by Stephen Tall on January 20, 2009
Over at The Times, Lib Dem deputy leader Vince Cable explains that the second bailout shows that the Labour Government has acted as imprudently as the banks themselves. You can read it in full here – and I recommend that you do – but here’s an excerpt in case you need any further tantalising:
It is clear that the conditions set by the Government over the original capitalisation was a sham. No effective monitoring and controls were put in place to ensure that the money went where it was intended. The banks do not even seem to have been required to give a full, transparent declaration of their bad loans. …
The big question now to be faced is whether the Government remains a passive investor, putting in taxpayers’ money and hoping that normality returns soon, or restructures the bank to meet the needs of sound UK borrowers. The latter is becoming increasingly preferable, perhaps inevitable, if new lending is to be maintained. A similar set of questions may soon face the Government in relation to Barclays if the markets’ negative verdict on its underlying health is borne out.
As an economic liberal I am instinctively suspicious of dirigiste solutions. But there are times when collective panic – with the markets not trusting the banks; the banks not trusting each other; and the banks unwilling to lend – when the State has to take over responsibility for as long as is necessary (but not longer).