it's boom time again for those firms lucky enough to be alive

TO BE NOTED: From the BBC:

"Victor Blank may be proved right (eventually)

Robert Peston | 08:48 UK time, Monday, 18 May 2009

The most colossal amount of lending capacity has been taken out of the banking system.

That is another way of saying that we've been living through a credit crunch. D'oh!

But for all the damage that the collapse of some banks and the shrinkage of others has caused to the global economy, there is an attractive consequence for shareholders in those banks that are still standing.

You can already see it in investment banking, where the few remaining independent investment banks and the investment banking arms of Barclays and Royal Bank of Scotland among others have been coining it since the start of the year.

Whether it's underwriting and distributing issues of bonds and equities, or trading in currencies and fixed interest, it's boom time again for those firms lucky enough to be alive.

And for banks more widely, including retail banks, the reduction in capacity means a reduction in competition.

So the margins that banks earn on lending - the gap between what they pay for their funds and what they charge to borrowers - has widened very considerably.

Actually, that's not quite true yet for those banks disproportionately dependent on special taxpayer-supported funding and asset insurance from central banks and finance ministries.

Finance provided by taxpayers tends to be pricier, which most would say is only fair: we wouldn't want the banks to make a habit of coming to us with the begging bowl.

So the likes of Royal Bank and Lloyds aren't yet coining it.

Also, of course, any widening in margins they achieve this year may look irrelevant when bad debts on conventional lending to households and businesses are rising so fast.

To put it another way, since Royal Bank and Lloyds will make massive losses this year, you may think that I'm bonkers to be extolling their intrinsic profitability.

But make no mistake: these are giant money-making machines with enormous and rising market shares in a relatively closed retail banking market called the UK.

If you thought that they were monsters before the credit crunch - and many did - you ain't seen nothing yet.

They face far less competition than they did a couple of years ago: the American and Irish banks have reduced their presence in the UK; the Icelandic banks, former building societies and newly created specialist lenders have crumbled and most extant mutual building societies simply can't raise sufficient deposits to pose much of a threat.

Yes, the mighty Tesco is coming in and promising to be a formidable competitor. But the sensible way of seeing Tesco's ambitions is as proof of the huge profits to be made in a market where the balance of power has shifted decisively from the consumer (that's you and me) to supplier.

Against that backdrop, the claims of Lloyds that buying HBOS represented a once-in-a-generation opportunity don't look exaggerated.

Lloyds' shareholders will argue that they've paid far too big a price for this opportunity: HBOS's losses on its reckless loans hobbled Lloyds and led to it being semi-nationalised.

But there will come a moment when it has absorbed all the losses generated by imprudent loans and investments made in the bubble years.

At that point, Lloyds will be a gargantuan collector of our earnings and savings.

So if you believe that wholesale sources of funding are unlikely to gush again for years, if ever, Lloyds will have a mind-boggling competitive advantage: disproportionate power in banking will reside with those, like Lloyds, able to hoover up precious cash from households and small businesses, for recycling into loans.

Perhaps, therefore, Sir Victor Blank - jumping from Lloyds before being defenestrated (see yesterday's Picks) - will, in two or three years, be able to blow a raspberry at his critics."

I'd say there's at least a bit of truth in all six

TO BE NOTED: From the Curious Capitalist:

"What's keeping Tim Geithner from being bolder?

Posted by Justin Fox | Comments (3) | Permalink | Trackbacks (0) | Email This

I've been meaning to welcome Ryan Avent to his new gig at Portfolio.com (where he has replaced Felix Salmon). His musings over the past couple of days about why the Obama Administration is handling the banking crisis in such a tentative, unimpressive way provide a good opportunity. Here's one:

There is a popular idea that if only a charismatic figure had occupied the spot at Treasury, like Paul Volcker, then his confidence would have carried a better policy through Congress, but people forget that Paul Volcker didn't have to push his interest rate increases through a skeptical, angry, and often stupid legislature.

And another, referring to economist Simon Johnson's claim that a financial oligarchy has seized control of our government:

Johnson is right that the power of financial interests warped policy in recent decades, leading directly to this crisis. I just don't think it's correct to extend that argument to say that the Obama administration is primarily constrained by the will of the financial oligarchy.

