According to the Telegraph, the government is considering setting up a ‘bad bank’ to take on the toxic assets that continue to drag down the UK’s financial sector.
One option is for the government to ‘buy’ all their crap at some unspecified price. Sounds like a good deal, no?
Well actually: no. Not if you’re a British bank. The problem, you see, is that this would make you own up to how bad things really are. And that would never do.
As the Telegraph report, “if banks have not written down the value of their assets aggressively enough, they may have to suddenly crystalise new losses when assets are sold to the Government.”
I remember when it was OK to feel smug as the Japanese suffered through a decade in which their ‘zombie banks’ refused to own up to the extent of their losses (see this post for more).
Now, it seems, we’re in the same position. Simply shovelling money at our financial overlords/parasites is not enough – we have to make them feel good about themselves, however badly they’ve screwed up…
