Mr Darling, what a great name to call the man in nominally in control of the UK's purse strings. Darling what are you good at? This might be the question you ask of him.
The man's clearly under old Gord's thumb. Doesn't seem to be able to make a decision for himself and when the big announcement came today that we, the undersigned tax payer of Her Majesty's Government of the United Kingdom, are going to foot an unspecified bail out of the banking sector, there stood Gord making sure he was in the limelight for this one. Our beloved Darling was just a passenger; he couldn't even get the agreement hammered out in time for the market to digest it. This all seems quite amateur. But then the guy's a lawyer by training, so he's clearly not used to the idea of doing a proper job properly. Day after day of dithering and today we're delivered a document that dithers about handing out money to the banks. There are no specifics in the document. Merely a statement that says the Government will hand over £50 billion or so of my money to some wunch of bankers in return for which they want to say how the banks are run and who gets paid what.
This will work, but only because people want to believe it. Because we need the confidence to ensure that we're not back to bartering chickens and livestock. If you want to look at the origins of money, read this article from Exeter University.
Back to reality, we're going through a period of "deleveraging". To the average person on the street, this simply means that the banks are going to pay back lots of the money they've borrowed. Only it's happening slowly. And it's quite painful. Eventually the banks will return sufficient money to their depositors and shareholders and shrink down the size of their overall debt. This process will take about ten, that's right 10 ten, years to achieve. In the meantime, you and I, the taxpayer, will be footing the bill to prop these banks up.
The problem with Mr Darling's proposals, apart from the mere detail of how they will be implemented, is that it's going to be very hard for the banks to make much money out of the system. This is good and it means that we're not going to be making money like we used to. More to the point, we're not going to be making UP money like we used to. The Government is going to print it for us, not the banks.
Then there's the question of Tier 1 capital. What does this mean? For those of us lucky enough to own a house, it's quite similar. If you "own" a house, you probably took a mortgage from the bank. So technically it's yours the day you make your final repayment. If you're living in that house you know that there's always money going out, utilities, rates, refurbishments and whatever else you spend on keeping your house in order, so it costs money to own it. Tier 1 capital is similar; it's the basic investment a bank makes to keep it going. So if you continue to add more money to your mortgage, the net amount of money you get back will be diminished and if you take too much, you'll owe money to your lender. This is just the same for Tier 1 capital. This money allows the banks to fund their daily operations and needs to be readily at hand to cater for the lumps and bumps in the process. Spend too much of this and you run out of money, then you go bust.
Right now, us ordinary folk on the street can just hold our breath and hope that Mr Darling's not lost our money down the back of the sofa.
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