The UK or the US way?

Two controversial plans developed this week but is one more so than the other? The UK led the recapitalisation programme, encouraging banks to do it without government help before taking stakes in the banks. However the US has different ideas, forcing US banks to take tax payers money. Does this damage healthy US banks or guarantee a healthier US financial market?

There are views on both but it would seem that the US is taking the intervention in the banking world a step to far and almost promoting public owned financial institutions in the free market culture of developed economies. The positive with the UK plan is it allows banks to increase their tier one capital with out taking the dramatic steps of government help which will be detrimental in the long-term of the banks future. At the same time there is also much needed cash should UK banks run in to trouble, a compromise which seems sensible and methodical. The US states that it is using such a drastic measure to remove stigma from only a few banks using government money and then allowing banks in trouble to have access to even further funding.

Who’s taken the correct approach? UK or the US?

Bank recapitalisation… Is it the way forward?

After the UK announced an unprecedented strategy to combat the credit crisis by buying stakes in UK banks, the US have followed suit by putting aside some of the $700bn fund to buy equity in US banks. As the G7 meet the Euro area are being pushed to follow suit. But will this solve the banking crisis? The underlying discomfort for many is that the governments are gambling away tax payer’s money to save the banks. In the long term I don’t see this as an issue as when the banking system recovers to an amicable degree the governments will see an upside to their stakes in banks. In short term will this solve the liquidity problem of banks not wanting to lend to each other? I fear not in the very short term, but what other options are available? One is for governments to guarantee loans to increase confidence back in to the money markets, something the UK is very keen. But is this just throwing money at the now deepened crisis?

Were the House of Representatives and the Senate right to pass the new $700billion bill?

What does the bill that has just been passed actually achieve? It gives banks that have caused the world economy to come to a near standstill large sums of money for what is in effect ‘worthless assets’. No doubt something had to be done, but other options exist. An alternative and less risky method suggested was for the Federal Reserve to buy shares in any struggling banks both to bail them out and then reep the rewards when the crisis ended.