The FT noted yesterday that:
Britain's chief financial regulator has said the coronavirus pandemic is posing the first serious test of business banking rules introduced after the financial crisis – but admitted that his ability to take action over lenders' behaviour remained “limited”.
Chris Woolard, interim chief executive of the Financial Conduct Authority, said he was monitoring how banks were handling the rollout of the government's bailout loan scheme after companies and politicians raised concerns.
But he cautioned that almost all commercial lending was still unregulated and his powers to ensure lenders treated businesses fairly relied solely on post-2008 safeguards governing senior managers' conduct.
In other words, we learned nothing and did nothing of any consequence after 2008. And so for all the bluster there is nothing the government can do to require that banks lend to smaller businesses now. Soi they're not doing so.
This makes Sunak's claim yesterday ring very hollow. He said:
I am not persuaded that moving to a 100% guarantee is the right thing to do. Some people have made some comparisons with what is going on in other countries. I think when you look at the totality of what we are doing it is more significant in scope and scale.
This is utter nonsense. In Germany and Switzerland 100% loans have been available virtually on demand, with checking only to tax records. And the self-employed have been able to access money quickly. In the UK cash flow crises are now pulling many thousands of businesses down and banks will not take the risk in the 20% part of lending that they have to assume responsibility for, meaning the amount of funding being delivered is wholly inadequate and entirely as a result of failure in the government's design of this scheme.
From beginning to end the UK response looks like a design by a none too successful banker who has ended up as a politician and who has no idea how the real world of small business works. But that's what we have got in the treasury and the cost of that will be enormous when coupled with the failure of his predecessors to deliver real reform to banking that would have made it the servant of the UK economy once more, which it is still emphatically not.
One day, maybe, banking will be put back in its place. But that's one day, at best. And I can only live in hope.
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Summarising: total failure to reform banking post 2008 (making it the servant of the economy) coupled to an inept clown gov’ with a inadequate finance minister holding his post by accident and taking half measures.
The open question is what will happen next: slo-mo societal collapse (no work, no pay, no food)? muddle-through with bad outcomes? combo of the two? (so it drags on) all amplified by an increasingly “little-Hitler” police force (emphasis on “force”).
People will start to do a “compare& contrast” with other countries and wonder why UK outcomes are so crap compared to others, Sunak’s plastering act will not be able to keep up with the rate at which cracks are spreading in the Tories facade.
The longer this sort of stupidity goes on, the more clamour there will be to initiate a premature return to normal, thus risking another infection spike.
Another tacit acceptance that closing all those local tax offices and denuding HMRC was a big mistake.
But ultimately, the worse aspect of this is that it is teaching people that Government (and democracy) is useless and cannot help them. So, why bother with it all? The cunning of Neo-lib unreason still at work, even now.
I am astonished you haven’t chosen to comment on one of the most incredible financial events of all time – the price of oil going into negative territory..would be great to hear your “expertise” on West Texas Immediate crude and the mathematics of contango and backwardation in the derivatives world and also the cut throat capitalism of those managing storage tanks, refineries and fleets of tankers..or maybe best stay clear as i guarantee you will make a mess of it..
Maybe it is because I was up until 2….and to be candid all this morning’s blogs were written last night as a consequence
I hate to have to admit this, but I am human, sometimes
And anyway, you wholly miss the point, just for the record….
“And anyway, you wholly miss the point, just for the record”
Except i wasn’t making one..
If you couldn’t see one that explains your problem….
it’s ok, leave it to me – I am an expert (reclining type of course) on West Texas Immediate Crude – basically, they got too much of it and have to get it somewhere. Happens in UK when too much wind is produced (and I have to say there is a lot of it about..)
That’s about it…..
And billionaire Richard Branson has the cheek to ask for a £500 million handout from the government whilst thousands wait for a meagre universal credit payment in a few weeks time.
I have to say two things:
1) We have to accept that a party like the Tories who are dedicated to destroying and remaking things for themselves and their funders are just no good at addressing the wider needs of the country as a whole. It goes against their culture of laissez-faire. They are not hard wired to care, only hard wired to destroy.
2) The way business finance is conducted must surely be reviewed. Price competition, shareholder returns, cash flow – none of these things seems to be very robust to enable companies cope with anything like this – resilience seems very low or too close to the edge. This is a big concern.
I am working on issues related to the latter
I have to say, although I am very light on the detail for my post Richard, it’s how quickly many companies like Virgin seem to have got into trouble so quickly – a huge brand – it seems redolent of what happened at Enron – based on your bête noir – poor accounting standards. You tend to think of companies being very financially strong, but evidently something is wrong somewhere when there is such a precipitous drop in viability – it was just a hunch, rather than an insight. It sounds to me that they are all in debt up to their eyeballs.
My research suggests many FTSE 100 companies are not in good shape and are deeply under capitalised
Couldn’t agree more with the article. I run a “micro” business. Closed, naturally. Staff on furlough, hopefully soon, not yet negotiated the fences on the Furlough Grand National. No sign of grant, it will take 10 days, that was 29 days ago. I will need a loan to get through to the other side of this but have not entered that race yet. Hoping the rules might be changed to 100% guaranteed but not holding my breath. I know of others refused and my first tentative steps at examining the course have me worried. Without getting onto the course you can ride round the paddock and get an idea of whats coming. Arbitrary special jumps which will limit the amount you can borrow. So do I tailor my request to this or do I ask for what my business plan actually thinks sensible? Rather too many unknowns to do genuinely sensible plan, ( I of course don’t know what usurious rate I might be offered is one of them). One of the stable lads said if I limited it to 30K they would only credit check me, despite all the other guff. Don’t like that idea. Really don’t care for credit agencies, all too simplistic. Worried that if the answer is no then the vet will shoot the horse and the staff will then be out of a job and reduced to the oh so generous handouts from the DWP. The economy depends on household spending not the Casino Capitalism the the Chancellor and so many of his Tory cronies belong to. The take up by small firms for the loans is low but they need cash to get through. If jobs and otherwise productive capacity aren’t preserved then we will end up with a new Great Depression. The Government seem hell bent in making everything as complicated and difficult as possible but no matter what, the banks must make a killing on this.
Good luck…