Monday 19 July 2010

Deliciously wrong on so many levels

From the City AM:

THE Prime Minister will today announce plans to fund charitable projects using hundreds of millions of pounds that is lying dormant in unclaimed bank accounts (1)... A new wholesale bank (2) will be responsible for doling out the money – thought to total up to £400m – to charities and other voluntary organisations that apply for grants...

"I can announce today that a [Big Society Bank] will be established using every penny of dormant bank and building society account money allocated to England (3)," the Prime Minister will say, "These unclaimed assets, alongside the private sector investment that we will leverage (4), will mean that the Big Society Bank will – over time – make available hundreds of millions of pounds of new finance to some of our most dynamic social organisations (5)."

The government is using legislation passed by its Labour predecessor, which allows it to tap cash that has been lying in bank accounts that have been dormant for 15 years or more. Labour was planning to hand the cash out alongside National Lottery funding (6).


1) Does he seriously imagine that banks are holding £400 million in coins and notes just in case people drop in again to withdraw it? As a simple matter of fact, those coins and notes were lent out again to somebody else long ago - all the banks are left over with is a latent liability to those depositors to repay it if they ever show up.

So presumably the government will help itself to £400 million's worth of bank assets (and hopefully allow the banks to cancel the latent liability - perhaps the holder of such an account would be able to reclaim from the government?).

So the government is not actually stealing this money from the depositors (unless they introduce a law that says that the right to withdraw from a bank account is lost after fifteen years, which you may or may not think is unreasonable in itself), they are taking it from the banks, while simultaneously merrily bailing them out to the tune of hundreds of billions of pounds in a desperate attempt to try and keep the land price bubble inflated - if the government really wanted to rustle up £400 million in a hurry it could ask for one per cent of the bail out money to be repaid.

2) Excellent. Another state-owned bank giving money to Tory-approved fakecharities. What can possibly go wrong?

3) Why just England?

4) "we will leverage" is presumably code for "we will bung in another few hundred million pounds of taxpayers' finest". Remember that a bank only has three sources of "new finance":
a) ordinary depositors or investors in new shares and bonds;
b) taxpayers; and
c) a land price bubble; whereby the purchaser takes out a mortgage for an eye-watering sum (i.e. the purchaser gives the bank an IOU) and the bank in turn credits the vendor with an eye-watering sum in his deposit account (i.e. the bank gives the vendor an equal and opposite IOU). In the short term, the bank benefits from this practice because it can earn an interest margin on a far larger sum of money, but the long-run cash flow is from purchaser to vendor (as you would expect). So this isn't really "new finance" and isn't available for anything else.

So perhaps he means that the Big Society Bank will take deposits from or issue shares to people with a bit of spare cash. Now, if they are giving that spare cash to the BSB rather than to another bank or investing it somewhere else, how much extra money is there? Answer - none.

5) If they were that "dynamic" they wouldn't need a government bail out, would they? These 'organisations' would be able to raise money from the people in 4)a) above if they were that "dynamic".

6) New boss, old boss.

11 comments:

Steven_L said...

So we're having a 'green' (state) investment bank and a 'big society' (state) bank?

Let's set up a green fakecharity! Anyone any idea what my new green fakecharity can do?

JuliaM said...

"1) Does he seriously imagine that banks are holding £400 million in coins and notes just in case people drop in again to withdraw it?"

I can believe that George Osbourne believes it...

cornyborny said...

Steven_L: it could seek to 'raise awareness' of something or other. Stress suffered by parakeets in the Amazon, that'll do. No actual work required - just fire off nonsensical press releases every so often and hire an ad agency to produce a scary nonsensical primetime ad. All to raise awareness, of course. (Of the indispensability of your fakecharity).

Foolproof scheme to coin it in. You may find that you lose the ability to sleep at night, however.

Lola said...

Sigh. Just goes to prove that there really are only three types of people in the World. People you like, people you don't like and wankers.

dearieme said...

Oh dear! On the other hand, I have a long-abandoned PO Savings Bank account with (I think) a bob in it. He can lavish that on any cause he chooses.

formertory said...

Does he seriously imagine that banks are holding £400 million in coins and notes just in case people drop in again to withdraw it?

I certainly hope that he acknowledges that the banks have a liability to the depositors. If I deposit money in an account I expect a balance to be there when I want it back; after all, if I didn't give anyone else the right to withdraw it, it should be, right? Barring death / rights of set-off etc.

It's no one's business but mine whether I want to leave money apparently dormant for 10 or 20 years. Any more than were I to buy gold at the bottom of my garden, it gives someone a right to come and dig it up.

I rather resent the idea that legalised theft can be employed to give money to voluntary organisations and charities, or anyone else for that matter. Especially given the experience of trying to deal with some of the people involved - well-meaning but incredibly dim and ill-informed people who've percolated down the filter-bed of useful social employment to the lowest possible level.

I must have missed the point of government somewhere along the line. If only Dave would turn all Thatcherite for a while and repeat the mantra: "There is no such thing a society. Let alone a Big Society."

bayard said...

Another level on which this is wrong is that it's in the future tense. Why can't these impatient bastards wait until someone has actually said something before reporting it. What is so earth-shatteringly important about Dave's plan to put the country further into debt to the tune of £400M, in the hope that it will never be asked to repay it, that it can't wait a few hours?

Obnoxio The Clown said...

There is fuck-all "delicious" about it. Wrong, there certainly is.

Steven_L said...

You may find that you lose the ability to sleep at night

What because I can't stop laughing?

Mark Wadsworth said...

SL, I'm getting in there with The Cow Attack Foundation first!

JM, that's the worrying thing...

CB, I am raising awareness of cow attacks. Valuable public service, IMHO.

L, you missed off "complete morons".

D, most public spirited of you, kind sir.

FT, we don't know whether the depositor could reclaim it from the government yet. There is a general rule in commercial law that after x years, unclaimed deposits and advance payments can be retained by the recipient.

B, hence the expression "Check against delivery".

OTC, it's delicious because it's so-o-o wrong on so-o-o many levels.

SL, nobody will be able to sleep once I raise awareness of potential cow attacks to panic levels. Mwah ha ha.

19 July 2010 13:56

Anonymous said...

I find all this talk of cow attacks deeply worrying, and I'm very grateful to you for highlighting this massive social issue on your blog. Surely we need more research into the subject to identify the issues and recommend measures to control this menace. A few million pounds would be a small price to pay if it avoids even a single death or horrific injury.