Bank debt will be no more than £120 bn says Goldman economist

More on the question of whether or not Britain is about to go bankrupt.

Some of the figures that have been quoted in the press look frightening. Britain’s banks are huge. For example, RBS, the bank that the taxpayer now pretty much owns, has a balance sheet larger than the UK’s anual GDP. Add in all the other basket-case banks and the taxpayer’s liabilities start to look overwhelming.

But not all the assets of these banks are dodgy. According to the Financial Times, Goldman Sachs economist Ben Broadbent has calculated that the maximum liability for toxic bank assets that might have to be met by the taxpayer is £120 billion.

Bloggers usually provide links to their source material but, unfortunately, proper journalists don’t and I have not been able to find the details of Mr Broadbent’s calculations anywhere on the interweb. However, assuming he is right, £120 billion is not going to break the country’s finances. Sure, it is a hell of a lot of money. According to the Mail’s Simon Watkins it is more than all the banks have paid in tax since 1997, although he doesn’t say where he got his figures from either.

But it is still only around 8% of GDP. As Ben Broadbent told the FT:

[W]ith the best (or rather the worst) will in the world, it is extremely difficult to get some of the numbers . . . to levels that would materially threaten the integrity of UK debt.

£120 billion is bad. We have every right to be extremely angry with the people who got us into this mess, especially if Simon Watkins is right and a decade’s worth of our banking sector’s contribution to tax revenues looks like being wiped out. But it’s not so bad that it is going to bring the country down.

Let’s get some perspective here. The banks have saddled us with a huge debt but it is still at a manageable level. Despite the hysteria from the scaremongers, we are not about to go down the pan yet.

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5 Responses to Bank debt will be no more than £120 bn says Goldman economist

  1. Giles says:

    Good point. And taking a wider view, a lot of the putative worst-case £120bn that the banks will have lost will have been lost . . . . to us. They lent out money to the UK economy unwisely, and UK economic actors then failed to repay it to them owing to economic distress, so a different mix of largely UK actors will pay taxes in order to provide money back to the bankers.

    A big money-go-round. It is only by focussing on one side of a very complicated equation that daft journos can whip themselves into such a frenzy.

    Good blog.

  2. Dagny Taggart says:

    “We have every right to be extremely angry with the people who got us into this mess”

    And whom might that be?
    Irresponsible bankers or irresponsible home owners?

  3. Rick says:

    Irresponsible bankers, irresponsible credit rating agencies, unscrupulous mortgage salesmen. All of them should have known better.

    Blaming the people who took out sub-prime mortgages is like blaming Gavrilo Princip for the First World War. Sub-prime defaults set the financial collapse in motion but the conditions which made it spread so rapidly around the world had been created long before.

  4. Jo says:

    What mystifies me is that we keep talking about ‘banks’ and their executives.

    We hear very little mention of the Boards and Directors. These are companies and the Directors undertook to trade prudently and responsibly.

    I don’t understand why the Directors aren’t being interviewed and asked to front up with the exact size of the liabilities.

  5. I like your post. No matter what amount of debt a person has, willingness to retire is the first step

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