News of the finance

The government's stealth nationalisation of banks continues. Perhaps it didn't start out as a planned process, rather it is borne out of a sticking plaster on a problem worsened, or even triggered, by Labour's incompetence, combined with the enduring socialist instinct that the State can always do better than private organisations and individuals (despite all evidence to the contrary). Nevertheless the latest bleating from Alistair Darling sets out the next step:

Savings guarantee plan considered

... He told the Times newspaper it was a "bullet that needs to be bitten" and would be paid for by a levy on banks....

So, a guarantee system underwritten by the taxpayer - or, more precisely, customers of the levy-payer (though what if the "fund" falls short?). But what's the point? I wanted to put my money into an institution underwritten by the taxpayer then I would buy gilts, or other National Savings product.

Is it fair that a customer of one bank should pay for the guarantee of a customer of another bank, who may not have taken the same precaution of spreading their money across institutions.

"But that sort of cross-subsidy is how insurance works", you may say. Yes, but in most cases I have a choice whether to be part of that insurance scheme, and of which insurance scheme. As I should have a choice whether to save with a bank that has appropriate insurance and accept a lower return / passing on of the levy or an institution outside the guarantee system and achieve a higher return in exchange for the "marginally" higher risk.

Another difference between a voluntary scheme and a state scheme is that you can bet your mortgage that Darling's set-up being inefficient, poorly administered and at some point, following some flimsy justification, subject to a draw-down to fund some other worthy state sponsored cause elsewhere in the Treasury. If you don;t believe me then I have three words for you: "National Insurance Fund".

Yet as I commented earlier, is not the most depressing thought that, despite the reverse-Midas touch that the Government has so often demonstrated, people may still think their money is safer being protected by the Government than by their Bank, when the management of the latter probably has more to lose if it all goes pear-shaped than a civil servant or minister?

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