The British taxpayer better have broad shoulders - because Prime Minister Gordon Brown's knocking on the door again. The banks have had £50 billion ($72.5 billion), the economy has had £22 billion in stimulus, and now Mr. Brown is asking for another £20 billion to be used to guarantee bank loans to business. I say 'asking' when we all know 'taking' is a more appropriate description.
The scheme announced by Peter Mandelson during Squawk Box Europe this morning is aimed at getting banks to start lending again to small business. It has become necessary because the initial bank recapitalization package has failed to 'encourage' the banks to maintain reasonably priced credit lines.
No wonder the banks are reluctant as they fret over their own viability with the wholesale credit market still tight, and the deteriorating economy exposing the vulnerability of existing loans. Rising unemployment forces people to default on mortgages, car loans, credit cards and so on. The banks remain paralyzed by their own problems; the latest round of job losses illustrates they are still struggling to adjust to the new market place.
Will it be money well spent? We can only hope. We had former Conservative minister and banker John Redwood on the show; the loan support program was originally a Tory idea but with substantially more money on the table. It might have had a chance at restoring confidence at the banks to lend if the sums were bigger, but frankly I doubt it.
There is a school of thought the government is throwing more good money after bad. It argues the banking sector will remain frozen for some time to come and the more useful strategy would be to bypass the banking structure to make the money directly available to business.
I have a lot of sympathy with this, and it is a path the US is starting to go down with the scheme which will provide direct support to business. There is little point in offering guarantees for loans that will not be made. Loan officers who have been criticized for making 'unhealthy' loans are not going to lend to companies where business models are likely to be damaged by the slowdown.
The banks need time to recover. Companies need credit now. Surely the time must come soon where the government bypasses the commercial banks and uses the Bank of England's expertise to directly meet business needs. At least the over-burdened taxpayers would have a clearer idea of where their money is going.
On an unrelated matter...the Chinese have just reported a 40 percent increase in internet use in 2008. China now has the greatest number of internet users in the world, albeit that still only represents 22 percent of the population.
This is growth! For entrepreneurs looking for a ripe market to tap - this one still has plenty of potential. And the good news is the B2C market remains relatively untouched.
Best for the year ahead.