Did you ever hear the joke about the guy falling from the window of a 50-storey building? As he passes each floor, he says to himself for reassurance: so far, so good … so far, so good.
Of course we all know the fall isn't really that important. It's the landing that counts.
It's a worthwhile parallel to what we're seeing in Her Majesty's Kingdom of Great Britain and Northern Ireland. Banking stocks are in free-fall. Where and how they land will mean everything. And with each passing day, that landing looks more and more like nationalization.
But here's the dirty little secret: that's already happened. Banks, at the best of times, operate as agents of the State: capital restrictions, government charters, business limitations, deposit guarantees, etc. At the worst of times – and I can't imagine it gets much worse than this – government involvement is ramped up even further.
At present we've got backstops worth 50,000 pounds ($68,500) on deposits and guarantees on bank debt courtesy of the British taxpayer. Banks are operating almost entirely off the back of short-term loans extended at penal rates of interest that rank senior to other obligations. Future business plans are scrutinized by lawmakers and not-so-subtle suggestions proffered as to how the banks should advance the (billions) in cash they've been handed. Share prices are trading at fraction of their historical – and wind-up value.
Sound familiar? It should. It's the effective condition under which every company under Chapter 11 bankruptcy protection in the United States operates. Right now, the Treasury is the Debtor-in-Possession (DIP) lender, Gordon Brown is the Delaware judge and Alistair Darling the People's restructuring litigator.
And I don't have a problem with that. The vast majority – but not all – of the UK banks simply would not be solvent but for myriad government support.
I could – and often have – argue that the government's tactics have been flawed: Mervyn King was too late to appreciate the gravity of the credit crisis, Gordon Brown too indecisive to understand that directly buying mortgage assets would have offered a better return for taxpayers than shoring-up the limp capital base of the banks.