January 19, 2009
Todays banking measures by the government will add at least 100 billion pounds ($149 billion) to the 250 billion pounds committed by Prime Minister Gordon Brown in October to underwrite a financial system choked with bad debt and the first recession in two decades.
With its latest bank bailout scheme, the U.K. government has gone headfirst into the credit default swap business -- one of the very products that helped wreak such havoc in the financial system in the first place.
The Treasury will insure banks against any risk on their balance sheet, from residential mortgages to commercial paper to leveraged loans, regardless of where the asset originated or the currency in which it is denominated.
That's a gigantic gamble. If this fails, the consequences for the U.K. economy will be dire.
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