The government could use this alone to nationalise - as it did with Northern Rock.

Add on ever spiraling losses and write downs and the case actually becomes stronger.

I don't think they will nationalise - but they could.

gozomark

what would the financial pretext be given that the government has already pretty much insured every possible loss anyway? - they haven't insured every loss

What could happen now that would force the government to takeover fully? a massive loss in say derivatives

sh856531

> what would the financial pretext be given that the government has already pretty much insured every possible loss anyway? - they haven't insured every loss

Hmmm, perhaps I was mistaken then. I thought that the government had pretty much said that they would stand behind pretty much any loss, regardless of the amount.

exil

They've bought the bad debts - which is not the same as covering any loss. The banks still have to make a profit on day-to-day operations to stay in business.

On top of this is the guarantee to savers if the banks should go bust. So all in all a bank is now a pretty good place to park your money if you don't want to lose it, as long as you don't mind the low interest rates.

CLAPTON

I don't think its a matter of the government needing to nationalise the banks.

Its just that its happening incrementally
... e.g. RBS and Lloyds both issued a rights issue to raise more capital..the government underwrote them as no-one else would.

As no sane person would buy the rights issue when you could buy the shares cheaper in the open market, the government has ended owning 70% of RBS and 40% (approx) of Lloyds.
Also the govenrment bought preference shares in the banks with a high yield... if these are excahnged for ordinary shares then the banks would be effectively owned by the government