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David Miles, the incoming member of the MPC, has this evening suggested that the worst of the UK recession may be over and house prices may have bottomed out. While there is some scepticism with...
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Monday 1st September 2008
The £40 billion bail out plan by Gordon Brown (heavily hinted upon but not actually confirmed as yet) is a massive risk to the UK tax payer. This is after the £20 billion plus which was used to bail out the dead in the water Northern Rock and the risk that this will not be repaid in full. So is it fair?
There are two things to consider with this possible £40 billion bail out, the risk to the overall economy if it is not put in place and the benefits for the financial institutions that will be involved. No matter how you package this deal it is benefitting the financial institutions more than anyone else, allowing many of them a get out of jail card to escape the possible implosion of the masses of sub-prime mortgage deals which they agreed over the last decade.
As with the earlier smaller bail out which the government announced, the financial institutions will be expected to use the funds made available to offer more deals to the public, although many used the earlier finance to refinance their own balance sheets. They may argue that this benefits the consumer in the long run but this was not why the initial funding deal was agreed.
The bottom line is that any government led bailout should, if used correctly, offer confidence to the market and hopefully slowdown the recent falls. However, if the banks do not use this opportunity to reignite the market we will see consumers no better off and the banks with stronger balance sheets than today. This is one deal Gordon Brown cannot afford to get wrong! |
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