Andy Adams is an IT worker and experienced writer
Many of us have little care for the banks that are in trouble, or at least we don’t care unless it’s our bank that is faltering anyway. The image that is given off by the press is that the banks have spent the past few years being incredibly irresponsible with our hard earned money and there’s a good chance that our money may disappear. At least this was the belief last year when Northern Rock customers formed snaking queues through town centres trying to withdraw all their money after news broke that they were in serious trouble with their overseas lending among other issues. With the general public all of a sudden having great interest in how banks operate it’s no surprise that the public panicked and started making rash decisions over where their money lay. Recently, nearly six months after the nationalisation and tax-payer funded bailouts of many banks like Northern Rock and HBOS a new strategy has been unveiled that have many people worried yet again, the Asset Protection Scheme, or more commonly referred to: Toxic loans scheme. A toxic loan is a loan that is basically going to end up costing the bank dearly as they are unrepayable, this would mean the sub-prime mortgage lending that everyone has been made aware of for instance. What the government has done is step in to offer insurance to the struggling banks and help them get back to being able to lend money. This is after all the aim of the government, to get things back to normal and to get banks back in the position where they are able to approve lending such as homeowner loans as at the moment it’s well documented that it’s almost impossible for the vast majority to get approved for a mortgage or a loan whilst banks are pre-occupied with recouping money not lending it out. So with banks being saved from sever deficits that these toxic loans would bring, what does the government get out of this deal? Well from the RBS Asset Protection Scheme alone the taxpayer will get £6.5 billion in special "B shares" which don’t pay out until the bank becomes profitable again. Essentially the bank has gained £18bn in capital for the price of £6.5bn in shares. There are worries among analysts that the government could end up shouldering debts of well over £20bn, with some even predicting £50bn, this is a gamble the government believes is worth taking as it aims to get the banks back to lending and hopefully in the long term as the banks become profitable again then the taxpayers stake will begin to reap some rewards.
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