大象传媒

Lend, lend, lend

• Robert Peston
• 18 Jan 09, 03:59 PM

A dizzying number of banking initiatives is likely be announced by the Treasury tomorrow morning.

But they'll all have two things in common.

They are designed to improve the supply of credit to the economy, to prevent this recession turning into something even more prolonged and painful.

And they'll involve yet more commitments of taxpayers' money, of our money (we could be talking as much as several hundred billion pounds of additional help from taxpayers, to add to the 拢600bn of our wonga that has been provided to the banks in the form of guarantees, loans, and capital).

Also, they are way outside of most people's experience, so they may seem complicated.

For example the government will - for a price - provide a guarantee that bonds created out of mortgages or out of loans to companies won't go bad.

The point of this is to encourage investors with billions in cash, such as pension funds or hedge funds, to buy these bonds.

Think of it as investors lending to us as taxpayers, and taxpayers then passing the cash on as loans to credit-starved housebuyers and to big companies.

You may think it odd that investors would rather lend to taxpayers rather than directly to businesses and households. But, rightly or wrongly, they think that we are very unlikely to default (and when I say "we", I of course mean the United Kingdom, the state, as a sovereign borrower).

So the device should increase the supply of precious credit to the real economy - although some will worry about whether taxpayers should be taking on the risk of financing the housing market and companies in this way.

Also - as I pointed out yesterday - we as taxpayers will be insuring some of the bad loans made by our biggest banks, to limit their future losses from their reckless lending.

The aim of this would be to give banks greater confidence about their prospects - with the intention of assuring the banks that they have sufficient resources to lend more to all of us.

Yesterday I disclosed two other Treasury wheezes: to reduce the massive cash drain for Royal Bank of Scotland, HBOS and Lloyds TSB from the dividends payable on preference shares held by the Treasury; and to staunch the massive contraction of lending by nationalised Northern Rock.

What's more, there'll be a new Bank of England scheme to allow banks to swap assorted loans for Treasury bills - which in effect gives them access to a vast pool of cash to facilitate the provision of more credit.

I hope that by now you spot the pattern. It's all about making sure that enough loans are being made to keep afloat viable businesses and to prevent the contraction of the housing market becoming devastatingly savage.

But you'll also identify an apparent injustice and a paradox.

The seeming unfairness is that banks are being sheltered from the full consequences of their own fecklessness - for the supposed wider good.

And the paradox is that the government wants to make more credit available to reduce the severity of a recession that was caused by a decade-long, crazy lending binge.

Update 19:32: Royal Bank of Scotland will convert the 拢5bn of preference shares it has sold to the Treasury into ordinary shares - which means that taxpayers' stake in this enormous bank will rise to more than 70% (again, see yesterday's note for more on this).

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