Bailing out the banks - possible 'Government Failure'?

An article in The Independent analyses the possible consequences of the government bailout of the banks. The overall figure appears to be around £1 trillion , nearly equal to our annual GDP. Will this solve the problems of the banking sector or will they merely be transferred to the state? The amount imvolved will have a big impact on the National Debt which will beome a burden if it is unsustainable. Remember what we mean by 'Government Failure' - where intervention leads to a loss of economic welfare rather than a gain. Is this an example of the costs of intervention exceeding the benefits?

Link to article.

'It was mayhem': Larry Elliott's review of the year

The Guardian's economics editor takes a look at the main events that shaped the financial world in 2008

Link to video

Momentous Day!

On the day that the UK government took a substantial stake in a number of banks the BBC News site provides an excellent overview of curent developments and background to the financial crisis. Link to Global Financial Crisis

It is shaping up to be one of the most tumultuous times on record in the global financial markets.
The financial landscape is going through a period of upheaval with some major firms folding, other operations merging and a limited number of companies in both the Europe and the US, being rescued at a governmental level. Link: Financial Crisis in Graphics

The Guardian published an article outlining the likely effects of a recession on the real economy. Link to article

The 2008 Crash

Really good supplement in yesterday's Observer on The 2008 Crash.

Will Hutton presents 'A Short History of Modern Capitalism' explaining that whilst it has been defined by long periods of growth there have been severe convulsions, induced mainly by a financial crisis. Stage one, lasting from 1899 to 1929 was an age of modernity, characterised by the devlopmennt of the automobile, aeroplane, radio, skyscraper, ocean liner and a whole range of domestic electrical appliances. Then came Convulsion one, the Wall Street Crash followed by the Great Depression. Stage two, recovery followed by reconstruction after WW2 lasted from 1993 until 1973. It was charactersied by government intervention and mangement of economies. Oil price rises and stagflation were the prominent features of Convulsion two from 1973 to 1979. Stage three saw deregulation under Thatcher and Reagan and the rise of globalisation, leading to the financial crisis we have today with too much debt, too little capital and excess greed. (Link to article)

Other sections detail the start of the credit crunch and assess its impact on Britain and how it swept across the world. Will Hutton suggests that ' ...as our financial system lies onthe brink of collapse, it is time to build a new one, based on fairness instead of naked greed, and with long-term commitment to building businesses and supporting investment.' (Link to the supplment 'The 2008 Crash')

The financial crisis - is it nearly over?

As uncertainty about the effects and details of the financial rescue plans continue to affect world share markets (Shares slide amis bail out fears), Geoff Riley provides a good reflective piece on the tutor2u blog. In his view 'We shouldn’t for a moment think that the worst is over. My fear is that the UK economy and the UK government remains vulnerable to a fresh wave of negative speculation as the markets test the British government’s resolve to protect our leading financial institutions. ' He also provides some excllent links to articles that explain what has been happening and possible implications. I particularly like the piece by Roger Bootle in the Daily Telegraph where he focuses on the financial crisis to highlight the limits of the free market - well worth a read. Link to Geoff Riley's piece

Lloyds TSB takeover of HBOS

The Lloyds TSB-HBOS proposed takeover highlights a number of the issues we have been focusing on during the first few sessions of the A2 course.

• The vulnerability of firms once their share price comes under pressure from the markets
• The impact of a merger/takeover on the vulnerable company (Will the Chief Executive of HBOS survive? How many jobs will be lost? How will the business be rationalised?)
• The economies of scale that can be exploited by the new business (“..significant cost savings can be made…”) Will some of these be passed on to customers?
• What impact will it have on competition in the banking market? The government is likely to relax the competition rules even though “…the enlarged group will hold a third of the UK mortgage market”.

Links:
Black Horse becomes White Knight - good graphic showing decline in HBOS share price price
Lloyds TSB unveils HBOS takeover
Profile: Lloyds TSB and HBOS