I agree with Ryan on both these points, but they got me thinking about all the possible explanations for the Administration's go-slow approach (as opposed to seizing at least a few big banks and forcing everybody to take much bigger writedowns of bad assets than they have so far, which I think is what Johnson, Paul Krugman, and Joe Stiglitz all want). Here's what I came up with:

1. It's the proper course of action, because most banks will be able to earn their way out of their problems if given some time and forbearance by regulators. This is what people within the banking industry seem to think, and non-banker John Hempton has done a good job of articulating this view on his blog.

2. Seizure and writedowns might have been the proper course of action last year, but now that Treasury and the Federal Reserve have already put up trillions of dollars, backed by the very loans and securities that would have to be written down, it would be spectacularly costly to the government. It also might wipe out large swaths of the insurance industry, because insurers own lots of bank preferred shares and debt. So letting the banks slowly and fitfully earn their way out trouble is really the only alternative at this point. So sayeth David Goldman.

3. Treasury has just been getting all its ducks in a row to prepare to do eventually exactly what Johnson, Krugman, et. al. want it to do. This was a view I was pushing a few weeks back. I've gotten more skeptical since then.

4. Geithner and his pals in the White House would love to follow Johnson and Krugman's advice, but it would require hundreds of billions, maybe trillions of dollars more in up-front appropriations to keep the banking system solvent. And Congress is too "skeptical, angry, and often stupid" to approve anything like that.

5. Geithner and his pals in the White House would love to follow Johnson and Krugman's advice, but they are afraid the powerful banking industry will find ways to thwart them—through both lobbying and lending decisions.

6. Geithner and his pals in the White House are all willing tools of the financial oligarchy. Especially Larry Summers.

Am I missing anything? I'd say there's at least a bit of truth in all six. Nos. 1 and 4 are currently my favorites, but I reserve the right to change my mind.

Update: A well-informed reader adds explanation No. 7: That Geithner and his pals at the White House and in the bank regulatory agencies are afraid that if they overtly nationalize some banks, that would start a run to them from other banks that are wobbly."

Me:

1. donthelibertariandemocrat Says:
   Friday, April 24, 2009 at 3:44 pm

   In this crisis, there are two things that are happening that I don't understand:
   1) There are a continuing litany of "Eureka!" moments in which a problem or issue that has already been addressed, possibly more than once, only under a slightly different guise, gets rediscovered. A virtual caravan of renascences.
   2) Politics is assumed to be more infested with lying and deception than normally is the case, causing people to view people's behavior as almost by definition deceptive. Hence, if a person explains their behavior by saying 'x', 'x' is the one explanation that won't work.
   On 1, we've had a brouhaha this week about the B of A and Merrill. This same issue, the government's forcing the B of A to take on Merrill, came up when Merrill's losses were announced earlier. The question arose as to whether the B of A was in trouble because of the merger, and whether or not the government should help save the B of A since the B of A helped save the system. In the UK, a similar issues arose concerning Lloyds merger with HBOS. If you think I'm joking, note this comment from Alphaville on March 9th:

   "I think you are "misunderestimating" the value to Lloyds (as opposed to HBOS). Lloyds was a perfectly safe bank until the government pressed Blank and Blank pressed Daniels into merging with HBOS, and their institutional shareholders backed the deal. When a banker is asked by his regulator to merge with another failed bank, he doesn't get many chances to refuse, and Lloyds had already turned down NR. Lloyds would have been entitled to think that the government was not giving them a hospital pass. The ever excellent Alex summed this point up last Thursday:

   http://alexmasterley.blogspot.com/2009/03/daniels-in-lions-den.html

   If the government is now seen as being generous to Lloyds and their shareholders, that is because it is now putting up some of the capital that should have been contributed when the merger took place. Having pretty much destroyed Lloyds in the merger, the government needs to re-capitalise the bank and compensate the LLoyds shareholders."

   Sound familiar. Just as Lloyds had turned down NR, the B of A had turned down Lehman.

   In both countries, the reason is that the modus for dealing with large insolvent financial concerns or banks was to merge them with other large banks or concerns with help from the government. All you have to do is look at the record with Lehman, Bears, Merrill,WaMu, etc. Bernanke and Bair have admitted this by saying that there was no plan for seizing a large insolvent bank or financial concern. They've admitted it. Geithner has already said that not having these powers was a mistake.

   That leaves receiving stock and running the company ourselves. What could go wrong with that? Well, for one thing, it is going to wipe out shareholders, whose banks merged with failing businesses at the behest of the government when there was no other plan. I wish the B of A would have merged with Lehman frankly. The point is clear: the mess we're in is a thicket of conflicting desires, intentions, incentives, promises, threats, etc.

