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Even £500 billion may not be enough, admits Darling
Joe Murphy, Paul Waugh and Nicholas Cecil8 Oct 2008
- At a glance: The big bail-out
- Countdown to Chancellor's bail-out
- Market report: HBOS a big winner as rivals come under fire
- Blog: UK freezes Iceland bank assets
- City cautiously welcomes ‘positive, sensible move’
- Yes, this really does mean part-nationalisation
- Commentary: This £500bn might be enough if ... and it’s a very big if
- Chancellor to pursue Iceland for British bank deposits
- Too little, too late and too much faffing, say the traders
- Stock markets plunge amid recession fear
- The sphinx in the eye of a growing storm
- A takeaway curry and then biscuits to seal the deal
- Darling guarantees UK Icesave deposit
Alistair Darling today admitted his £500 billion gamble to beat the credit crunch might not be enough.
Despite putting up eye-watering sums of taxpayers' money, the Chancellor said he was prepared to do more if it failed. “I believe it will go a long way,” he said. “As I have said on many, many occasions, I'm not ruling anything out.”
Today's complex package was far more wide-ranging than expected, and exposed more taxpayers' money to potential risk than had been imagined.
Some £50 billion is offered to the big banks as fresh capital in return for the Government taking a stake in the form of preferential shares — effectively the semi-nationalisation of banks that call on the money.
Eight were said to be signed up – Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, Standard Chartered – but more will be eligible.
Abbey, HSBC and Standard Chartered later denied they would use the facility. Half of the cash is available now, with the remaining £25 billion in reserve until needed.
The Government insisted it would attach strings to the money, including curbs on the bonus culture and help for small firms finding their credit lines cut off. There were also vague promises of help for mortgage-payers, with details to be agreed.
The Government will also underwrite inter-bank lending to the tune of some £250 billion. Providing no bank goes bust, the fortune will not be called on — but the entire sum is theoretically at risk in a collapse of the system.
In the third element, £200 billion will be pumped into the banks in short-term loans under the Special Liquidity Scheme set up to keep the financial system working on a day-to-day basis.
The Chancellor said there was no alternative, given the risk of a disastrous collapse of the system. “If we didn't do anything there would be a very significant cost to all of us,” he said.
He said taxpayers should get every penny back — and claimed the public purse could even show a profit. “Unlike America where the bad assets have been taken on by the taxpayer, we are putting money into the system and we will get it back,” he said.
At 1.45 the FTSE was down 95.84 at 4509.38.
Details of the scheme were thrashed out during all-night talks at the Treasury leading to a 5am agreement. Mr Darling went to bed at 1.45am for three hours, but his key officials had no sleep.
At a press conference, the Prime Minister said: “Extraordinary times call for bold and far-reaching solutions. This is not a time for conventional thinking but for fresh and innovative intervention that gets to the heart of the problem.
“These decisions on stability and restructuring are the necessary building blocks to allow banks to return to their basic function of providing cash and investment for families and businesses.”
Despite the rhetoric, it was clear that many details had been left until later. The opposition parties promised constructive support and welcomed the simultaneous cut in interest rates, from five to 4.5 per cent.
At Prime Minister's Questions in the Commons, David Cameron called for a ban on big bonuses for the executives of the banks who are to receive money in the recapitalisation scheme.
“Taxpayers are making an enormous investment and have potentially a huge liability,” he said. “They want to see their interests protected.”
For the Liberal Democrats, Nick Clegg said: “When a ship is sinking you send out the lifeboats. You don't argue about who steered it into an iceberg.”
Mr Brown said bonuses would indeed be curbed, and the banks would also have to promise not to cut off credit or raise interest rates to small firms.
The scale of the package was breath-taking, involving more public money than the £324 billion annual spending total by Whitehall departments. The £500 billion exposed is equivalent to some £20,000 per taxpayer.
Miles Templeman, director general of the Institute of Directors, urged further cuts in interest rates next month, adding “Inflation was yesterday's story, recession is today's story and deflation is tomorrow's risk. Interest rates are heading in one direction — down.”
