Sunday, 21 March 2010

Duncan Banatyne's view on why

Banatyne's view on the cause of this recession is controversial. "I believe that the problem was caused by the banks lending to each other," he says. "Everybody keeps saying: 'If the banks start lending to each other, they will start lending to the businesses, and then we’ll get out of the recession', but I believe the sensible thing would be for banks not to lend to each other; I can’t understand the concept.

"Supermarket chains build up without lending each other fruit and vegetables," he continues. "If they all lent each other fruit and vegetables, and one was in trouble, they’d all be in trouble at the same time. If the banks separated from each other, and didn’t borrow from each other, they wouldn’t have the problem."

"Instead, they’ve borrowed from each other and given each other security packages, which are less valuable than what the bank is borrowing on it. If they were completely self-contained, and one of them went bust, like Northern Rock, the rest then could come in and take the pickings, and a few jobs would be saved, and it wouldn’t be such a big issue. If the supermarkets went bust, that’s what would happen. There would be a few casualties but there wouldn't be a problem on this scale.

"The banks should all borrow from the Bank of England," he concludes. "One main source. Otherwise, it's the same money moving round - the same pot that people are taking bonuses from, and eventually there is no money left."

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