   So, I vote for 1 - 5, and would probably add others. I agree with Johnson on the severity of the problem, but it's simply going to take a long time to disentangle and resolve.

only to have to take the full measures a few years down the road when in even greater debt.

From Alphaville:

"A deceitful deal for Lloyds Banking Group Posted by Paul Murphy on Mar 07 18:34.

It’s a deceit on British taxpayers, not Lloyds shareholders, who are getting a free and gloriously pimped ride.

Lloyds formally released details of the terms of its participation in the government’s Asset Protection Scheme on Saturday, along with information on a further strengthening of its capital base. The three key moves are:

- a bolstering of its core Tier 1 capital by the conversion of the government’s £5bn holding of preference shares into ordinary stock at 38.43p per shares;

- the issue, to the government, of £15.6bn worth of convertible stock called “B shares” that are offered at 42p-a-share and convert into ordinaries at 120p-a-share; and

- the purchase of $15.6bn worth of toxic asset protection.

There are claw-back arrangements for existing holders, but we won’t worry about those for now.

The converted £4bn of prefs, we are told, take the government’s shareholding from 43.5 per cent to 65 per cent. The new convertible B shares do not carry votes (although there is a 7 per cent minimum coupon) and the Lloyds statement declares the following:

In addition, in the event of full conversion of the B Shares, if HM Treasury retained all the ordinary shares resulting from such conversion and assuming it still retained all its existing shareholding in Lloyds Banking Group plc, then HM Treasury’s aggregate ordinary shareholding would be 77 per cent.

This looks like voodoo mathematics.

Lloyds has a little over 16.3bn shares in issue, which as of Friday gave the bank a market capitalisation of about £6.85bn. Since the conversion of the existing prefs does not amount to new money (just the assumption of more risk for taxpayers), it would be misleading for us to extrapolate directly from the stated fact that £4bn of equity at 38p or so is worth a further 26.5 per cent of the bank – taking the government’s holding to 65 per cent.

But £15.6bn in brand new “B share” money is another matter entirely. Pretending that the “see thru” economic interest of this convertible stock is worth just 12 per cent of the whole entity is plainly heroic. Especially when you consider this, from the appendix to Saturday’s announcement:

For these purposes, on a winding-up, each holder of a B Share will be deemed to hold one ordinary share of the Company for every B Share held at the date of the commencement of such winding-up (the “Winding Up Ratio”).

Actually, it’s anti-heroic in that it amounts to stamping all over the interests of British taxpayers – all in the name of retaining Lloyds’ status as a private entity listed on the London stock market.

Think about it - £15.6bn of new money required to pay for years of stupid lending decisions does not speak for 12 per cent of Lloyds Banking Group. It speaks pretty much for the whole stinking lot.

Why is the government doing this? Set aside for the moment all the tosh about it being important to keep banks in private hands and the danger of creating a nationalisation panic at other wobbly institutions. Think back instead to the events of last autumn, when the Tripartite Authorities, egged on by Victor Blank (cheque), convinced Eric Daniels that a speedy takeover of HBOS was both in the public interest and attractive to Lloyds, handing it a prospective monopoly position in British retail banking.

It is difficult to avoid the suspicion now that the government, to hide its own in adequacies, is conniving to keep these men in their jobs, while at the same time allowing existing shareholders to cling on to the fantastical idea that their stock is actually worth something.

For the record, when the head of media relations was contacted by telephone for comment, the reply was: “I’m sorry, but the person you wanted has a voice mail that has not been set up yet. Goodbye.”

If anyone in political opposition to the government wants to get up to speed on what is happening here we’d suggest reading this first – an account of testimony delivered to the US congress by Adam Posen of the Peterson Institute at the end of last month.

In elegant and convincing terms, Posen maps out how in a banking crisis like this one politicians, supervisors, regulators, bank management and shareholders are incentivised to hide the truth from themselves and from the public at large.

The Lloyds/HBOS debacle offers a perfect illustration of Posen’s thesis, which the Peterson man says has to be addressed by limited temporary nationalisation and wholesale replacement of both supervisors and bank executives.

