I’ve been getting a few e-mails and tweets recently asking how much of the deficit is the result of bailing out the banks. It turns out that the answer is simple: none of it.
Let’s look at the situation in the UK. The bail-out – if that is the word – came in a number of forms, including the nationalisation of Northern Rock, compensation for depositors who lost money in Icelandic banks, capital injections into the likes of RBS and Lloyds, and extensive guarantees of bank debt designed to reassure investors and so make it easier for banks to raise money and keep on doing business.
Hundreds of billions of pounds were ostensibly on the line, but such figures were always somewhat deceptive: they described the maximum possible losses on the government’s guarantees and capital investments. What were the actual losses?