UK Shadow Chancellor George Osborne has got a great idea: offer the public a discount to buy shares in banks taken into state ownership over the last two years.
Quite aside from questions about how the government should offload its shares in bailed-out banks, whether that’s foreseeable within a parliament, whether the first duty is to maximise receipts to pay off debt, what the right discount would be, whether there’d be a market, or why the public should ‘pay twice’ for the banks...
Behind the proposal is the assumption that everything will return to a predictably profitable pattern. It will, because this looked like the norm over the last two or three decades. Because we want it to – they pay oodles of tax and we like going to cocktail parties with our rich friends. Because ‘banking as normal’ is a fine thing, if only the bankers aren’t too greedy (but if they are, they make an easy political target). Because exploring alternatives to banking as normal is rather hard work, intellectually and politically. Because we can’t imagine the consequences if the banks crashed again. And because a few tweaks to the regulations will make the banks as safe as houses were before the property market bombed. In short, when the good times return, they’ll return for good.
Elsewhere, the government is lending money to banks at near-zero interest rates. Those that are extending household mortgages to anyone are doing so at 3%-5% over their financing cost, an historically wide spread. (In the pre-crash fast lane, it was under 1%, and it’s generally been under 2%.) Since near-zero rates are not available to private borrowers to buy houses, let alone groceries or shares in banks, or to start a business, this looks suspiciously like a privatised tax. Near-zero rates are not available to the government either: long term treasury bonds are trading at over 4.5%. This is a tax, or will be paid for by one. So rather than trail a discounted fund-raising sale that may not happen for years, it might be more useful for the government-in-waiting to address the iniquity of taxpayer funds going into bank profits every day simply through interest rate margins.
I don’t often agree with Peter Mandelson’s utterances, and I expect he shares the Tories’ optimism that normal economic service will soon be resumed, but when he called George Osborne’s idea a “silly little gimmick,” he got it about right.