John Cridland, of the CBI, aid: “British business is facing a freezing of bank finance. Many companies need this action to keep investment and working capital flowing.”
Julian Jessop, chief international economist at Capital Economics, said the rate cut would “provide at least a temporary boost to confidence”.
Steve Radley, chief economist for the manufacturers' group the EEF, said: “Coupled with the plan to shore up the financial system today's co-ordinated moves should help arrest the potential slide into depression.”
In a shock move, the Treasury revealed it had frozen the UK assets of Iceland's Landsbanki to protect Icesave depositors. A source said: “This is a signal that when the chips are down, the Chancellor will act to protect savers.”
Reader views (30)
Who was it that once said "Within Capitalism lie the seeds of self Destruction" Long Live Capitalism? !!!!!!
- Raymond, Stoke on Trent, 09/10/2008 09:58
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20,000 to bail out the banks! What is it in the ignorant dogma of the free market maniacs that compels them to keep these banks private. Why pay them a penny, if we have to buy them then buy them at the cheapest share price, or better still pay them nothing and send a few of them to jail.
- Heiko Khoo, London, 09/10/2008 06:20
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At least in the UK depositors have fifty thousand pounds worth of government guaranties, here in NZ we don't have any. When I went into my local branch of a major bank and asked what guarantee I had on my savings I was told, none, but not to worry as the bank had a AA rating. Should I be worried?
- Jim, Auckland, New Zealand., 09/10/2008 00:37
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Interesting to hear Angela Merkel say that it's unacceptable that some of the EU provinces (sorry, Angela: 'Member States'), such as Ireland and Iceland, are trying to act independently on full guarantees for their banks. She was also moaning that they were guaranteeing only deposits in banks that were within their own provinces. Ms Merkel is clearly demonstrating that she and the other EU elites consider the financial crisis as an attack on their view of a unified federal state with a financial agenda set by the ECB rather than by the countries she considers provinces. This financial crisis is going to show the European Union for what it really is -- a wannabe country with zero respect for those provinces that still want to act in any form as independent countries. The financial crisis is an issue that's going to blow the undemocratic European Union to smithereens!!
- Phil Jones, London UK, 08/10/2008 15:48
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I am pleased that people will not lose their deposits, BUT as Iceland has massive assets in the UK, the government ought to freeze those assets until the government of Iceland meets its obligations, as owners of the banks in question. Otherwise, it is another slap in the face for British taxpayers. We cannot support the whole world!
- Dbr, London, 08/10/2008 15:41
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I am pleased that people will not lose their deposits, BUT as Iceland has massive assets in the UK, the government ought to freeze those assets until the government of Iceland meets its obligations, as owners of the banks in question. Otherwise, it is another slap in the face for British taxpayers. We cannot support the whole world!
- Dbr, London, 08/10/2008 15:40
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I met Darling long before his eyebrows were famous, and before I retired with less hair than he has. He struck me as entirely 'the right stuff'. Give him a break - he won't be getting the same salary as the (b)ankers, nor will he be getting a bonus or success fee if things work out.
- Steve, T Wells, 08/10/2008 14:50
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What an epic fail.
Way to go securing the bankruptcy of the country Darling!
Firstly, someone please explain how our economy can even contain 500 billion pounds. When you break this down per citizen this is over 9 million per person?
Why don't we just fold all the banks, everyone loses all their savings but we dish the 500 billion to everyone!
- John Sipson, London, England, 08/10/2008 14:45
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David, London England
There was a principle behind Falklands war, Argentines invaded a British territory. What about spending in Iraq whci is put at least 5 billions and the refugees which Blair took from there who are using our social security, NHS, schools etc.. etc.. Brown created this credit crunch problem by having 'a light touch regulation' which he lectured to Europe and ignored signs of problem which appeared well before the Aerican problem. When economists pointed out Brown's credit engineering, he brushed them aside. People will now have to sacrifice their funds for the problem this bottler created and never asumed responsibility.
