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By Philippe Legrain ADD COMMENTS

(A) All domestic non-financial enterprises that currently have
access to bank financing and whose loans, overdraft facilities, credit
lines or whatever other financial arrangements expire during the coming
year, have the right to an automatic one-year extension of the expiring
arrangements on the same financial and non-financial terms as the
expiring arrangements. This mandatory ‘creditor standstill’ helps
existing borrowers by providing them with a breathing space. It does,
however, do nothing for new enterprises or enterprises that are not
currently borrowing.

(B) Aggregate lending targets for lending to the domestic
non-financial business sector are set by the government for each bank
(last year’s total plus five percent, say). The banks themselves can
decide who to lend to and on what terms. Any shortfall of actual
lending from the target is translated pound for pound into a Deficient
Lending Tax. Since not meeting the target amounts to throwing money
away, the banks will lend.

(C) Nationalise the banks (paying as little as possible to the
existing shareholders), fire the existing management and board of
directors, and have the government appoint a new executive and a new
board that are serious about meeting lending targets. With 100 percent
share ownership by the state, there is no risk of lawsuits about the
executive or board of the  bank not meeting their fiduciary duty to the
shareholders. Full state ownership would make transparent and formal
what is already true in substance: but for the financial support of the
government (past, current and promised/anticipated in the future),
there would no longer be more than at most a handful of viable
cross-border banks in the north-Atlantic region.

He concludes:

Things are critical. Unless the banks start lending in normal
volumes very soon, this recession could indeed become another Great
Depression. We cannot wait for the banks to find their juju. The
government may have to take it to them.

Full post here

Posted 26 Nov 2008 in Blog

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