Mortgages Uncovered

As the cries for nationalization in the financial industry get louder it is crystal clear that the industry can’t afford to take any risks in the future.

Even given the government’s second rescue package, which many estimate may cost as much as £500 billion with an additional cash injection for Royal Bank of Scotland as the bank’s share prices continue to plummet. Within the matter of a week, over £20 billion has been completely wiped off the overall value of Barclays, RBS and Lloyds Banking Group which now leaves the three valued at £17 billion collectively.

For a while, calls to go the whole hog and nationalize the banks intensified – a point of view summed up by John Greenwood, chief economist at fund manager Invesco Perpetual: “By not removing all the toxic assets of the banks in one fell swoop, for example by injecting them into a ‘bad bank’, the government is leaving itself open to the risk that the economy and the banks’ operating results will deteriorate further, requiring open-ended intervention in the future. This means that if the other components of the government’s plan for economic recovery – such as its fiscal spending plans, or any quantitative easing by the Bank of England – do not work, then the authorities will gradually be drawn into larger and larger commitments to the banking system. Full-scale nationalization of several large banks would probably be the ultimate outcome. If this is the case, why not do it immediately?”