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Brown's latest big idea: state-run 'bad bank' to buy billions in debts
Paul Waugh, Deputy Political Editor16 Jan 2009
A STATE-OWNED "bad bank" could buy up tens of billions of pounds worth of bank debts in a fresh attempt by Gordon Brown to shore-up Britain's fragile financial industry.
The Prime Minister and Chancellor Alistair Darling are drafting plans to take on the "toxic" assets and loans undermining the balance sheets of many banks.
The move, which could be part of a package of new measures unveiled by the Treasury next week, came as the US government today launched another massive bank bail-out.
US investment banking giant Bank of America was given another $20 billion as governments around the world were forced into further emergency moves to stop the credit crunch from turning the recession into a global depression.
Bank of America, which employs about 8,000 staff in Britain, was granted the fresh round of state aid to help it absorb losses from the takeover this month of struggling rival Merrill Lynch.
In Ireland, Anglo Irish Bank is to be nationalised, it was announced last night. The US government is also guaranteeing £118 billion of "stinky" loans held by Bank of America.
Meanwhile Citigroup is expecting to post "terrible" fourth-quarter figures today as it outlines a fresh strategy for coping with the crisis. Some Government insiders cautioned that although progress could be unveiled next week, it could take much longer to devise a fully working "bad bank".
Despite the unprecedented £37 billion government bailout and a recent offer of guarantees to support lending to small and medium-sized businesses, shares in British banks have been falling in recent days.
The Bank of England is also expected to offer tens of billions of pounds in credit to banks to fund loans for homeowners and businesses.
Mr Brown and Mr Darling are due to meet representatives from the Treasury, the Bank of England and several financial institutions in a bid to thrash out a deal. Among the other proposals being considered are plans to ring-fence assets on banks' balance sheets.
Further government investment in the banks - a new banking bail-out - seems less likely, although given the scale of the crisis this option has not been definitively ruled out.
Mr Brown discussed the problem of the high-risk loans yesterday following an interview with the German Chancellor Angela Merkel in Berlin.
He said action would be needed to deal with the "toxic" assets held by the banks and not yet written off.
In a separate move to reassure voters, housing minister Margaret Beckett today announced how a mortgage rescue scheme for households with an annual income of less than £60,000 would be rolled out across England.
The £200 million programme allows households to reduce their monthly mortgage payments by selling a share in their home to a housing association, or to sell the property to the association outright and remain in it on subsidised rents.
Reader views (37)
No new idea from Brown. He never has ideas. He takes them from elsewhere and then spins them to build the state sector. Then he taxes them to pay more state and quango jobs and welfare.
Now he has 6 million jobs on payroll, and pays 6 million welfare. 12 million should vote Brown.
Brown's problem is he takes away the welath creation part and sees the state as somehow 'creating wealth'. This vote buying means the private sector shrinks and taxes fall. The UK is again 'The sick man of Europe'.
Eg housing. Brown changed inflation measure to exclude housing so interest rates were too low, huge price boom and at the peak Brown stating 'I ended boom and bust'!!
Now 90,000 reposeesions, Labour 'may' save 6,000. But 'may not'. The process is highly complicated, lengthy, and unworkable.
Like everything Brown touches with the 'Brown touch'. That is the reverse of 'The Midas Touch'. It turns into a disaster.
- michael, wigan, 17/01/2009 13:10
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An example of Brown incompetence and an indication that he had absolutely no clue as to the immense scale of this problem.
Northern Rock, gone bust, should have been predicted by Brown's creation the FSA even if he was not up to it. Nationalised by the Government, in other words, we as the taxpayer took on their debt. Brown got in two people to run down their debt at around £1 million salary each. Effectively to sell off the good safe money making debt and leave the poor taxpayer with the debt that no one wants. This will be extremely toxic, just think of all those mortgage loans totalling 125% of property value. Yes this is the Government's first toxic bank that will probably lose over £10bn. To that dreadful mix we can now add the Bradford and Bingley debt.
As a consequence of selling off the good Northern Rock debt to other banks, it meant that they would have less money for other activities as the wholesale markets dried up. In other words the action taken at Northern Rock has just made things worse.
Now that the banks are struggling to lend, Brown is proposing that Northern Rock should start lending to help the economy. This is a total u turn on the original plan confirming that Brown had no idea. It does mean though, that Northern Rock will be able to make other loss making loans, sufficiently to be able to bury the toxic debt already on their books thereby masking its true origin. This debt will be labelled 'doing what was right for the country at the time'.
