Banking/Tax Money

[flip_flop]

High finance is not a strong point of mine, so would somebody be kind enough to confirm (or otherwise) my understanding please.

The banks are being 'bailed out' with taxes you and I have paid: should we wish to obtain a loan from the banks, they will lend us our money back, and then earn interest on our money they have lended to us but which we gave to them in the first place.

'tis a bit of a head-scratcher!

[jake-the-peg]

Banks lend money to people and some of that money comes from depositers but some is borrowed from other financial institutions like merchant banks.

At the moment they can't get other financial institutions to lend to them because everbody's worried that they have too much bad debt. Loans that won't get repaid. And so may fail

So they don't have monetyy to lend to you and me and businesses.

That stops businesses from being able to expand, stops people from being able to buy and sell houses and other things that they'd borrow money to do.

It also makes people worried about banks and they don't want to buy shares in them (would you invest in a bank right now?) So they could fail with perfectly good balance sheets simply through fear.

The Government is offering to lend the banks the money instead of their usual lenders in return for certain concessions - like capping pay awards of top executives etc. In effect they are taking on the risk.

Exactly how much of that risk will translate into actual money is unknown (that's why it's a risk) but it'll certainly nowhere near the telephone numbers talked about as the money put up.

And it's cheaper than letting the country slide into a second great depression.

Thankfully Brown and Darling is in charge right now and not Cameron and Letwin whose best offering at the moment seems to be:

"Er yes we'd probably have done something similar - lets hope it works"

[flip_flop]

Lended??? Lent.

[Gromit]

The large amounts of money the Government seem to have got their hands on, has been built up over many years from the Consolidated fund. Some of this money finds itself in the Contingencies fund (2% of the annual budget) which puts aside money for unexpected disasters which may hit the country (Foot and Mouth disease for example).

http://en.wikipedia.org/wiki/Consolidated_fund

In this instance, yes, our money is going to prop up these failed businesses (banks). And yes, they will then use that money to make money from us individuals.

It is not the Governments job to run commercial banks and the the current banks that have been nationalised will need to be privatised again asap.

Remember what happened last time Government assets were privatised. The incumbent government bought the election with "the share owning democracy' (we bought shares cheap off the government and sold them a few days later for their real price). It was supposed the bring competition into the Gas, Electricity and Water markets. Instead, the taxpayers just were ripped off.

Brown is said to be an admirer of Margaret Thatcher, is he about to pull off the same trick trick?