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Britain’s Treasury Chief Fails in Public Trust

By The Anglo American | September 13, 2009

 Bank of England

In today’s Guardian {UK} Britain’s Treasury chief, Alistair Daring, has defended efforts to save the British banks. The Newspaper’s comment responses show considerable doubt.

Mr. Darling remains convinced that to save the nation he needed to save the banks.  So far he has saved the banks but has yet to save the banking system. There is a difference and so far the banking system remains as broken as the day when Lehman’s blinked in disbelief at the US Treasury’s grim reaper, Hank Paulson.

 Darling, like Gordon Brown before him, failed to think outside of the financial, city of London’s box. Had he done so he may have seized the deposits of Britain’s failed banks and put them somewhere safe such as the government owned and guaranteed National Savings Bank. That would then have allowed the liquidator to do his job, as capitalism requires, and let the banks close in a controlled way.

So far all the government has done is to underwrite the banking, gamblers’ debts with the British peoples’ checkbook - and, regretfully, their credit card. And that piece of plastic was pretty much “maxed out” already.

This is a surprising action for a government whose heart remains close to socialism. In effect, what they have practiced is capitalism for the rich, backstopped by socialism for the rich and the rich alone.

Darling has allowed bad bankers to wriggle off the hook. The money he has borrowed in the name of the British people and given to the banks, has been swallowed up by black holes on their gambling balance sheets. If Darling was serious about providing liquidity to the economy he should have loaned, short-term, directly to industry. Again, a radical use of Britain’s National Savings Bank comes to mind.

Banking failure should allow banking opportunities for the good banks. Look how Barclays have benefited for Lehman Brothers collapse - once they decided not to buy it.

This is what liquidators do. They establish the real value of assets and sell them on. The British government have delayed this process at best. As long as banks can get away without establishing the value of their toxic assets they will do so. After all, the alternative, for many banks, is bankruptcy.

But, in reality, we will never move on from here until British bankers gets on a plane and go look at their toxic assets.  Such a trip could well take them to Cleveland Ohio. A knock on the sub-prime door to make the mortgage holder confront the facts of life: either pay the nine months due, re-mortgage or move out.

That assumes the house dweller {you can hardly call them house owners} are still there of course. And who can blame them if they are not - when they are so upside down {negative equity}. But it is only when the banks sell these properties - perhaps 20 cents on the dollar, will the banking system recover.

Mr. Darling has left the British in no-mans land and they we will pay for his folly, not in the coming years, but in the coming decades.

©The Anglo American

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