Are they working? No.

UK ECONOMY:

We’re a bit screwed really! The Pound is dropping like a stone meaning that we have to pay more for imports, which is really scary seeing as we have virtually gotten rid of our entire manufacturing sector. Our economy has shrunk half a percent in the last quarter, and I have not even mentioned the Credit Crunch.

Most people in the UK seem to think all that has been going on is not relevant to them. The housing market is in steep decline but something even more frightening is about to happen, and those who are younger are unlikely to remember such an occurrence in their lifetime; forced sales. Now that the economy is contracting unemployment will rise, meaning that more people will be unable to service their mortgages. I dont know about you but when I look at the prices of homes in London for example I was always baffled by how so many people could earn enough to fuel the demand. I suspect many lied in order to get the loans they needed to buy what they saw as an investment and crucially not a home. This is what happens in bubbles, and if this has taken place, chances are many of those who got liar loans sold their first fraudulently acquired property for a profit, using the gains to obtain an even larger mortgage by increasing their initial deposit. Maybe they bought a second or third, etc. property. Remember these people were brainwashed into believing that prices could only rise, and now they are dropping like a stone, many of them will find themselves in the unenviable position of being in negative equity.

But as a nation we are in denial. We think the credit crisis is a new buzz phrase to describe something that is happening to other people. It is no such thing; it will take time for the consequences to affect Joe Public. Do you remember when you first heard about the Subprime mortgage crisis in America? It was probably late 2007 and it took until September 2008 when Lehman Brothers collapsed to feel its true brutality. However in the UK we are yet to have such a crisis in our mortgage sector. Our house prices are yet to fall to realistic levels. This is beginning to happen, and this combined with the global credit crisis may well prove to be such a monumental financial tsunami that our entire future as a country could be thrown into doubt.

When I talk like this most of my friends either nod in agreement or listen politely thinking I am a doomsayer. I want to be optimistic about the economy just like the next man, but sadly the fundamentals reveal we are in serious trouble. As investors pull out of the Pound, whilst our economy shrinks rapidly, with house prices plummeting and unemployment rising, where do we think we are headed, honestly? And this is before we have even taken into consideration the fact that banks will not lend to each other let alone us or businesses. Money is debt educated yourselves as to what that means if you dont already know. Perhaps Capitalism is not infallible its greatest fault does not lie with any of its actual mechanisms; that is purely reserved for the way in which it has somehow instilled a belief in the majority that it is the only possible viable system that could ever be used. This kind of thought is also known as closed mindedness. Perhaps this is Capitalisms most remarkable achievement it has become invincible with this little lie alone.

J
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US and UK Bank Bailouts: A Comparison

The financial crises of 2008 shook the global economy to its core, leaving governments scrambling to rescue failing banks in an effort to stabilize the financial system. The United States and the United Kingdom, both significantly affected by the crisis, implemented bank bailouts to prevent the collapse of their respective banking sectors. While both nations took similar measures, there were notable differences in their approaches and outcomes.

In the United States, the Emergency Economic Stabilization Act of 2008 was passed to authorize the Troubled Asset Relief Program (TARP), allocating $700 billion to purchase troubled assets and inject capital into struggling banks. The primary goal of the program was to stabilize the financial markets and restore confidence in the banking system. Key players, such as Citigroup and Bank of America, received substantial funds to offset losses and increase their capital reserves. The approach focused on recapitalizing banks, ensuring their survival and ability to lend to businesses and individuals.

The United Kingdom, on the other hand, launched the Financial Services Compensation Scheme (FSCS) to protect depositors and the Special Liquidity Scheme (SLS) to provide short-term liquidity to banks. Additionally, the Treasury introduced the recapitalization program, injecting capital into eight major banks, including Royal Bank of Scotland and Lloyds. The British government played an active role in taking ownership stakes in these banks, effectively nationalizing them, albeit temporarily. The aim was twofold: support the banks and protect the interests of taxpayers.

One notable difference between the two bailouts was the level of government ownership in the banks. In the United States, the government purchased troubled assets, but the banks remained privately owned, with the hope that they would repay the government’s investment over time. In the UK, however, the government became a major shareholder in some banks, exercising greater influence over their decision-making processes.

Another difference lay in the size and scope of the bailouts. The United States’ TARP program was significantly larger, with a budget of $700 billion, compared to £500 billion (approximately $692 billion) for the UK’s financial support package. The US bailout also extended beyond banks, as it encompassed other sectors affected by the crisis, such as the automotive industry.

Furthermore, the UK’s approach differed in terms of accountability and transparency. The Treasury established the Asset Protection Scheme (APS) to protect banks from losses on risky assets, sharing the risks and potential rewards with the banking institutions. This ensured that taxpayers’ money was used with due diligence, while banks faced consequences for their actions.

Ultimately, both countries managed to stabilize their banking sectors and prevent a complete economic collapse. However, the US and UK bailouts engendered various long-term impacts. In the United States, TARP generated a fiscal return for taxpayers, with major banks repaying the government, including interest, resulting in a net profit. In the UK, whereas some banks repaid the government funds, others required further assistance, prolonging the state’s ownership and intervention in the banking sector.

The financial crises of 2008 and the subsequent bank bailouts served as crucial lessons for both the United States and the United Kingdom. They highlighted the interconnectedness of global financial systems and the need for greater regulation and oversight. While the bailouts achieved their immediate objectives, they also raised important questions about the moral hazard, ensuring that the mistakes of the past are not repeated.