Note his conclusion:

If those programs live up to their associated rhetoric, and are thus tough enough on the current shareholders and top management of our undercapitalized banks, we can in 2011 be like Japan in 2003, at the beginning of a long and much-needed economic recovery. If unneeded complexity of the bad-bank construct, excessive reliance on and generosity to private capital, and unjustified reluctance to temporarily nationalize some US banks turn the proposed bank clean-up programs into only half-measures, then we will be like Japan in 1998, squandering national wealth and leaving our economy in continuing decline, only to have to take the full measures a few years down the road when in even greater debt.

Related links:

Lloyds Banking Group APS statement

Lloyds in £260bn deal with government - FT

Adam Posen testimony

This entry was posted by Paul Murphy on Saturday, March 7th, 2009 at 18:34 and is filed under Capital markets. Tagged with Lloyds Banking Group."

Me:

Don the libertarian Democrat Mar 7 19:55

I agree with Posen, but Vikram has a point. Just as in the US, there was no real plan to seize large insolvent banks. The plan was to merge large insolvent banks with large solvent banks. That was a costly and terrible plan, since their size led to their complexity and unconcern about risk. Vikram could even argue that the government owes Lloyds because they helped them to get involved.

But one way the government got involved, at least in the US, was to subsidize the deal. So there was an assumed positive side to the investment for the acquiring bank. The real question, going forward, is who is more important? The taxpayers or the banks and shareholders?

I've an easy answer to that, being a taxpayer only. I do see the other side of the problem, but it is simply too costly both economically and socially. Any plan is risky. We cannot escape that.

made a disastrous judgement about HBOS's rate of expansion - but not that he committed a crime or a misdemeanour.

From Peston:

"Why Sir James Crosby resigned

• Robert Peston
• 11 Feb 09, 04:12 PM

Paul Moore, the former head of risk at HBOS, has won the big argument.

In 2003 and 2004, he warned HBOS's senior directors that they were expanding the bank's loan book too fast: HBOS was lending too much.

Guess what? He seems to have been right.

HBOS went to the brink of collapse because it financed its lending growth by raising funds on wholesale markets - and when wholesale funds became progressively harder to obtain after the summer of 2007, HBOS was careering toward the cliff edge.

It is alive today only because it was rescued by an injection of capital from taxpayers and by being taken over by Lloyds.

So no-one in their right mind would argue that Moore got it wrong in respect of the big issue - though Moore's critique was not that funding would dry up, but that borrowers would have difficulty repaying (which is an important nuance).

And since Sir James Crosby was chief executive of HBOS at the time Moore was making his complaints, history - or the closure of wholesale markets - has made Sir James look like a bit of a nit.

Which is why if Sir James had not resigned today as deputy chairman of the Financial Services Authority, the City watchdog, he would probably have been forced from office over the coming weeks and months by unforgiving public opinion.

But that does not mean that Sir James was wrong - in a legal or regulatory sense - to have asked Moore to leave HBOS or to have rejected some of Moore's concerns.

Moore's dossier of complaints that HBOS and Sir James were taking excessive risks was thoroughly investigated by KPMG, the accountancy firm.

And KPMG's conclusion - that HBOS had appropriate risk controls in place - was accepted by the Financial Services Authority.

My understanding is the FSA stands by that judgement.

Which is not to say that either the FSA or Sir James would have no regrets that HBOS did not check its lending growth.

But - amazing as it may now seem - HBOS and the FSA did not believe, in 2004 and 2005, that it was appropriate to assess the riskiness of its rate of growth on the basis that funds from wholesale sources could vanish.

What's the point? Well, it's that Sir James was not obliged to resign as the FSA's deputy chair because of evidence that he broke any law or regulation.

And the FSA put no pressure on him to resign.

Sir James chose to resign because he wanted to protect the FSA from incessant criticism by media and opposition politicians that its number two had made a chronically bad judgement as chief executive of HBOS.

So the lesson of hindsight is that Sir James made a disastrous judgement about HBOS's rate of expansion - but not that he committed a crime or a misdemeanour.

And some would say that it's right that he quit, because all of us are paying for his misjudgement with the massive financial support that taxpayers have been forced to give HBOS."

Me:

"What's the point? Well, it's that Sir James was not obliged to resign as the FSA's deputy chair because of evidence that he broke any law or regulation.

And the FSA put no pressure on him to resign.

Sir James chose to resign because he wanted to protect the FSA from incessant criticism by media and opposition politicians that its number two had made a chronically bad judgement as chief executive of HBOS.

