Tuesday, August 04, 2009

Happy days are here again ...

Having arrived back from Dublin, I discover the local media is all a flutter with the tales of huge banking bonuses. In my view this is great news as it means the banks must be doing well and so we can finally stop the continued bail-out.

There is no need for any more of the £125 billion quantitative easing scheme and the purchase of gilts at hyper inflated prices. Obviously some banks have been making a nice little earner on this but they've got cash now, they're loaded and so they don't need it.

We can stop the planned £600 billion buy-out and insurance of toxic debt - the unfortunately named asset protection scheme. The one asset it won't protect is taxpayer funds and so with the banks awash with cash it's time to end this idea.

Obviously the $400bn black hole heading towards the private equity industry won't need any government funds because the banks have cash and they funded most of these shenanigans.

The generous lines of credit, the chunky loans - well this can all stop. With the banks in such good shape then I'd expect to see a wholesale reversal on the flow of funds as taxpayers want every penny back with a decent return to boot.

Trebles all around in my view.

Unfortunately I suspect that the trebles have already been drunk by a select few who are playing a lavish game of financial roulette insured by the average person on the street. From what I understand, most of the profits are coming from the investment banking operations rather than any meaningful growth in the lending industry to the business sector. As the Fed has been discovering, its recent use of taxpayers funds to improve liquidity has been gamed to generate handsome profits in these investment operations.

The taxpayer can only fund such an illusion of recovery for so long. Eventually we'll have to wake up and face the horrid truth especially as the abyss that it is the OTC market starts to swallow up what's left of yesteryear's fortunes.

I suspect we'll once again see that last bastion of the financial industry, a shabby bunch of fortune tellers who'll be wheeled out to explain that no-one saw it coming.

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