"less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it? "

Robert Peston on BBC probably doesn't like my hijacking his point for the Swedish Plan, but he probably doesn't read my blog, so here goes. Here's Peston:

"In saying that there's a case for nationalising the entire British banking system, John McFall - the chairman of Commons Treasury select committee - has shone a light on the paradox of the recent global rescue of the world's biggest banks (listen to his interview on Today).

McFall and many others are exasperated that our banks remain deeply reluctant to lend to businesses and to individuals, even after so much taxpayers' money has been pumped into the banking system.

"What are the banks playing at?" many of you ask.

Well, funnily enough, part of the reason our banks are restricting the supply of credit actually stems from the official description of the bailout as "temporary".

Governments and central banks are saying that they want their (our) money back from banks within about five years.

That may seem a long time. But it's no time at all in the context of all the money that we've pumped into the banks.

The capital element of taxpayer support is only a small part of the problem."

This is a good point, but that's no more than saying that banks are looking out for their own interests. Either you have to tell them what to do with the money, or they'll do what they want with it, as they see what's in their best interests.

"And, again, the imperative of paying this back is a massive drag on banks' ability to lend and is therefore also a ball-and-chain on economic growth.

This, of course, is just one of the deadening weights on banks' ability and desire to lend.

The other severe constraints are:

1) regulators' very belated stipulation that banks and other financial institutions should hold much more capital and cash in their balance sheets relative to the value of their loans - which in a world where capital and cash is scarce and expensive is a massive disincentive to lend;
2) the devastating effect on credit creation of falling asset prices;
3) the relative dependence of British banks on funding from overseas institutions which are progressively calling in their loans;
4) the considerably increased risks of lending to individuals and companies when the economy shrinks.

Against that backdrop, the question is whether it is remotely sensible to put a deadline - implicitly or explicitly - on the repayment of all that taxpayer funding for banks."

One thing's for sure, they're don't think that it's sensible. In which case, they're not likely to do it.

"But if we don't demand our money back, we'd be formalising that there's been a semi-permanent nationalisation of the entire banking system.

And that would massively encroach on the ability of our banks to operate as independent commercial entities.

There would be massive political pressure on them to become quasi-social utilities, providing loans at the behest of ministers and officials rather than on the basis of commercial criteria.

So here's what may turn out to be the choice: less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it?"

This is why a hybrid Government/Private Bank arrangement is so messy. The two don't often see eye to eye, and often don't have the same interests. This leads to lobbying, fudging, needless delays, etc., the whole list of problems I've talked about from the beginning.

That's why a Swedish Plan would have been preferable. Nationalize, then Privatize. What we have now is neither, and we aren't likely to get out of it soon, as Peston observes.