The debate about bailing out the banks was supposed to be about necessity, and necessity alone – would it be worse to see a wider collapse of the banking system or to establish the moral hazard of protecting the institutions from the consequences of their errors? Just about all sides agreed, back in the latter years of the last decade, that the system needed to be saved.
But, never one to confess any problems, Gordon Brown didn’t want to leave it at that. A vast cost incurred from the necessity of a crisis wasn’t something he thought acceptable. It’s hard to credit it now, but he established a Treasury line that taxpayers should be happy about nationalising crisis-stricken institutions which no-one else wanted to invest in, because the taxpayer could make a big profit.
It wasn’t a very good argument. If someone offers you a supposedly brilliant money-making scheme, but they have come to you because no-one else in the entire world is willing to invest in it, you ought to smell a rat. There was a good reason why it was a) a crisis and b) a bailout rather than c) a wonderful opportunity the British Government had stumbled on which private investors stupidly hadn’t noticed.
Voters did detect more than a whiff of rodent about the deal, which is one reason why Alistair Darling’s glee that “My judgment was right” in April 2010 wasn’t rewarded at the ballot box a few days later.
Lo and behold, our RBS shares are about to be sold at a loss of £7.2 billion. Other bailed out banks did somewhat better – Lloyds shares are not anywhere near as bad as RBS, for example.
However, the Treasury is still claiming the whole thing was a great money-maker. “When you take the banks in total, we’re making sure taxpayers get back billions more than they were forced to put in,” the Chancellor told the Mansion House audience last night.
In pure cash terms, he’s correct (incidentally, those are the same cash terms by which he prefers not to measure progress on the deficit). But, as the National Audit Office helpfully explains, the real costs of the bailouts and loans offered to the banks – loan returns well below market rate, opportunity costs from not putting our money elsewhere, borrowing costs incurred and outright losses in some cases - mean that “the schemes have represented a transfer from taxpayers to the financial sector.” It’s that simple – while Treasury officials do a fan dance with the technicalities, the general opinion that we gave the banks a load of our money is true.
As I began by saying, the point of the bailout was necessity, not to make a profit. It was a political fantasy on the part of Brown and Darling to pretend taxpayers would do well out of the deal. We shouldn’t perpetuate that fantasy now.