21 January 2009

Is This Really a Bank Bailout?

The mainstream media has been referring to the government's latest package of assistance as a second bailout for the banks (such as in The Times) but is this really another bank bailout? Unlike the first bailout, there hasn't been any suggestion that the banks will fail in the short term without this help. The reason the government is taking this action is to increase the amount of credit the banks are prepared to offer. This isn't something that the banks need to happen, it is something the government needs to happen. The banks could probably plod along offering more expensive lines of credit to safer borrowers, but that would result in the debt fuelled bubble the government is sat on bursting sooner rather than later.

The first bailout might have been an attempt to bailout the banks, but this is an attempt to bailout the government.

update:

Having written this post, I read a speech by the Governer of the Bank of England, given the day after the measures were announced, in which he said:

"The package of measures announced yesterday by the Chancellor are not designed to protect the banks as such. They are designed to protect the economy from the banks."

So the view from the inside seems to be that it isn't a bank bailout.

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