Charles on… anything that comes along

So, the Bush neo-conservative government is buying all those toxic loans with more than $100bn of the American peoples’ money. Near enough. Actually, the numbers don’t matter. It’s the principle of the thing: the banks screw it up, and the government bails them out completely, giving them a get-out-of-jail free card, swapping their rubbish assets - which in many cases they can’t actually put a concrete value on - for real money.

Amazing. The nationalisation of banking risk, no matter how you try to spin it.

What I’d really like to see is some analysis of quite how much economic growth was enabled by all those toxic loans. I mean, that’s the thing, isn’t it? These were about making money, and spinning up some very dubious debt into what were effectively bonds. Everyone’s paying for it now, in terms of the housing market falls (and consequent retail falloff, and thus-consequent economic falloff).

The real question is, what would economic growth have looked like if we hadn’t had those loans? A lot slower? A little slower? Someone needs to do the reckoning on this, I think.

As for the people wondering how Britain got into this position: I think it’s pretty easy to imagine. US investment banks start generating these amazing financial instruments which seem to generate money out of the air. In Britain, investment banks see them and are envious as hell: they want to have some.

Imagine now that the Financial Services Authority had told those banks that no, they couldn’t have or buy or deal in those instruments. (We’re talking about CDOs and CDSs here.)

And imagine the howl and stink that the banks would have put up about being denied that. You’re regulating us too much! they would have cried. You’re stifling our business! Look, in the US they can offer lower interest rates because these things, which we’re assured are copper-bottomed, generate the sort of returns that mean we can offer cheaper mortgages. Are you sure, Mr (or Ms) MP, that you want us to tell your constituents - via the newspapers - that we can’t offer them cheaper mortgages because you’re regulating us too much. Imagine it.

Faced with that, and the prospect of cheaper loans, which of course will lead to more house purchases, which will lead to a growing economy, which will lead to more tax receipts and less unemployment… would you, as a government minister listening to these bankers who have been lobbying the FSA, turn them down?

You can see how it all unfurled. Everyone honestly believed it would be all right. Or at least, that by the time the music stopped they’d have made their pile and got off.

These posts might be related (the database thinks..):
• More BSE in the banking system: claiming income that wasn't (17 March 2008; score: 54.75%)
• Why credit goes bad, and how bankers make it happen (8 December 2008; score: 47.61%)
• Like water on a stone, slow processes work: bank penalty charges declared illegal. Update: *maybe* illegal (24 April 2008; score: 46.38%)