The big bailout

These are certainly interesting times that we are living in, with the fall of major banks including Lehman Brothers and HboS supposedly sounding the death knoll for the world financial system, the announcement on Monday that the Government is to offer a radical bailout package for our ailing banks should represent a necessary shoring up of the economy

For most of us, the news that the US has offered a $700bn bailout package to their banks meant that it was only a matter of time before other countries followed suit. Sure enough, the Government announced last week that it would part-nationalise major British banks to prevent them from falling foul of the credit crunch.

On Monday, the details of the plan in which £37bn will be invested into the financial system, were released. The purpose of this bailout plan is to keep the UK financial system working healthily so that we can avoid an Iceland style meltdown and that businesses and individual consumers alike can continue trading. Whilst many tax payers have been unhappy at using their hard earned money to bail out financial insitutions, without certainty that we have a secure banking system in place, fear creates a complete dislocation of our economy, wages could not be paid and commercial activity would grind to a halt.

The bailout has been offered to all of the major banks but at the moment, HSBC, Santander, Barclays and Nationwide have refused the money as they are attempting to resolve their issues with internal funding. Lloyds TSB with HBoS, and Royal Bank of Scotland are the first to request funding from the scheme in order to secure their finances and keep them on track.

In effect, these banks will be part-owned by tax payers and in the long-term this could be beneficial to all. Whilst the initial reaction by many has been to question why their taxes should be given to bankers, the way to look at this is as an investment into the future of the economy. What this country needs in times of uncertainty is a strong financial system in place to weather the storm and this bailout plan should hopefully secure that.

In terms of the individual consumer, this move should hopefully making life easier as it will encourage inter-bank lending again and free up credit in the mortgage and investment markets.

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