- Harry H, London UK, 17/01/2009 12:54
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Am stuck for where to start. This tale of Government incompetence is so huge, I could write a book about it. Let no one doubt that Gordon Brown is the most incompetent Chancellor of the Exchequer and now Prime Minister there has ever been. It beggars belief that he fooled Blair and the rest of the Government for so long. Unfortunately the fact that Vince Cable of the Liberal Party can be singled out as some sort of soothsaying financial expert able to predict an economic crash. Does not make him a special genius. What it does indicate,is that the House of Commons is occupied by what is most probably the most financially inept bunch of MPs that have ever been assembled in that once great institution. Where were the rest of the MPs giving out warnings? Had Brown listened to Cable in 2003 he might have saved the world.
How can we insist that the Directors of banks should know what they are doing, if we do not the same time insist on a higher level of financial competence amongst our MPs? Or do we really believe that if an MP can work out how to screw the taxpayer for the maximum amount in terms of housing allowances, John Lewis lists, employing family as staff on top of voting for ever larger salaries and pension increases, they know what they are doing? It could be argued that they are so busy making extra on the side they do not have time to think of the country.
We need is a wholesale clearout of Parliament because frankly most of the current occupants are not up to it.
- Harry H, London UK, 17/01/2009 12:32
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If the Swedish example can work for the UK's Banks bad debts, and if this is set in place, us as the Taxpayers should be able to demand that Pa Broone agrees to going for an early Election sometime this year, 2009, not hang on until 2010 when thigs could become much worse.
A change in government from Nuews Liebore might just kick start some confidence in a Tory administration to 'Do The Right Thing' as far as this current mess is concerned, and not tinker around the edges like Blair, and now Brown have been doing over the apst 11 years or so.
- Uncle Vanya, East Anglia Area UK, 16/01/2009 23:49
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Who on earth will rid us of these two gormless prats before the country crashes into oblivion?
- Alan, Chigwell. UK, 16/01/2009 21:22
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Why can we not have a "fresh attempt" at an election and then get it over and done with! Crash Gordon please go away before we have a major Depression. This is the only way.
- Jacqueline, Hampstead, London, 16/01/2009 18:17
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Is this really Brown's Big Idea or Giulio Tremonti, Fin Min of Italy who has been pitching this around Europe for the last couple of days? Can't believe anything these crazed spendaholics are saying these days in their tax-payer funded spending frenzy.
- Aj Britt, Brussels, Belgium, 16/01/2009 17:39
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Every day that this idiot has an idea it costs us billions.
- John Smith, London , England, 16/01/2009 17:24
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More transfer of wealth from those that have to those that want. Many people made very poor decisions and do not 'deserve' to be bailed out by taxpayers.
- Trunk, US, 16/01/2009 16:11
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I have a stinker of a credit card bill, wonder if the government want's to buy it ?
- Hopeful, Manchester, 16/01/2009 16:02
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There are precedents for this if you go back to the Reagan era and the Savings & loan crisis in the USA. This was actually a highly sucessful exercise with rescued S&L's actually returning a surplus to the US government. The rescue of the financial system is a two step process. First recapitalize the banks then detox the asset portfolios. Unless both exercises are completed unfortunately you will not remove the stress and uncertainty currently infecting the credit system.
If sucessful this exercise will pave the way for a healthy recovery but if balance sheets are not substantially purged of these toxic assets then a depression or certainly a prolonged recession is on the cards for sure. You pays your money and you takes your pick!
- James Ritchie, Oyster Bay Cove, NY, USA, 16/01/2009 15:57
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I hope managers of the nigerian economy will borrow from mr Brown rather than allowing the value of our currency (Naira)to depreciate by 35% in less 3 weeks.
- Abba I Bello, Kaduna - Nigeria, 16/01/2009 15:47
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I do not think that the Bank of England was ever seperated from the Treasury Brown just made it seem like that. Brown and Blair de regulated everything but on whose orders the EU or Mandelsons. This bad bank will make the taxpayers creditors would it, and they would be debts we would never be able to get rid of, because if the toxic debts are miortgages that people cannot afford and loans how can they pay back if they have no job to go to
- Jacqui Williams, peterborough cambs, 16/01/2009 15:45
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The obvious thing to do is merge and nationalise HBOS/LLOYDS and ROYAL BANK OF SCOTLAND into a mega bank (as we own most of these banks already) and use it to deal with the ditrsibution of credit and deal with toxic assets. The other banks will soon start to ease the credit flow if they think they are going to lose business in the long run.
- Mike Kimmins, Bexley, Kent, 16/01/2009 15:32
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If prudence Brown really wanted to help , he could put a freeze on the coming Council tax rises.
- Shallotman, Basildon, 16/01/2009 15:25
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A bunch of Quangofiles are desperately trying to keep their £200,000 pa + pension jobs by dreaming up this sort of nonsense. Election, election, election.
