The tax payer is protected…it’s just wage earners and investors that are on the hook

The £500bn ($875bn) bailout in the UK of the banking system has implications for the people of the UK, but probably not the tax payers. The deal is based on the Swedish model that proved successful in the 1990s when the Swedish government took an equity stake in several banks and later sold the shares at a profit. It’s likely that the same result will follow in this banking deal. Gordon Brown urged World leaders to follow Britain’s lead and do similar deals to try and unfreeze the credit markets globally.

The deal however, has implications for those on fixed incomes and those with savings. Let me explain. The money has to come from somewhere…it will likely come from printing presses, hence the pounds fall against even the dodgy dollar over the last 2 days. Per capita, the UK bailout bill is about 6 times greater than the US bailout bill…ouch! Once the money has been created, it will devalue all the other currency in existence in the UK. This means inflation and heartache for holders of British pounds. So while details of the plan are eerily sketchy, they look similar to Warren Buffets deal with Goldman Sachs, the British tax payer gets preference shares  and dividends for as long as they hold the shares. They also get to call a few shots at the top regarding executive and  To get an idea of how much equity the initial £25bn will buy in British banks, it’s over half of the current market value of the top 4 banks in the UK right now.

That means that the government has in essence taken over the banks and along with the levers of political and legal power, the UK government now has at it’s disposal the levers of retail financial power. Does this make anyone else uneasy? Hopefully, not tyrannical or dictatorial individuals will find their way into number 10. If they do, it will be awfully hard to get rid of them!

The signs aren’t good, the markets have still plummeted in the wake of this bailout…confidence doesn’t look to be restored…in fact the opposite seems true.

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For More information on specific Banks use these links

• Alliance & Leicester
• Barclays
• Capital One
• Child Trust Fund
• First Direct
• HSBC
• Post Office
• Tesco Savings

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Tags: Banking, Global Credit Markets, Gordon Brown, Investors, UK Bailout, UK Banking