REFILE-UK taxpayer moves into black on bank stakes

tomterm8

bendix wrote: »

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.

Frankly, your post is somewhat misleading in a number of senses.

The first and most grievous error is to say that there was no bailout. Indeed, there was. Every major bank benefited from three subsidies from the beginning of the banking crises:

1. All major banks borrowed significant amounts of money at a lower than commercial rate at the deposit window.
2. All banks in the uk benefited from a guarantee of contingent liabilities by the UK government... a guarantee that must be worth tens of billions of pounds.
3. Several banks benefited from the UK government purchasing hundreds of billions of dollars of bonds at non-commercial rates through its QE programs

These three points alone add up to tens of billions of pounds of subsidy.

You also say that the purchases of Banking shares did not increase the debt of the UK: plainly, you are ignoring the fact that government debt figures are not published net of assets... that is, the intervention is shown in the national statistics as causing an increase in debt.

The bailouts were accomplished by borrowing money, and the interest on these borrowings shows up in the deficit.

Of course, I’ve argued for a long time that eventually the UK will make a profit from the banking bailouts... if I remember right, Generali disagreed.

As I said, the majority of the deficit was caused by the recession: the UK had a structural deficit before the recession of roughly 3%. It’s hard to say what the structural deficit is now, but I assume the recession caused lasting harm, so it is likely to be nearer 5% of GDP (but estimates vary wildly).

StevieJ

Anyone got a list of public sector deficits say across the G20 prior to the Credit Crunch, be interesting to see if we were indeed running a high relative deficit before the SHTF.

michaels

I think 3% post crash may be optimistic?

tomterm8 wrote: »

Frankly, your post is somewhat misleading in a number of senses.

The first and most grievous error is to say that there was no bailout. Indeed, there was. Every major bank benefited from three subsidies from the beginning of the banking crises:

1. All major banks borrowed significant amounts of money at a lower than commercial rate at the deposit window.
Agree - there was at times no interbank funding available at any price.
2. All banks in the uk benefited from a guarantee of contingent liabilities by the UK government... a guarantee that must be worth tens of billions of pounds.
Hmm - At a whole economy level, if the guarantee had not been put in place where would depositors have been able to turn?

3. Several banks benefited from the UK government purchasing hundreds of billions of dollars of bonds at non-commercial rates through its QE programs
Weren't purchases at market price? (of course the scale of purchases is likely to have affected the price)

These three points alone add up to tens of billions of pounds of subsidy.

You also say that the purchases of Banking shares did not increase the debt of the UK: plainly, you are ignoring the fact that government debt figures are not published net of assets... that is, the intervention is shown in the national statistics as causing an increase in debt.

The bailouts were accomplished by borrowing money, and the interest on these borrowings shows up in the deficit.

Of course, I’ve argued for a long time that eventually the UK will make a profit from the banking bailouts... if I remember right, Generali disagreed.

As I said, the majority of the deficit was caused by the recession: the UK had a structural deficit before the recession of roughly 3%.

Not sure I would agree with the 3% - I thought the deficit was about 3%, a 3% deficit at the peak of the cycle surely suggests a larger structural deficit?

It’s hard to say what the structural deficit is now, but I assume the recession caused lasting harm, so it is likely to be nearer 5% of GDP (but estimates vary wildly).

StevieJ

michaels wrote: »

I think 3% post crash may be optimistic?

I thought he suggested 5%?

tomterm8

Hmm - At a whole economy level, if the guarantee had not been put in place where would depositors have been able to turn?

Foreign banks. Like the Greeks, where at one stage the was a massive outflow to bank accounts in other countries (basically a run on the entire banking system).


Weren't purchases at market price? (of course the scale of purchases is likely to have affected the price)


The Bank of england widened its purchasing criteria to include synthetic bonds, which were made out of assets that at the time banks couldn't sell on the open market, and were 'valued' by the banks models. Quite large chunks of QE were made on loans for assets that were basically unsellable.

Not sure I would agree with the 3% - I thought the deficit was about 3%, a 3% deficit at the peak of the cycle surely suggests a larger structural deficit?

You are probably right. In either case, I think the recession did a lot of damage, and the structural deficit must be worse now than before the banking crises. Do you disagree with that analysis?

michaels

Sorry - meant to say pre crash.

StevieJ wrote: »

I thought he suggested 5%?

tomterm8

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?

I was debating with myself as to whether to answer this post, as it came accross as rude. I hope I am wrong as to your intent.

Simply put? The reason I think we are heading towards disaster is that I don't think there is any move the UK government can take that won't lead to a bad recession. If we keep borrowing at the current rate, there will be a soverign debt crises, which would be a disaster. If we cut public sector spending by something like 10% of GDP in three or four years, the history is that in something like 90% of cases there is a deep recession.

The 10% of cases are countries where they were able to run a trade surplus. You can cut public spending without a recession if you run a trade surplus. Since our main trade partners are eurozone and America, who are in deep trouble themselves, I don't think this is likely.

michaels

Tricky question - pre crash there was a lot of 'froth' ie record levels of housing market turnover, huge banking sector profits etc which were (with hindsight) clearly not sustainable. Yes I would agree that a period of below 'trend' growth is now likely resulting in a larger deficit but this is the result of a rebalancing of the economy to a more sustainable debt level again implying that the pre crash growth was artificially increased by excessive credit creation. Once this rebalancing has been factored in the 'structural' budget position may not be any different?

tomterm8 wrote: »

You are probably right. In either case, I think the recession did a lot of damage, and the structural deficit must be worse now than before the banking crises. Do you disagree with that analysis?

StevieJ

StevieJ wrote: »

Anyone got a list of public sector deficits say across the G20 prior to the Credit Crunch, be interesting to see if we were indeed running a high relative deficit before the SHTF.

Anybody? you seem to have great deal of knowledge about the deficit, this should be an easy one.

Exocet

StevieJ wrote: »

Anybody? you seem to have great deal of knowledge about the deficit, this should be an easy one.

I don't know that kind of stuff. I am pleased we moved into the black but have a feeling I wont get to see any of the 'profit'.