The government has announced today that a second bail out for banks is in the works, only three months after the first massive bail out was brought to light that was intended to save the banks and ease the tightening felt by the recession.  The new plan is being hailed as the country’s last option in terms of the banks, as if this fails, the backlash on the country will be staggering.

The new bail out programme will be aimed at easing what is being labelled ‘toxic’ debt and will be worth £200 billion.  However, in return for the bail out, banks will have to sign contracts that clearly state that they must keep supplying mortgages and lending.

Brown said on the matter that, “What we want to do is see businesses get the money they need to be able to create jobs and secure future investment.  What I want to see is people who are mortgage holders having access to mortgages at prices they can afford.”

However, the announcement has suffered heavy fire from many critics, including the Conservative shadow chancellor, George Osborne, who has announced, “People can see that when Gordon Brown said that he would save the world just a couple of months ago he hasn’t even saved the British banking system.”

However, an economist for RBS, Ross Walker, has said that the move was a necessary one and one that was very welcomed by the banks, saying, “Overall, the asset-purchase scheme marks a radical development in monetary policy. This is welcome as the monetary policy committee now has policy tools beyond bank rate.  Outright purchases of these assets by the Bank obviously leaves taxpayers shouldering significant credit risk, but there is little alternative – the risks and costs would be far greater if an absence of credit triggered a more protracted recession.”

However, the biggest issue with the second bail out plan is that no one knows just how massive the levels of the losses that the banks are facing are, and because of that, if the new scheme goes ahead then the risk to the taxpayer will be totally unknown.  However, many are claiming that there are no other options and unfortunately this pressure must be placed on the shoulders of the British taxpayer as well as the banks.

The Liberal Democrat Treasury spokesman, Vince Cable, said, “It is very clear that the first massive injection into the banking sector, which at £37bn was bigger than the UK defence budget, has not been used properly.

“We are probably getting to the point where the government will have to take direct control of lending, as the price of putting more money into the system. We’re entering the worst recession since the 1930s, and one reason for that is that good British companies can’t get capital to pay their wages. One of the top priorities has to be that credit goes into the UK economy, not overseas.”

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