Apparently a second lender, Bradford & Bingley, are to be nationalised.
What fun. What can we learn from this second fiasco? Lending with few checks to verify identity or income is a high risk form of lending. High risk lending has more chance of failure than lending only what you are likely to get back. The returns may be lower and the shareholders and executives might get smaller bonuses but the company has less of a chance to FAIL when things go wrong.
It’s OK though. The banking insurance scheme will bail out B & B and our taxes will shore up the bank for the next five years until (if?) the other banks can repay the loans to take over B & B. We don’t live in a vacuum and this money has to come from somewhere. Do you think that it is more likely that the money will come from customers and tax payers or from wealthy executives?
That raises a question for me. What would happen if, rather than bail out these lenders, the government allowed capitalism to take it’s course and the businesses to fail? How much would we suffer as a result compared to shoring up the failing industry? I’m asking because I don’t know.
I wonder how many people are feeling this today?