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LQD: UK State Bank

by yacker Thu Jan 8th, 2009 at 08:51:42 PM EST

John McFall, Labour MP and Chair of the Commons Treasury Committee, has this in The Guardian:

It is clear that the political centre of gravity has jumped violently, and that the economic textbooks need urgent revision. The situation, with private banks freezing up credit, is so serious that consideration should be give to the establishment of a state bank in order to deliver government lending targets.

A year ago such a demand from a leftwing politician would have provoked a "loony left" response. But no more; after the extraordinary self-induced implosion of the financial system, the future of the market system now rests in the hands of governments...

...One of the monetary tools used by the postwar Attlee government was the direction of bank lending...

The Post Office, having secured a vote of confidence from the government with the renewed card account contract, now needs to transform itself into a full provider of financial services. What better way to set it on this route, than to provide it with responsibility for realising the government's lending ambitions? However, if it takes a new state financial institution to deliver this much-needed lending, then so be it.

One problem with the Post Office is that Mandelson is setting it up to be privatised with a foreign buyer (part-privatised initially, but we know where that logic leads). A state bank not owned by the state would be ever so slightly problematical, besides which they already have Northern Rock. But maybe McFall is also concerned to use this issue here to repurpose the Post Office and oppose its privatisation.

Many countries used to have a "Postal Bank". Spain privatised the Caja Postal and other state banks in the early 1990's to form Argentaria which was then quickly taken over by BBV. Postal Banks tend to be both popular and solvent. Look at what happened in Japan in 2005: Postal Bank privatization triggered an early election.

It is really a no-brainer to use the wide-reaching network of Post Offices as service delivery points for a national bank.

The government should start lending immediately. They don't have to set anticompetitive interest rates. Offer loans at base rate + 2% or LIBOR + 2%. That leaves plenty of room for private banks to undercut around +1% if they actually are solvent enough to continue lending...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Jan 9th, 2009 at 03:05:36 AM EST
the UK has gone beyond a banking crisis into areas where people are concerned for their jobs because their employers are going bust which has come about because people who are concerned for their jobs aren't spending money.

the govts response has been to encourage people to borrow money to spend and berate lending institutions for not be as generous as they used to be. Trouble is, I really don't think the demand for lending is there, because people don't want ot borrow money when their job security is under pressure.

If you want people to spend money, you have to make them feel secure either that their job is safe or that there is a vibrant economy to re-employ them readily. It is on that score that the govt is failing. There are several things that could be done readily, even if not cheaply, but are not anywhere on the govts agenda.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Fri Jan 9th, 2009 at 09:06:20 AM EST
It is not consumer borrowing that the government should be focusing on but revolving credit for businesses, and business loans. Yes, there will be a retail slump, but consumer demand is not the only way to fuel the economy.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Jan 9th, 2009 at 09:09:52 AM EST
[ Parent ]
Indeed and a majority of the bankruptcies at the moment are due to failures of revolving credit.

(This is not to say that some of those businesses didn't deserve to have their credit revoked, on the merits, but looking at the overall system, this is the worst possible time to be indulging in that.)

by Metatone (metatone [a|t] gmail (dot) com) on Fri Jan 9th, 2009 at 09:20:05 AM EST
[ Parent ]
That's like cancelling people's overdraft facility on their current account and then wondering why they're sinking under the weight of charges and fees for unauthorised overdrafts.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Jan 9th, 2009 at 09:44:36 AM EST
[ Parent ]
here in the U.S.  As Jerome pointed out yesterday, the truer statistic for unemployment here is 13.5%. The actual unemployment rate is probably closer to 20%, when you include the homeless and the folks who are essentially unemployable due to drug dependency and psychological distress - both of which are exacerbated by financial stress.

paul spencer
by paul spencer (spencerinthegorge AT yahoo DOT com) on Sat Jan 10th, 2009 at 12:35:38 PM EST
[ Parent ]

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