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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Britains Bankrupt Banks Top Secret HBOS and RBS Loans Truth Revealed

Companies / Credit Crisis Bailouts Nov 25, 2009 - 01:14 AM GMT

By: Nadeem_Walayat

Companies

Best Financial Markets Analysis ArticleThe Bank of England let slip some truth after a year of basically keeping silent on the extent of the behind the scenes actions to prevent the bankruptcy of HBOS and RBS as evidenced by the Top Secret £61.6 billion loans made during October last year.


More than a year on, with liabilities extending to more than £1 trillion perhaps the Bank of England, Treasury, FSA and Chancellor had thought that the truth could now be quietly brushed under the carpet ? Perhaps that was the reasoning rather than for the news to emerge during the general election campaign?

The fact of the matter is that Gordon Brown in public and with much fanfare of rescuing the British Banking system to the tune of a £37 billion of capital injections , as well as making available hundreds of billions in loans, that the Bank of England had already proceeded to loan as much tax payers money as was necessary to prevent either HBOS or RBS from going bankrupt a good week before Gordon Browns bank rescue announcement.

However, this is NOT exactly NEWS, for whilst the precise truth has taken more than a year to emerge, the basic facts of what took place at the time have already been written in black and white on the Bank of England's balance sheet which at the time showed a £110 billion surge in loans which were obviously made to the Banks teetering on the brink of Bankruptcy. After all at the time HBOS and RBS were publically known to be on the brink of collapse, which is why the Government forced a shotgun wedding between HBOS and LLoyds which has subsequently proceeded to bankrupt LLoyds resulting in much distress for Lloyds Shareholders and tax payer cash- Halifax, HBOS Cancer Continues to Eat into Lloyds TSB, £4Billion Loss

Defacto Nationalisation is inevitable as I pointed out on the 13th of February (Will HBOS Bankrupt Lloyds TSB into Nationalisation?)- Given the size of the HBOS and Lloyds TSB loan book, the £10 billion loss declared at the time was just the tip of the ice berg as 2009 will turn out to be a worse year than 2008 in economic terms as £10 billion of share holder equity cannot hope to defend against a loan book well in excess of £1 trillion, where even a further 1% loss due to bad debts would equate to more than total shareholder equity, and given the crash in UK house prices of 21% to date with a housing market depression to follow for many years despite the ongoing summer bounce, I cannot imagine how the bank can hope to survive in its present form.

Maybe in the coming days or weeks the Bank of England will come clean on who were the recipients of the rest of the money, and perhaps in a years time, today's secret bailouts will also be revealed ?

The mainstream press has jumped on this pseudo news, though as I have pointed out it is not really news that the money was loaned, just that there must have been political pressure on the Bank of England to keep quiet for so long as Gordon Brown attempted to create an aura of being the only person that could rescue the country from financial armageddon. It also appears that the mainstream press lacks proper memory of the sequence of events dating right from the collapse of Northern Rock into the crisis of Sept / Oct 2008 the most notable of which was the Bank of England laying the ground work for secret loans to the Banks in April 2008 as I commented on at the time in the article -Bank of England Throws £50 billion of Tax Payers Money at the Banks

Now the next phase of the Fraud is for the Financial Institutions to swap the high risk un-priceable effectively worthless junk for risk free gilt edged securities. It will be £50 billion today, then another £50 billion in some more months time.

The consequences for this will be that despite what ever accounting practice the Treasury may use to hide the debt from the Countries balance sheet, it is in effect an increase of Government debt of £50 billion, which has inflationary consequences,as the Government will continue gambling with Tax Payers money that they are able to draw a line under a deleveraging derivatives market. However £50 billion is a drop in the ocean against a £250 trillion market.

Why has no one in the mainstream press remembered this important event which set the ball rolling ?

Why did the Bank of England keep secret during October on the initial loans to the bankrupt banks ?

My opinion is that it has its roots in the fiasco surrounding the speculation of a possible loan of £2 billion to Northern Rock in September 2007 to keep it afloat, which they had NOT kept secret and hence triggered a run on the bank. Clearly Mervyn King feared a similar event of a far greater run on both HBOS and RBS. Though as I pointed out above they were both publically bankrupt anyway, I mean the hedge funds were destroying HBOS on a near hourly basis as the share price crashed ever lower ( Hedge Funds Crash Halifax, HBOS Rescued by Lloyds TSB). So ironically had Mervyn King gone public about this unprecedented support then it may have actually helped the situation as depositors would have been further reassured and so would probably have HBOS and RBS stock holders. After all in September 2007, Northern Rock Depositors were under the impression that only the first £35k was guaranteed, and even then they may be locked in for months or longer if the bank went under which resulted in the run on the Bank.

Whilst during September 2008, the chancellor and FSA went out of their way to make it clear to the public that HBOS and RBS would NOT be allowed to go bust and therefore depositors were safe, so reinforces the view that to stay silent on the loans was a mistake.

Off course all of that is in the past, the question now is what will we find out AFTER the next general election when Mervyn King is forced to come clean on the bankster's crimes against British tax payers, where once Chancellor Alistair Darling stated that tax payers would not lose a single penny on the Northern Rock rescue, but instead tax payers have already lost at least £10 billion!(Northern Rock, Tax Payer Bailed Out Bankrupt Bank Adds 750Million More Losses) . My estimate of the total losses i.e. bad debt write offs across the UK banking system could reach £500 billion which is highly inflationary as the Bank of England prints money to monetize the debt, as the losses nearly double the pre credit crisis UK National debt total to which additional bank liabilities are added that will sit on the back of tax payers for decades.

The consequences of out of control government borrowing on this scale is highly inflationary which my New series on the INFLATIONARY outlook covers in depth, ensure your subscribed to my always free newsletter to get the full scenario and it's implications in your in box as it will be one of my seminal pieces much as The Stocks Stealth Bull Market Scenario of March 09 and Crude Oil Top of July 08, or the UK Housing Market August 07 Top and Bear Market were before it amongst many others.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 400 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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