Saturday, January 17, 2009

Things will only get better ....

After a whiff of financial sense the government has embarked on a policy of printing more money (for monetarist policy reason of increasing money supply rather than a Keynesian approach of  direct investment), excessive loans, attempting to resurrect a bloated housing market and finally to the idea of bailing-out bad debts.

Who exactly is advising the Government? Estate agents and bankers? This is financial lunacy. You may as well employ me as an advisor, in which case I'll have all the cash and a one way ticket to Acapulco.

Buying up toxic debt is like investing in dead institutions, it's daft. If there is "a sucker born every minute" surely it's time for the Government to let someone else buy the Emperor's new clothes? What Wormtongue is leading our Government to transfer private debt into the taxpayers hands? There are much better ways of resolving the problems, especially as there are trillions more bad debt in the OTC market heading in our direction over the next five years.

Buy-out not bail-out please. The Government shouldn't touch the bad debts. If the banks need more capital then consider, after due diligence, further investment in return for more equity. Make sure the strike price is well below the current market value. Allow them to seek other forms of investment first but if they need our cash then be ruthless, be pirates. If you want to get banks lending then use Northern Rock as an instrument to do this.

If you want my opinion, then in those banks which we have a majority shareholding we should take an active role and flood the boards with Government lackeys. Appoint the National Audit Office as auditors, it's a nice little earner from a body we can trust. Force a share rights issue and create more capital. Control excessive remuneration and above all be brutal in the use of our money. Extract every ounce of flesh and the best return.

Furthermore, stop trying to bring back to life the Frankenstein that is the housing market. The best you'll achieve is an artificial blip of a life enabling the more savvy to offload their hyper inflated assets onto the more unsuspecting. It's an unethical waste of taxpayers' money.

If you want to protect the poorest, accept that the market is going to return to a more historical norm. Nationalise the major building companies and embark on a building programme of civic buildings, council and affordable homes. Give people jobs in the industry (i.e. embark on some Keynesian style direct investment in chosen industries) and a security net rather than waste cash to prop up a failed system and allow the unscrupulous to dump and run.

If you can't do something positive, then give me the cash instead and I'll go look after it. At least you'll get most of it back, minus a few margaritas.