Why the bail-out was a close-run thing

A couple of interesting insights to emerge from a day’s phone-bashing about the Big Banking Bail-Out.
One is that Alistair Darling was determined to avoid a repeat of the US drama, where top officials triumphantly waved a financial rescue package in front of the cameras…and then failed to get it past their politicians.
A minister told me today that they regarded what happened in the USA as a damaging “fiasco”.
Well, they only just avoided it. The Big Banking Bail Out plan has been under development in Whitehall for a while, and the Government wanted to nail it down with the banks before it became public.
Earlier this week, news of the plans and the discussions to finalise them leaked out, the stock markets went berserk, and the Government was forced to seal the deal and announce it sooner than it wanted to.
Fortunately, the plan was far enough down the line to emerge as something that appeared carefully considered and universally agreed.
Certainly, all the banks, business organisations and key politicians appeared to be onside and briefed in advance – a complete contrast to the Congressional shambles in the USA.
The second insight suggests that whoever leaked it probably did us all a favour in the long run.
Conversations with two business leaders in Nottinghamshire told me that what had been a serious problem in the banking system was about to explode all over the real economy.
Originally, this was just about banks being reluctant to lend to each other because they didn’t know which of their rivals was at risk from unknown losses on bad property loans.
But the problem had reached such chronic proportions that banks have been holding back money from businesses here on the ground in Nottinghamshire.
Businesses borrow for all sorts of reasons, often while they’re waiting for the money to come in for work they’ve done. So they routinely need overdrafts and working capital to draw down when they need to fund a production run.
I’ve been told that there are now numerous examples of businesses struggling to get previously routine overdrafts agreed. And banks refusing to release capital to fund production even if there’s a signed contract from a customer.
This is serious stuff which, if it continued, would bring business to its knees – and workers with it.
This is why Alistair Darling and Gordon Brown have unleashed a nuclear-strength rescue package. And why the deal boils down to a simple political deal: if banks take the Government’s money, they’ll be told to keep the economic show on the road.