- Norman, LONDON, 08/10/2008 14:36
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It may be disgusting that the Government has to bail out the banks with tax payers money after all the risky greed of the last 10 years by a bunch of the banks and financial institutions. However, if the government does not take any action the whole British economy will basically get 'capped in the knees and collapse mainly due to the fact that The UK economy is largely finance based. Job losses will eventually spread outside the financial institutions to other industries as assets get liquidated etc, consumer spending will nose dive and then we end up in a big recession or even depression type scenario. Not to mention the spread of such a disaster to the world economy.
Not many people are around any more who lived through the great depression of the 30's, but my Gran, bless her before she passed away told me stories of how bad things got. My Grandparents left for West Australia from the north of England in the late 20's. The depression hit a few years later and they found themselves living in tents with 2000 other people for 2 years or so on the banks of the Swan River, eating hand outs, growing veg and catching fish & crabs. There was virtually no work whatsoever available, and that was in a commodities economy, which Australian still largely possess, albeit a young one at the time.
If The government sit by and do nothing something similar could happen again. I back them 100% to do whatever is necessary for now, and then sort out the banks greedy behaviour later.
- G, London, 08/10/2008 14:28
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Why should we be guaranteeing deposits in foreign banks. No doubt people in government have deposits with Icesave as this lot looks after its own first.
People were tempted because Icesave paid higher interest rates so it should serve them right for being greedy.
- Dereck, London, England, 08/10/2008 13:20
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I really wish Darling would sort his eyebrows out!
- Triffidqueen, Desk in London, 08/10/2008 12:59
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Did anyone ever answer the question: "what IS going on with Alastair Darling's eyebrows"?
- Marianne, S W France, 08/10/2008 12:57
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This bailout has to be debated in the House of Commons and voted on. If that happens thousands should protesting outside and each of us opposed or just overly concerned about the size of the bailout contacting their MP, local paper and national media.
As a social worker I asked for an increase to the paltry offer of 2.45% pay "increase". We were told (as our all public sector workers) that there is NO MONEY to increase the wage. Now hundreds of billions are being given away to the people that caused this mess. A disgrace.
- Matthew, London, UK, 08/10/2008 12:51
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The war in Iraq has cost the US government an estimated 1 trillion dollars. By today money that’s 4 times the cost of the Second World War. Over 1 million people have been killed in Iraq since the current invasion in 2003. I am not too sure what the figures for the UK are.
So if you are wondering where all our tax payers’ money is going, it's not just bailing out the banks, it is has also been used to kill over a million people.
- Paul, London, 08/10/2008 12:33
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So WE'VE just given the banks £500 billion of OUR money. How about a "thank you" gesture to help us weather the current financial storm? A six month moratorium on those invidious late payment charges for credit card balances would do for a start.
- Robin, Islington, London, 08/10/2008 12:15
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It's definitely not 500 billion. All the other outlets are saying 50 billion.
- Neil, london uk, Airstrip ONE ., 08/10/2008 12:14
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The whole thing disgusts me. We have had 10 years of the government and banks actively encouraging debt, 200% house price increases and more debt, now when the music stops, the poor little helpless banks get all the help they need with a arm round their shoulder to comfort them as well.
Why has Bradford and Bingley been bailed out? They were a BTL lender, encouraging greed and nothing else.
The whole thing sickens me, these parasites getting away with murder
- Lb, London, 08/10/2008 12:14
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Is it just me, or does the idea of giving £50bn to banks, who have not exactly wisely invested their massive profits until 2007, sound like a case of wishing in the wind?
Why not give the money to the taxpayer instead? Then it will flow naturally back to the banks via savings, mortgage payments and credit card transactions. The government will also get some of it via VAT and duty.
We taxpayers would also feel more "confident" with a few quid in our pockets and would make the wider economy feel more "confident" via our spending of the windfall.
