Breath held in £50bn rescue
THE GOVERNMENT’S unprecedented 5am move to break the log jam in the financial markets was greeted with relief in the North East.
Although the London Stock Market was slow to acknowledge Chancellor Alistair Darling’s £50bn part nationalisation of the British banking system - a key plank in a package that also sees the taxpayer standing as guarantor for loans that banks are unable to repay as well as a special liquidity scheme that allows them to swap toxic debt for Treasury bonds - it was seen locally as the right move.
Andrew Priestley, stockbroker with Redmayne Bentley, which has offices in Middlesbrough, said: “The headlines are about part nationalisation, but the key benefit is the underwriting of long-term debt. I’m a stockbroker, but I’m not bothered about the share prices this morning. What we need is to break the log jam of banks lending to each other.”
He said while the rescue was “a little late in coming”, it would hopefully head off a worst case scenario of Britain entering a period of deflation with consequential job losses.
“What we are talking about is economic stability; the ability of the economy to grow and for business to trade and generate a profit, otherwise we are looking at growing unemployment and depression.
“The worst thing that can happen is that we go into deflation, which just makes debt grow.”
Japan, he said, which was only just emerging from a 15-year deflationary cycle, was a cautionary reminder of what could happen following “massive wealth destruction” as currently being experienced in western economies.
He warned the banks would not be allowed to get away Scot free, but would be expected to pass on the benefit by lending to small businesses and home buyers, bringing much-needed liquidity to the market.
An interest cut was needed to reinforce the package, he said, but he warned that, while it might stem the rush to the exit doors by investors in banks and other major institutions yesterday, value would not be immediately reversed. “We don’t discount the possibility of further weakness in the market because confidence has to be restored in the banking system.”
Tees Valley chairman of the Institute of Directors, Alastair Thomson, said: “As grand gestures go, it’s a big one. It’s difficult to know what else could have been done. It will be a boost for ordinary businesses which at the moment are struggling to get hold of funds.”
But he added that the initiative, which is likely to cap banking pay structures in return for the loans, could pose problems when financial markets had recovered.
“The concern is that in future, this will have to be unwound. Taking off restrictions in a way that doesn’t scupper the economic recovery could prove difficult.”
