Will Britain's rescue plan work?
Prime Minister Brown unveiled an $87 billion plan Wednesday to buttress British banks. Hailed by some European leaders, credit markets responded tepidly.
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"If the authorities thought that by action it would improve money markets it hasn't worked," he added. "That's bad news."Skip to next paragraph
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"Even if the banks recapitalize, it doesn't mean they will want to lend to each other," he adds.
British politicians expressed some of the same doubts heard last week in Congressional debate over the US rescue plan. Some were concerned that bankers were being helped at the expense of taxpayers, and were deeply skeptical of any moves involving the taxpayer underwriting financial institutions widely perceived to have been reckless.
Labour Party MP John McDonnell said that the part-nationalization effectively meant that the government was "nationalizing the banks' losses and privatizing the profits so that taxpayers will now pay for this crisis caused by the greed of the bankers."
But Batstone-Carr says the taxpayer might not necessarily get a bad deal. The government should get dividends from its ownership stakes (unless the banks in question go bust) and eventually be able to divest itself of the stakes, presumably at a profit.
"I'm not entirely sure what part-nationalization is – it's a bit like being partly pregnant," he says. "The shareholders have clearly been subordinated and the Treasury is in the driving seat. It will be deciding how the banks go about their business."
He says that the British example could be replicated elsewhere in Europe, where the authorities have been chastised for adopting a go-it-alone, uncoordinated response to the crisis instead of banding together and presenting a united front to the fear and panic stalking the markets.
There were indications from Rome that Italy might enact a similar scheme. "It could certainly work in other countries – part of what the government is doing is to create a blueprint for European counterparts to follow," he says.
Mr. Loynes agreed, saying that there was a growing sense that the US 'TARP' didn't go far enough in helping out banks. "There is a growing sense that something further needs to be done in the form of direct recapitalization," he says. "This is now the example for other countries to follow."
On Tuesday, Spain announced it was setting up a €30 billion (US$41 billion) fund to help the financial sector. Prime Minister Jose Luis Rodriguez Zapatero called it a short-term loan aimed at improving liquidity into the system. But he said that, unlike the US rescue plan, Spain would not be buying up bad debt.
In Russia Tuesday, the government also announced it would provide five-year loans to banks totaling 950 billion rubles ($36.3 billion). Most of the money is expected to help the country's two largest state-backed lenders, Sberbank and VTB.