Could the banking bail-out be an 'inspired trade' which will lead to a profit for the governments which re-capitalised the failing bankers? Well, Yes, according to chief international economist at ING, Rob Carnell.
The US Capital Purchase Programme (CPP) allowed US banks to get $200 billion in new capital from the
Earlier this month, ten
"With the government bailing out the financial system at effectively the bottom of the market, this may end up having been an inspired trade, especially if it can be unwound in a position of strength. It is entirely possible that much of the money thrown at the financial system will end up being recovered. There could even be a profit", Carnell told the Financial Times.
In the UK, Northern Rock has repaid two thirds of its bail-out money, and is expected to be sold back to the public at a profit before the end of the year, while LloydsTSB-HBOS has managed to repay $2.5 billion of its bail-out money to the government.
So increasingly, Carnell's concept of the 'inspired trade' looks plausible.
Who was the international inspiration behind the inspired trade?
Take a bow, Gordon Brown.
And five more years.
There is a delightful poetic justice here, but two thoughts:
1. It suggests that the bankers screwed up for a second time - at teh bottom of the market, they undervalued the assests that they'd acquired at an inflated prices at the top of the market. If engineers were as bad at evaluating the systems they designed as financiers there would be collapsed bridges and crashed planes all over the place.
2. I sincerely hope that should the above come to pass, it isn't used as some sort of justification for public intervention next time a bank approaches the brink. We might not be so lucky.
Peter, though I agree it sticks in the craw to give money to failed, arrogant, greedy bankers, if we hadn't, I think we'd now be in a heck of a worse mess. If we can actually make money out of the investment it would be doubly gratifying.
Who is making money out of the banks? Not the people who need a mortage, now available at around 6% while savings pay out 1.5%.
When the sub-prime mortgage scare first hit the headlines the banks gave us the impression that every one of these ‘toxic assets’ was a lost cause and simply totalled up the gross value to show how much they were definitely going to lose. But I couldn’t help wondering how many of these sub-primes were actually honest, hard working but poor families desperately trying to keep up repayments and hang on to their homes, ie not a loss merely a risk. If such cases represent a significant percentage then the whole banking crisis may have been nothing more than a storm in a teacup and it’s subsequent (apparent) speedy recovery inevitable. This kind of thing occurs quite often in the stock market ( “Black insert-day-of-the-week” ) and similarly it is not the people who cause the problem that get hurt.
Brian, that might be why the government is going to do so well out of buying shares in the banks
Renting has always been very popular in the US. I'm surprised that no enterpreneurs have emerged to form property companies and rent out defaulted housing stock, perhaps with government inducements. Maybe this is happening already and I haven't heard about it.