- Bj, London, 16/01/2009 15:19
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IMAGINE a banking crisis that threatens to cost billions of dollars to resolve hardly takes much brainpower these days. But then imagine that within two years of the supposed armageddon the country's banks have become more profitable than ever; and that, another three years on, the whole mess has been cleaned up for a small fraction of the cost feared. Some fictional land, surely? Try Sweden. The Swedish Government set up a "bad bank" called Securum in the early 1990's which resolved Sweden's banking crisis 10 years ahead of schedule and cost only 25% of what was originally forecast...) Gordon Brown and Alistair Darling need to be talking to Jan Kvarnström (former head of Securum International) as soon as possible if they want to get the job done...
- Kimberley, London, 16/01/2009 14:53
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This all sounds very wonderful for the banks who have lent to unsafe customers. How easy now to transfer all the dodgey stuff and bad debts while they go sailing on making money. The dodgey people get away with it and bad lending wiped off. Will they learn however to issue good loans using sound judgement when they have a banking dustbin ready to accept the results of bad thoughtless lending.
- Ann, Chelmsford UK, 16/01/2009 14:47
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Brown ought to be committed to a secure unit without delay - and put in a straight jacket.
- R.F.Yorks, Yorks, UK, 16/01/2009 14:27
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If the State is running the bank I did not need to be told it was going to be bad.
- Wills, Soton, 16/01/2009 14:20
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Best for government to take things slowly. It seems they are running around like headless chickens looking for things to announce.
- Mike, London, 16/01/2009 14:14
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Well no surprises there then - Gordon's already created a "Bad Government" full of "toxic ministers" and now he wants to create a "Bad Bank" for "toxic assets". at least he's consistently useless!!
- Malcolm, London, 16/01/2009 13:36
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You must mean rates too low for too long, surely?
- Simon, London, 16/01/2009 13:33
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Quite frankly i have given up all hope of ever seeing off this pathetic Government and its ridiculous and childish ideas-This is similar to walking into the wrong exam room and trying to answer the questions on a subject you have totally no idea about.
- Harvey Lawrence, London, 16/01/2009 13:03
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Anyone else thinking Plagiarism!!!
Exactly the same scheme the US is proposing and even funding for select too big to fail banks right now.
- P, London, England, 16/01/2009 12:43
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Well he is very concerned about the big debtors what about the people?
I think he should bail out some private debts so people have money back in their pockets and can than spend money again and therefor helping businesses by buying their products. But of course who cares about average Jo
- Tom Schwarz, Camberwell, London, 16/01/2009 12:41
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What happens to those "toxic"assets,the banks have got to take some responsibility for their actions not let of with a rap on the wrist.
Gordon though is like that,he never takes responsibility for his bad decisions either.
Gordon is not prudent,he did not get rid of "Boom & Bust",did not save the world but he deregulated the banking system,sold out gold reserves cheap,destroyed pensions and has generally messed up.
WE PAY THE PRICE FOR HIS INCOMPETANCE>
- Nigel, wimbledon, 16/01/2009 12:31
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Seems that Brown will not be deflected from his crusade to turn our economy into a mirror image of Zimbabwe's.
Mind you his political style is headed that way too.
- Harry Lauder, Edinburgh, Scotland, 16/01/2009 12:30
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Perhaps the first bad bank should be the Bank of England, the Bank that is responsible for keeping inflation at an acceptable lever and completely got it wrong by keeping rates too high for too long.
- Dave, London, 16/01/2009 12:00
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Great, so not only do we the taxpayer have to bail them out (where were they hiding that much cash, and why wasn't it spent on public services?) but now we have to suffer their bad debts too? No thanks!
I'd like my share of the bailout money back please.
- Emma, London, UK, 16/01/2009 11:55
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He's not a moron - he's dangerous and is leading us to irrepairable ruin. Time to commit the loony unless he calls an election!
- M, London, 16/01/2009 11:46
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ANOTHER STATE BANK. What a waste Crash Gordon created and keeps on creating. Recession is turned into... depression.
- Peteo, London NW1, 16/01/2009 11:40
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Zzzz. Crash Gordon zzzzzz zzzz
- Georgie, Islington, London, 16/01/2009 11:25
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Right, Mr Brown. We agree to that if we can first have the public executions of a few bankers. Not too many. We're thinking only in the hundreds, maybe.
- Ken, Bexleyheath, 16/01/2009 11:09
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Its rather like a 'sink' bank, or the liver decontaminating bad debts.
- Dhanraj, Basildon Essex, 16/01/2009 10:24
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Who will be paying for this 'Toxic Bank'? You and me. Who will not be paying anything? The lazy, parasites awash with welfare money and of course the fat bankers responsible. Brown is very good at one thing only, and that is giving away my money.
- Roger, Surrey, 16/01/2009 10:23
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this man is a complete and utter Moron. What was that song in the 70's - Gordon is a moron.
- Fly, london, 16/01/2009 10:15
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