NatWest and a £10.5 billion loss, US/China detente, Sugar drops
NatWest and a £10.5 billion loss.
Amid the panic of 2008, when banks were going under at an accelerating pace, governments were under pressure to intervene.
The choice was between stemming the panic and accepting the high probability of a depression on a scale similar to the 1930s.
The choice to support banks and force mergers was the right decision at the time. How that was handled differed significantly between countries.
The USA provided funds to the banks to remain afloat but also forced them to write off bad debts. That also led to a massive foreclosure crisis where millions of people lost their homes.
By the time the TARP program wound down the government came away with a profit. It is still making profits from both Freddie Mac and Fannie Mae.
Nevertheless, The Federal Reserve pursued quantitative easing ever since because it has been fearful that the economy can’t function without excessive monetary accommodation.
Iceland chose to only intervene after their banks had written down bad debts. That spared the public purse but was possible because many of the debts were on overseas assets.
The Eurozone’s crisis forced governments to absorb private sector debts. That was because there was a significant imbalance between creditor and debtor nations.
To have done otherwise would have bankrupt the pension systems of countries like Germany while favouring debtor nations.
Years of austerity followed, where countries were forced to balance their budgets despite moribund growth prospects.
Several European countries recouped the majority of their rescue funds. However, the decision to repay and partially restructure debts, rather than write them off, meant they did not profit from the enterprise.
NatWest falls into that category. The UK will end up losing over £10 billion on the intervention.
So what have we learned from this exercise?
