Friday, December 2, 2011

Conservative British Government to Start Guaranteeing Loans for Businesses and to Make Direct Loans to Businesses

 Did They Forgot to Read the Conservative Rule Book?

One of the great financial and political disasters for the Obama Administration was a decision to use the federal government’s loan guarantee power to guarantee a $500 million loan to solar energy company Solyndra.  The company has since gone bust leaving the Obama Presidency open to vicious attacks of incompetence at best, rewarding political donors at worst.

Now the Conservative controlled government of Britain will implement a similar program.

The government will use its balance sheet to guarantee banks' lending, giving them the benefit of Britain's triple-A credit rating, this person said. The savings in interest payments banks make—which the government estimates could be around one percent on borrowing—will be passed onto companies. Firms with revenue of up to £50 million, or about $78 million, will be allowed to apply for such a loan, in a plan dubbed credit easing.

Why do such a thing?  Because it can be done without expending government funds.  In this type of program the government guarantees help a business get a loan, but there is no increase in government spending.  This brings joy to the heart of Britain Finance Minister, whose major goal is to reduce Britain’s budget deficit no matter how much harm that brings to the economy.

In fact, the prior harm to the economy from the Conservative’s austerity program is what has stimulated the current program.  But wait, there’s more

The government will also co-invest in a fund that will lend to small- and midsize companies. A number of institutional investors have already set up such funds, which will only invest in debt.

That’s right, the British Conservative government will make direct investments into businesses.  But it’s ok, they will be doing that through private funds, private profit making funds we assume. 

So maybe everything is really in line with the Conservative playbook.  British government’s policy will result in the massive firing of as many as 400,000 to 500,000 public employees while at the same time providing investment funds for businesses and profit opportunities for private investors.  That sure sounds Conservative.

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