- Nobby Clark, Perth, Scotland, 08/10/2008 12:07
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How incredible! So the Icelandic offshore investors are to be fully protected. The savings accounts of Bradford & Bingley amounting to £50 billions or so have been "bought" by Santander for £600 millions and have presumably been absorbed into a foreign currency (the Euro) - an additional drain on sterling. Similarly, I read that an additionally £2 billions or so in savings accounts are going to ING. What controls are there going to be to ensure that a substantial amount of this £500 billions are not used in other currencies situations. Where next for the £ sterling? What is to happen about recompensing the pensioners and pension fund savers of the Equitable Life debacle of the 1990's into the 2000's. The Parliamentary Ombudsman has highlighted the incompetence of the Financial Services Authority for many years in this matter and others now and when is this Government going to act on her recommendations?
- Martin Sands, Lostwithiel, Cornwall, 08/10/2008 11:57
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Part Nationalisation could be perfect for the government.
As shareholders they could ensure that all banks buy up the massive debt the government now has.
They will be able to influence lending policies to adhere to labour policies. So preferential treatment for certain groups of people...banking for new housing schemes and so on.
- Marc, Hammersmith, 08/10/2008 11:38
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In the early 1980s Margaret Thatcher's Government spent millions and millions of pounds on a military mission just to rescue the Falklands. The majority of the nation supported them. Surely this intervention to try to save OUR economy is worthy of support. The first priority is to stabilise the situation and immedaitely thereafter address the causes and hopefully ensure they can never be repeated.
- David, London England, 08/10/2008 11:10
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I'm afraid to say it failed.
It has come to late one month and 2 days too late. They has the warning signs months ago and did not act.
This government has doomed us all.
This is the difference between politics and the real world. This is a real world problem and you just can't handle it by throwing out the usual ethereal statements and hollow vague promises. The markets react in the real world and the politicians have shown themselves to be woefully inexperienced in handling these matters.
It shows how out of touch Whitehall and Westminster actually are and how unqualified these people are to lead us.
- Big Andy, London, 08/10/2008 11:09
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500 billion is HALF the UK's GDP. Why is there money to subsidise the tax-dodging super-rich bankers, money for blowing up babies in Afghanistan, but local swimming pools and libraries have to close for want of a few thousand? What a sick nation we have become.
- Neil, london uk, Airstrip ONE ., 08/10/2008 11:06
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Enough is enough. Time for the peasants to revolt. How dare the gov't take OUR money to bail out these wholly incompetent and greedy 'managers'. Those of us who've lived carefully/not used credit/saved up for things are FUMING. Did you see Robert Peston's 'Greed'on BBC 4 last night. If not, try & see it.
- Suzy, Ipswich, Suffolk, 08/10/2008 10:37
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Am I the only one who has noticed that some newspaper reports state 50 bn-some 500 bn
This illustrates the scale of the financial calamity and the public's innocence to the disaster unfolding.
- Philip Wildsmith, Moscow Russia, 08/10/2008 10:24
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No Nigel it is correct.
The government have made £500 Billion available if and when needed.
- Chris, London, 08/10/2008 10:22
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Hi Nigel, the £500 billion figure is correct and includes £200 billion for short-term lending to banks, £25 billion recapitalisation for banks, £25 billion top-up fund and £250 billion Government guarantee of bank bond issues.
- Neil Hunter - Digital Editor, London, 08/10/2008 10:04
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I think your headline is wrong the bailout is 50 billion not 500 billion
- Nigel, cobham england, 08/10/2008 09:44
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Brown and Darling dithered after Ireland, Greece and Germany acted. Don't tell me about Bottler Brown and his mates. He was mostly doing the cabinet reshuffles looking after himself and bringing in Lord Sleaze.
The time to act was two days ago at the latest. They did not do it. The leaks made the matter worse. These years greedy banks soaked up credit boom aided and abetted by Brown who was lecturing Europe and the world how to run a deregulated system and selling his snake oil cure for boom and bust going around the world. Britain's mortgage market was misbehaving to the extent that banks were lending 9-10 times salaries as mortgage loans. Pure and siimply sub-prime products.
Brown was not an economic wizard but plain lucky at a time when the world economy was behaving. I wonder whether £50 bn is enough now. I guess more will be needed. Brown and Darling have not created stability but disaster. The whole Labour party should face the music at the time of next general election.
- Norman, LONDON, 08/10/2008 08:44
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