This was my less-than-measured immediate twitter-response to Osborne’s Mansion House announcements last night:
Osborne plan: start economic recovery via support for High Street bank lending? Utter fucking cretin. Does he not know the word ‘collateral’?I suppose neither he nor his coterie have ever had much problem with collateral.Final piece in the jigsaw of evidence that Osborne simply doesn’t grasp how the real economy works, how investment decisions are taken.
Peston comes to a fairly similar, though somewhat more polite, conclusion this morning, when he says of this £60bn Funding for Lending scheme (combined with the ’Extended Collateral Term Repo’ guarantee)
Bankers give me two reasons for their doubts about how far the schemes will revive our anaemic economy.
First, they say creditworthy businesses and households are reluctant to increase their debts in these uncertain times. Second, many of the companies and individuals desperate to borrow are those in some financial difficulties, so the banks don’t actually want to lend to them.
Here is the nub of the matter: the Treasury and Bank of England want the risks of lending to stay with the banks; but if that remains the case, the new credit almost certainly won’t get to those who most need it.
Precisely. Well nearly precisely.
While Peston gets businesses’ and households’ reluctance to borrow as the key obstacle, he doesn’t quite get why this reluctance comes about. The reluctance often stems not from amassing debt per se – people know e.g. from the Glasers’ purchase of Manchester United that having massive debts can be a pretty good way to get very rich – but from lack of collateral.
Osborne’s a cretin, tinkering at the margins with a Plan C that might end up being even worse than Plan A, not least because of its propensity to create inflationary bubbles in the parts of the economy where people will and can still borrow e.g. property in the South East, asset stripping firms.
The real tragedy is that there are simple alternatives which would work.
First and foremost, of course there’s taking the £140bn Osborne’s hoping to keep of balance sheet in a ridiculous bid to balance his books, and stick it in the real economy through public works schemes, both capital and revenue (e.g. developing that universal childcare scheme, which I’ll be blogging more on later).
That’s called Plan B, of course, and doesn’t need complicated deals with Pension Funds to make it happen.
Second, if he still wants to go down the private lending line, there’s ordering taxpayer-owned banks to reduce their collateral demands when lending. Of course this increases the default risk, but few ordinary people go bankrupt on purpose, and on balance it’s worth it for the overall growth you get. Just ask Grameen Bank, which have been providing collateral-free loans for 30-odd years with very low default rates.
Third, and related to the second, massively expand the finance available to mutuals, social enterprises, trades councils and other non-profit structures (inluding local authorities and Clinical Commissioning Groups), either by demanding that these same taxpayer-owned banks lend to them on the basis of a) their constitutional and legal commitments to their identified social good; b) simplified ’Social Impact Bond’-style monitoring requirements, minus the investment return complexities which are making these vehicles so hard to get off the ground at anything like a game-changing scale.
If the banks aren’t up to this – and it is likely that they won’t be – the loans should be fed through alternative financial intermediaries like Charity Bank and the Social Investment Business. They’ve been managing these ‘social impact’ processes for years now.
None of this is rocket science. It just needs a Chancellor who understands how the rest of us live. Ah, right……..
