REFILE-UK taxpayer moves into black on bank stakes

StevieJ

Some good new on the banks.

UK sitting on 3.5 bln stg paper profit on RBS, Lloyds
* Return to profit lifts RBS, Lloyds shrs above UK's buy-in
* UK set for 19 bln stg profit on bailouts- CEBR

Britain's profit could be more than five times that amount -- potentially bringing in much needed income for the cash-strapped UK government.
"It now looks like the government's huge bank bailout, far from costing the taxpayer money, will yield a 19 billion pound profit," said Doug McWilliams from the Center for Economics and Business Research.

http://www.reuters.com/article/idUSLDE67504420100806

RenovationMan

Sorry if this is a dumb question but I thought the huge debt came from the bank bailout. If they stand to make a net profit from the bank bailout, then where else has the debt been accrued?

tomterm8

RenovationMan wrote: »

Sorry if this is a dumb question but I thought the huge debt came from the bank bailout. If they stand to make a net profit from the bank bailout, then where else has the debt been accrued?

Basically, the majority of the deficit is from the fact that there was a huge recession, where the taxation revenue droped by a huge amount, because the economy shrinked.

So the government has to spend more on unemployment benefit and had less income, leaving a huge hole in the budget.

As the recovery gets off the ground, the deficit naturally shrinks... it's already around £20 billion smaller than expected.

StevieJ

tomterm8 wrote: »

Basically, the majority of the deficit is from the fact that there was a huge recession, where the taxation revenue droped by a huge amount, because the economy shrinked.

So the government has to spend more on unemployment benefit and had less income, leaving a huge hole in the budget.

As the recovery gets off the ground, the deficit naturally shrinks... it's already around £20 billion smaller than expected.

Also a huge hole from financial sector tax revenues.

Generali

RenovationMan wrote: »

Sorry if this is a dumb question but I thought the huge debt came from the bank bailout. If they stand to make a net profit from the bank bailout, then where else has the debt been accrued?

In addition to what StevieJ and tomterm8 said, some people and journalists confuse 'debt' and 'liability'. The Government has taken on huge contingent liabilities by saying they would repay savers (ie the banks' liabilities) in all circumstances.

A contingent liability isn't a debt as a debt is money that must either be repaid or defaulted on whereas a contingent liability is a debt that might or might not come your way.

The easiest way to look at it is imagine you have a bet with your mate. You think Chelski will win the EPL, he thinks Man Utd will win so you have a tenner on it. At that point you each have a contingent liability of ten quid. At the end of the season, one of you will have an actual debt of ten quid and the other will have an asset of cash owed of ten quid.

michaels

Although looking at the data the increase in expenditure was much greater than the reduction in revenue and started before the 'recession' - ie public spending was out of control before the financial crisis.

This is unfortunate as it means the problem will not just fix itself as the recession ends and the economy starts growing again hence the painful spending cuts.

However I have lost count of the number of times I have seen beneficiaries of this public largesse grousing about why they are having to suffer when it is 'all the bankers fault'.

tomterm8 wrote: »

Basically, the majority of the deficit is from the fact that there was a huge recession, where the taxation revenue droped by a huge amount, because the economy shrinked.

So the government has to spend more on unemployment benefit and had less income, leaving a huge hole in the budget.

As the recovery gets off the ground, the deficit naturally shrinks... it's already around £20 billion smaller than expected.

tomterm8

michaels wrote: »

Although looking at the data the increase in expenditure was much greater than the reduction in revenue and started before the 'recession' - ie public spending was out of control before the financial crisis.

This is unfortunate as it means the problem will not just fix itself as the recession ends and the economy starts growing again hence the painful spending cuts.

However I have lost count of the number of times I have seen beneficiaries of this public largesse grousing about why they are having to suffer when it is 'all the bankers fault'.

I think you'd have to say that since, say, 1997 the economy hasn't exactly gone great guns. All the evidence is that there will be a recession in the near future - and even if I am wrong on that, historically after a banking crises there is a period of 15 years where recessions are more frequent and recoverys more anemic than normal.

Then again, I really think it's all going to end in disaster whatever policy the government runs...

bendix

tomterm8 wrote: »

Basically, the majority of the deficit is from the fact that there was a huge recession, where the taxation revenue droped by a huge amount, because the economy shrinked.

So the government has to spend more on unemployment benefit and had less income, leaving a huge hole in the budget.

As the recovery gets off the ground, the deficit naturally shrinks... it's already around £20 billion smaller than expected.

Neither the debt nor the budget deficit (two very different things) have anything to do with the bank bailout. In fact, the bank bailout is completely the wrong wording to use. The government didnt bail out the banks - it provided a cash injection IN RETURN FOR partial ownership.

The government gave the banks cash, but not for free. It bought the banks.

As such, the assets of holding the banking assets sits on the balance sheet.

Now that the banks are in profit and that share prices have risen, the taxpayer is making a handsome return on the investment.

People need to stop talking about 'bank bail-outs'. It didnt happen.

bendix

tomterm8 wrote: »

I think you'd have to say that since, say, 1997 the economy hasn't exactly gone great guns. All the evidence is that there will be a recession in the near future - and even if I am wrong on that, historically after a banking crises there is a period of 15 years where recessions are more frequent and recoverys more anemic than normal.

Then again, I really think it's all going to end in disaster whatever policy the government runs...

Such a drama queen.

The economy is improving. Corporate activity is increasing. Jobs - while not plentiful - are starting to reappear and more people are in jobs in the UK than at any point in our history.

Interest rates are at historic lows. And the government is doing the right thing by taking positive steps to balance the budget.

Where is the disaster?

chucky

bendix wrote: »

People need to stop talking about 'bank bail-outs'. It didnt happen.

they guaranteed their debt to £850 billion (or whatever it was) a bit different to a bank bailout

chucky

bendix wrote: »

Such a drama queen.

The economy is improving. Corporate activity is increasing. Jobs - while not plentiful - are starting to reappear and more people are in jobs in the UK than at any point in our history.

Interest rates are at historic lows. And the government is doing the right thing by taking positive steps to balance the budget.

Where is the disaster?

maybe no disaster but there is a few more ups and downs left on this recession yet...