I was on Jeremy Vine's show on Tuesday discussing the Government's bank stakes. Essentially, I argued that those stakes should be sold as soon as possible.
Whether or not you supported the bailout to get the banks through the crisis, we don't want the Government in the business of investing in banks with our money. Bank shares go down as well as up and, with the scale of the crisis in the public finances, getting significant amounts back into the Treasury by selling those stakes would be good news. Now that the shares are recovering and it looks like taxpayers could come out of the mess without a significant loss, it's worth getting our money out when we can.
Richard Murphy, of the Tax Justice Network was on arguing that we should keep taxpayers' money in the banks and has since summarised his arguments on his blog, accusing me of having "very little brain" and "wholly incorrect dogma". Let's take a look at what he is arguing.
"First, the bank remains very unstable – it’s only just made a profit."
Neither me nor Richard Murphy knows whether or not Lloyds is in a position to stand on its own two feet. My point was simply that we should sell as soon as it is able to do so.
"Second its balance sheet restructuring is incomplete."
Many banks - like Barclays and HSBC - have never been nationalised but have still been taking steps to get their balance sheets in order. The idea that can only happen under government ownership is absurd.
"Thirdly, it is still not lending enough and selling it cannot help this objective."
This is one of the reasons why we need to get the Government out of the business of owning banks as soon as possible. Richard Murphy's second and third points are utterly contradictory. The first wants the banks to shore up their balance sheets which will mean a more cautious approach to lending, the second wants them to lend more. Political pressures pulling the bank here and there won't help build it up into a sustainable, sensible lender but will make it a permanently unstable political football.
"Fourth, a new government has to decide whether it is time to reform banking or not – which is an imperative for a recovery and no sale can be made before then."
As I said in the interview, this is a complete red herring. There is a good case for some kind of change in the regulatory structure banks operate under but we don't need them to be nationalised in order to do that. If we did need them nationalised, then the situation would be hopeless as major retail banks - again, like Barclays and HSBC - operating in the UK aren't nationalised.
"Fifth, to sell now would be a return to the casino mentality of short term speculation. The government has a duty to show that now, of all times, it can understand the need for long term commitment to investments to ensure the stability of the economy, and to show faith that investing is for long term returns, not short term gains in which real wealth is thrown away for immediate cash gain."
This is ridiculous. The Government shouldn't be setting some kind of dubious example to investors because it isn't an investor. It went in not in order to get long term returns but to address a specific problem, the threat that banks would collapse without an equity injection.
Here is his summary of my argument:
"His argument was we must sell now before the Greek crisis flows over
Britain and the value of the shares falls again as we dip into
depression.I noted two things. First his confidence. Second his absolutely
inability to spot that if this happens we’d be back into rescuing the
banks all over again, giving very good reason for not selling now."
This is misleading. My point wasn't that we needed to get out to avoid losing money if the banks outright collapsed. It would be scaremongering to suggest that the British banking system is facing an imminent threat to its systemic stability because of the Greek debt crisis. I cited what is happening in Greece as one factor, along with hundreds of others, that might cause the share price to fall. And - guess what - I was right and since Tuesday the price has fallen:
I had to make that point because Richard Murphy - with the same complacency that led him to say "crisis, what crisis" about the national debt recently on Tonight - was saying that we should keep our money in the banks because in a year's time they would be worth more and taxpayers could take a bigger windfall. The problem with that is that shares do go down as well as up. Equity investors do normally make money over time but that is compensation for risk and, particularly right now when money is tight, the Government shouldn't be making risky investments on taxpayers' behalf.
If people want to invest in the banks, if they think they are a good investment, they can put their own money in. Getting our money out as soon as possible and avoiding new tax hikes should be the Government's priority.