<-- Part 1: Imminent Danger of U.K Bankruptcy

Bankrupt Britain

Part 2: U.K Government Destroying Britain to Help Banks?

by Chris Tew, February 4, 2009

 burning pound

Numerous economists, businessmen and investors warn of impending U.K bankruptcy. Yet practically 100% of the U.K government supports some form of bank bailouts, drastically increasing the risk of the U.K going bust.

U.K Prime Minister, Gordon Brown, has introduced approximately £900,000,000,000 in various bank bailout schemes with the worrying prospect of even more bailouts on the horizon. This is despite growing warnings of the U.K government being unable to finance this highly expensive scheme.

This is the biggest gamble of tax payers money ever made by the British government, if it fails individual tax payers stand to each lose thousands. A recent news broadcast discusses the latest bailout plans:

Bank Bailouts Almost 100% Supported by Government Despite Bankruptcy Criticism

Despite criticism from other parties most of the government has supported bank bailouts in some form or other. When bank bailouts were initially introduced David Cameron, the leader of the opposition, backed the idea. Also the Liberal Democrats also back the idea of bailouts under the guise of  'Removing bad assets from banks' balance sheets'. This means practically 100% of the U.K government have supported bank bailouts in some form or other.

Niall Fergusen is one of a number of economists and financial commenter's that predict the British government is pushing the U.K into bankruptcy and/or refute funding bank bailouts. This includes:

Many believe that the level of debt the U.K banks have brought on themselves cannot be taken on by the U.K government. In other words they believe that despite the bailouts, the banks will go bust anyway, as will the British government in trying to prop them up.

Now even David Cameron warns of U.K bankruptcy while Gordon Brown argues the idea is "ridiculous".

If it is true that the U.K government bank bailouts are not going to be enough to save the banks, then I can only conclude our politicians are either inept or have some other agenda.

What Is Gordon Brown's Master Plan?

Britain GamblingIt is easy to call a politician stupid but that's somewhat illogical, especially given Gordon Browns especially strong academic record. It is likely that Gordon Brown is fully aware of the viewpoint of U.K bankruptcy before the recession, after-all the opposition has pointed it out to him.

If Gordon Brown is aware that the bank bailouts could cause Britain to go bankrupt, and assuming the many doom-mongerers are right, then what is Gordon Brown's master plan?

I see 3 possible agendas that Gordon Brown might have:

1. Brown Wants Britain to Join the Euro?

It has already been said that if Britain goes bust then joining the Euro would be a route out of the mess, especially if sterling collapses.

Gordon Brown has previously spoke about a new 'Global Europe' and a 'New World Order'. Is this talk of a 'Global Europe' a hint the Gordon Brown wants to see the U.K join the Euro?


However, Gordon Brown has previously stopped the U.K going into the Euro against Tony Blair's wishes according to the BBC biography:

"Blair saw it as his destiny to take Britain into the single European currency but Brown, who was less enthusiastic, managed to seize control of the policy. He turned it into an economic - rather than a political - decision by announcing five economic tests which had to be passed before he would recommend that the issue should be put to a public referendum. He would later hail it as one of his best decisions. "

Whether joining the Euro is Gordon Brown's hidden agenda or not, the destruction of the British pound to force the U.K to adopt the Euro will undoubtedly filter real wealth away from many U.K citizens.

2. Brown Loves Bankers

brown and Geithner

Gordon Brown and Kevin Rudd, Prime Minister of Australia, discuss economic issues with
Tim Geithner, then CEO of the New York Federal Reserve bank, now Obama's Treasury Secretary.
25 September 2008. Image source: Flickr

Gordon Brown has discussed his anger with banks and his commitment to helping the working people of Britain.

Yet the banks are benefiting from government money, while the prospect for the average citizen still remains uncertain. Banks continue not to lend yet continue to get tax payers money thrown at them through bailout schemes, loan guarantee schemes and bad asset removal schemes to encourage banks to lend.

Lets look at the great deal banks are getting:

Banks love bailouts:
Bailouts are great for banks because they got to take huge risks which in the short term allowed them to make record profits, with bankers getting huge bonuses. Now the excessive risk taking came back to haunt them, wiping out their profits and making the banks insolvent.

In a free market the banks would go bankrupt and be eaten up by new companies and competitors that would replace their role in the market. It's simple: badly run businesses fail and those that work well survive and prosper. However, the banks are protected from paying the ultimate price of bankruptcy because they are bailed out by the tax payers.

This allows the banks to take as much risk as they like, make huge returns in the short term, and if everything goes wrong later they can start all over again with someone else's money.

Banks love loan guarantees:
Loan guarantees are great because a bank can loan money and if it fails then the tax payer foots most of the bill, yet if the loan gets repaid the bank makes a profit. A win-win for the bank, and a lose-lose for tax payers. The fact that the tax payer has to back the loan with real money and the banks back it with 'created' money doesn't come into question

A bank looking to maximize profits would use the loan guarantee on the riskiest loans putting the tax payer at greater risk, while continuing to lend very cautiously to the safer borrowers.

The problem of risky lending caused this mess, and now the government wants to encourage it with the risk now falling immediately on the tax payer.