So the lesson of hindsight is that Sir James made a disastrous judgement about HBOS's rate of expansion - but not that he committed a crime or a misdemeanour. "

Excellent point. That is what worries these executives. However, fiduciary mismanagement and negligence do need to still be looked at again, and whether or not they blew off risk because they believed that the government would intervene to save them if they made enormous mistakes. The problem with just claiming stupidity is that one has to assess the presuppositions that could lead such educated and wealthy people to become imbeciles in their area of expertise. It's like hiring someone to wash your car and then hands it back to you caked in mud, and asking for a tip and a back slap for a job well done.

"to stem the remorseless contraction of credit that's caused our awful recession.

Peston on BBC:

"A bank insurer, not a toxic bank

• Robert Peston
• 17 Jan 09, 12:04 PM

I don't know why the Government hasn't knocked on the head the idea that it's working on the creation of a bad or toxic bank that would buy our biggest banks' dodgy loans and investments.

What I expect it to announce on Monday (although the timetable could slip a day or so) is the creation of the mother-of-all bank insurance schemes.( GOVERNMENT MUST STEP IN AND GUARANTEE EVERYTHING IN A CALLING RUN. )

By the way, the Treasury is also considering making an offer to Lloyds/HBOS and RBS to convert the expensive preference shares they've sold to the Government into ordinary shares.( GOOD )

If this happens, I would expect RBS to say yes and Lloyds to say no. And the conversion would see the state's holding in Royal Bank rising from 57.9 per cent to around 70 per cent, or a good step nearer full nationalisation( GOOD ) (see below for more on this).

But back to this insurance scheme to give banks and their investors a bit more certainty( A GUARANTEE ) about the losses they would face as the recession undermines the ability of many borrowers to repay their debts.

Our biggest banks would identify their bad( CORRECT ) loans and foolish( CORRECT ) investments. And they would then pay a fee to a new state-backed insurer to protect themselves from losses over a certain level on these stinky assets. ( A PROPOSAL PUT FORWARD IN THE US AS WELL. )

But the banks would retain these bad assets on their balance sheets. They would not be transferred to a new toxic bank. We as taxpayers wouldn't own the stinky loans - though we would be liable for losses on them over a certain level.( TRUE )

Why the urgency of doing this?

Well in just a few weeks we'll see results for 2008 from our biggest banks. As I've already pointed out, Royal Bank of Scotland and HBOS will announce unprecedented, horrible losses.

And the HBOS losses would represent a massive drain on its new owner, Lloyds TSB.

There's a fear that unless the Government has developed some kind of safety net for them by then( A FULL GUARANTEE ), there could be an alarming loss of confidence in the banking system of the sort we witnessed in September and October.( A CALLING RUN )

So next week we'll get the announcement that just such a safety net, in the form of the insurance scheme for toxic loans, is in the process of being designed and built.

In a way, it can be seen as a way of getting capital into RBS and Lloyds/HBOS in particular without fully nationalising them.( THAT'S IT )

That said, the scheme will be open to all( IT HAS TO BE TO STOP THE CALLING RUN ) our very biggest banks. So Barclays too could insure away future losses on certain of its loans and investments if that suited it - although on Friday night it insisted that it had made stonking profits of well over £5.3bn in 2008.

However I don't expect a long and detailed statement on the institutional mechanism by which we as taxpayers will pick up part of the bill for the longest banking blow-out in history.

Nor do I expect, as this stage, the Government to put a number on the likely cost to all of us as taxpayers of putting a floor under banks' losses - although the potential liability would run to tens of billions.( TRUE )

Of course it's entirely possible( TRUE ) that if the new state insurer values the assets properly( THIS IS THE REAL PROBLEM ), taxpayers could end up over the years of the scheme with a profit.

But it seems unlikely that this will be a very popular policy. Readers of this blog have repeatedly asked why we as taxpayers should bail out the banks for the consequences of their greed and recklessness( BECAUSE THE CALLING RUN HAS LED TO A PROACTIVITY RUN ). The question I'm always asked is whatever happened to the old-fashioned idea that we should pay for our mistakes?( NATIONALIZING THEM WOULD DO THIS.)

For those working around the clock this weekend at the Treasury, in Downing Street, at the Bank of England and at the Financial Services Authority, the priority is to restore the strength of the banking and financial systems, to stem the remorseless( MANY PEOPLE ACTUALLY ADVOCATE LETTING THIS GO ON! ) contraction of credit( A CALLING RUN, WHERE CAPITAL MUST BE HOARDED FOR CALLS. ) that's caused our awful recession.

