Pick up a newspaper or a magazine, regardless of intended subject, and chances are the credit crisis will inevitably feature at some point. Whether it’s cycling, the car industry or even the environment, the economic downturn is playing a part in every aspect of our daily lives.
The latest news in this sorry saga is that the Bank of England announced last week that the taxpayer would be throwing yet another lifeline after yet another major bank, Lloyds TSB, in a transaction that will see the British government taking over approximately 77% of the ownership of the bank in a move designed to protect it from collapse. In an altogether unsurprising yet no less irritating turn of events, the British government is moving to save a bank which in September last year was actually doing fine. It was doing so well, in fact, that it decided (in its board’s infinite wisdom) to go after and purchase the ailing HBOS group, an acquisition which has led Lloyds itself into its rather precarious situation. This begs the following questions: who exactly is making the decisions on the boards of these corporate giants? More importantly, how was the merger between the two giants allowed in the circumstances of the financial crisis when, back in 2000, a similar approach by the Lloyds was blocked by government in favour of advances made by the Halifax?
In addition to the shore-up of the Lloyds, the Bank of England announced last week that it would be dropping its base rate for lending to a record low of 0.5% and implementing a process of “quantitative easing.” Contrary to popular opinion quantitative easing does not mean printing more money, but who needs paper nowadays anyway? The Bank of England will effectively add a cool £75 billion to its accounts by simply keying in the numbers and (this is the killer) promptly credit that amount to the accounts of other banks in exchange for bonds and gilts held by them. The theory then goes that the banks will increase their lending against these additional funds but the net effect is that there is an additional amount of £75 billion in the banking system which wasn’t there before. This is tantamount to printing the money and carries with it the risks of the devaluation of the pound sterling. It may not strike you as surprising however, given that currently the weakness of the sterling against the euro is encouraging stability, even growth, for UK’s exports, the value of the pound is currently of little concern to those at the helm of the British economy.
Ridiculous though ploughing so much money in at the top of the banking system seems when it is clear that the funds never filter down to the level where it’s needed, the fact remains that the UK government is, through a number of schemes, also making funds available to small business, the heart of the economy at large. Whether through banks and other lending institutions and whether the assistance comes by way of a soft loan or guarantee, small business in the UK is breathing some relief as a limited amount of credit has become available.
Locally, no such scheme exists. If you need funds to invest in either starting up or maintaining an existing business, you have limited options. Beyond the banks and investment from either family and friends or third-party, independent investors, you’ve nowhere else to go. The Government is yet to announce any kind of scheme designed to assist our small businesses. In a community our size, with finite and estimable limits, how can this still be the case? Investing in our small businesses is the key to our survival.
When ancient Rome faced financial crisis, Emperor Tiberius made available millions of sesterces to businesses and individuals, interest-free, through a newly-formed state institution. The result of this approach was the return of prosperity to the Empire, survival against the odds. A helping hand is needed by our small business community and the banks are certainly not falling over themselves to lend it. In their place, the community can only look to the Government for help, hoping that it will see the sense in the suggestion and instigate a rescue scheme sooner rather than later.