Bad Asset Removal is the Icing on the Cake:
Bad assets refers to bad loans, which means loans that are unlikely to be paid back. These bad loans in the U.K have been estimated to run to over £1 trillion.

The U.K government is proposing buying these bad assets to encourage the banks to lend. This therefore allows banks to sell bad debt to the tax payer, as if it was good debt, through a government scheme.

Let me explain further. If company A was selling a debt to company B, then company B would be getting the debt now repaid to them, plus interest. So company B would pay roughly how much they would earn from the debt to company A, minus an amount that accounts for the potential that the debt will not be paid back. If the risk of the debt not being paid back is very high then company B will pay a lot lot less than the complete repayment amount because the debt is so likely to go bad.

It was the realization that a lot of these debts being re-sold were not going to be paid back which was a major trigger for the credit crisis.

If these £1 trillion of debts were worth any money somebody somewhere would have bought them already, but nobody wants to for a very good reason: the majority of the debts will unlikely be repaid. But there is still one buyer left... the tax payer, who is essentially buying nothing of value, and hence simply giving away their money to the banks, in a government initiative to get the banks lending.

So these bad asset removal schemes are essentially a guise for tax payers (both businesses and consumers) to GIVE money to the banks, so they can then loan money from the banks! Confused why this is a logical strategy? Me too!

No Punishment, but Rewards:
Gordon Brown announced his anger towards irresponsible bankers and stated that they should be punished.

"I am angry at irresponsible behavior," he told GMTV. "Our economy is built around people who work hard, who show effort, who take responsible decisions, and where there is excessive and irresponsible risk-taking, that has got to be punished."

Despite this strong statement his his spokesman defused the idea of retrospective punishments stating: "The key issue is that we reform the financial system now, going forward."

To the best of my knowledge no official punishments have been made against these irresponsible bankers. Occasional isolated cases of top bankers quitting under pressure have recently occurred, but even in these cases 'golden goodbyes' and pension schemes see bankers leave with millions. It is odd that a company effectively bankrupt can afford to pay its failed management, which have been forced to step down, millions of pounds.

The large majority of bankers involved in creating the boom still have their jobs and received bonuses while tax payers continue to bail them out of bankruptcy. While being a banker might mot be listed among the most high paying jobs, it has certainly been one of the most lucrative careers available, especially in the UK where endless tax breaks have been given to bankers and hedge fund managers allowing them to pay anything between 0-10% tax.

It is no wonder that protests followed a week after Gordon Brown announced his fruitless anger towards irresponsible bankers:

bailout protests

Image source: Flickr

Tax payers are GIVING money to the banks,
so they can loan more money from the banks.

Evidence Gordon Loves Banks?

blair brown mafia

Image source: Flickr

The generous bailout schemes point to the conclusion that the government has some hidden reason to be so kind to banks at the expense of tax payers. But what benefit would Gordon Brown get from this?

There are many answers to that question all surrounded with speculation and many entering the realms of conspiracy. A popular theory being that Gordon Brown is part of an illuminati, that oppresses the world through debt slavery.

Putting conspiracy theories aside we can turn to Gordon's old partner and ex-Prime minister, Tony Blair, to get an idea of what might be in store for Gordon's future:

Tony Blair now works for the bank J.P. Morgan and Zurich Insurance earning an estimated £7 million a year. Tony Blair's former chief of staff also joined a bank.

The banking industry is proving to have an incestuous relationship with the government and this should not be ignored.

It seems that no matter what, the banks always win.

3. Gordon Brown Wants the Government to Own Banks

taxpayers your countrys banks need you

Image source: Channel 4

Back in 1975 Gordon Brown wrote:

"The public control of industries is essential to the provision of social needs and services, the priorities being building and construction, food and food processing, insurance and pensions; the industries essential to the planning of services vital to the economy - the priorities being energy as a whole, land, banking and foreign trade...  industries whose monopolistic position threatens the ability of society to plan its own future."

This essentially translates to a young Gordon Brown believing that every major area of industry and commerce should be government controlled, essentially saying that the growth of monopolistic companies (such as banks) are damaging to society.

He therefore suggests government control over the main areas of industry. The main potential risks in this strategy would be that the government would not act responsibility in the interest of the public, and that the public companies would become unproductive without the corrective force of free markets and the perpetually rewarding stream of tax revenue.

Could Gordon Brown be That Crazy?

  • Is Gordon Brown planning to bust the economy to force the U.K to join the Euro?
  • Is Gordon Brown risking UK bankruptcy to benefit himself in a long-term personal agenda with banks?
  • Or is Gordon Brown risking a bust Britain to achieve a lifetime ambition to get banks under government control?

There is of course the potential explanation that Gordon Brown has no hidden agenda, he is making what he believes to be the best decisions for the U.K economy and that the U.K is not likely to go bankrupt.

However, with the threat of 'Bankrupt Britain' becoming more real and garnering wider support I believe the answers to questions such as these need much greater scrutiny. Yet the topic of 'Bankrupt Britain' has barely been mentioned in the U.K news. In fact I was astounded to see how this topic has been avoided by the larger news organizations in the U.K while it is so fundamentally important to the people of Britain.


Part 2: Why are British People Being Kept in the Dark?