In that context, the Treasury and UK Financial Investments (the institution created by the Treasury to manage its investments in banks) have been preparing to make an offer to Lloyds/HBOS and Royal Bank, to convert £9bn of their preference shares (owned by the Treasury) into ordinary shares.

The reason for doing this would be to remove from them the heavy financial burden of paying the 12 per cent dividend of the preference shares.

In the case of RBS for example, the dividend represents an annual cash outflow of £600m and for Lloyds/HBOS the outflow is £480m.

In theory, if the two banks didn't have to pay this dividend they could lend £27bn more every year (because under FSA guidelines, if the £1080m of dividends were retained by the banks as equity capital, the banks would be able to lend a multiple of that core Tier 1 capital).

My strong sense is that RBS would love to convert the prefs, which it regards as costly debt, into ordinary shares - even though that would see it owned 70 per cent or so by the state.

However Lloyds TSB is less keen, because it's 43.4 per cent owned by the public sector and doesn't want to see state-ownership rising above 50 per cent, which would be the result of converting the prefs.

It will be interesting to see whether Lloyds' shareholders would agree that its worth paying out £480m of cash each year to taxpayers to prevent that creeping nationalisation of the bank.

Anyway, as readers of this blog know, there'll be plenty of other initiatives announced next week by the Treasury, most of which can be seen as deploying taxpayers' resources to encourage lending.( THE ONLY WAY )

One of these will be an extension of the timetable for Northern Rock, the fully nationalised mortgage bank, to repay what it's borrowed from the Bank of England and the Treasury. This would put less pressure on the Rock to shrink the amount that it is prepared to lend.

Which at a time when the problem for the economy is a shortage of credit sounds a bit like an outbreak of common sense at the Treasury."

Sorry Bob, this is the only way. Frankly, nationalization would be better. I'm surprised that you don't see that.

""The important thing is to get the banks now lending to businesses and to families," he said."

Where have we heard this before? From the FT:

"Alistair Darling, the chancellor, will today unveil details of the arm's-length agency that will manage the £37bn in stakes the government agreed with banks to help them in the credit crisis.

The Treasury said the agency's staff would be tasked with monitoring the lending activities of the banks to ensure that they fulfil the pledge to ensure funding of small businesses and that mortgage borrowers get a fair deal without the banks ramping profit margins at their expense.

As reported in the Financial Times last week, ministers have been in talks with high-street lenders to rewrite their voluntary code on lending to small businesses to ensure that customers are given reasonable notice before loans and overdrafts are axed or made more expensive.

Attempts by the Treasury to strengthen the code, as it has done for mortgage lending, comes amid increasing political concern that the £400bn state bail-out of the sector is not reaping the promised benefits for small companies. Gordon Brown has insisted repeatedly that support for such companies is a condition of the £37bn taxpayer-funded recapitalisation of Royal Bank of Scotland, HBOS and Lloyds TSB.

Yesterday in an interview for the BBC Mr Brown reiterated that his first priority was to get the economy moving. "The important thing is to get the banks now lending to businesses and to families," he said"

Let's see, not lending, keeping money, sounds like TARP. Notice that the British are creating an agency to monitor the lending practices of the banks that received government money. I guess that you can't trust banks anywhere.

Actually, it doesn't sound like the Brits got the banks on paper either. Is insisting like jawboning?

Salmon Likes Where Britain Is Heading

Via Felix Salmon, John Waples and Iain Dey in the Sunday Times:

"THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline.

The unprecedented move will make the government the biggest shareholder in at least two banks.

Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call.

Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion."

Wow.

Because:

"An economist who declined to be named said: “This is the biggest risk of the UK’s balance sheet ever undertaken. No-one knows the extent of the toxic assets these banks are exposed to.”

Salmon likes this plan:

"The British bank rescue could leave the government owning 70% of HBOS and 50% of RBS. As a result it could take board seats at both companies and exercise control over future dividend payments. "

Here's Salmon:

"I like this a lot. It's simple, it's intuitive, and existing shareholders can't complain because they have the right to buy as much stock as they like at exactly the same price as the government. But it's still sobering to absorb the fact that two of the largest banks in the world are about to get nationalized. They won't be the last."

Here was my comment:

Posted: Oct 12 2008 11:01am ET

Does the plan also envision the government selling its shares in the future, or have they thought that far ahead? I like the plan, if the government eventually gets out, and this government guarantee to intervene in such crises gets examined.

By DonthelibertarianDemocrat