RESCUE PLAN LATEST: Last throw of the dice

The government’s latest economic intervention announced today is far bigger than had been anticipated. It’s not just the banks that the government is trying to save. It’s the entire British economy. A colossal £200 bn is being pumped in and Gordon Brown says the money is not just about bailing out the banks but is for individuals and businesses and should free up lending and end the mortgage drought.

Brown singled out the Royal Bank of Scotland for specific criticism. It has turned in appalling losses totalling £28bn. The losses are due to a series of catastrophic mistakes. One of the major worries is that other banks still have undeclared toxic assets on their books and when they are finally revealed there will be more shock waves like bolts of lightning hurtling through the economy. The City was still not impressed with the government’s intervention. Bank shares fell sharply.

Much of the blame for the RBS fiasco is being accredited to former boss Sir Fred Goodwin. Goodwin bought the Dutch bank ABN just before the turn down. Today it’s worth a fraction of what he paid. There were other big mistakes. One involved lending £2.5 bn to a Russian billionaire. The money is unlikely to be seen again.

The government has allocated £50bn to help business. But most of it will go to major sectors such as cars and construction. Small and medium sized businesses were less confident that the money would flow towards them. There are going to be complicated policing measures to see who gets what and why. The hugely criticised Financial Services Authority has been effectively sidelined. Needy businesses will have to give the government IOU’s if they want to borrow money. And only rock solid businesses with first class assets will be helped.

Northern Rock Bank has been instructed that it must start lending again. Today’s moves are another massive leap towards total nationalisation of the entire banking system. The Bank of England will have unprecedented powers in being able to direct the affairs of businesses and banks.