So today, the markets reacted with horror to Son of Bailout (SoB): the government's new plan to kickstart lending by offering the stricken banks insurance for large-scale losses in exchange for cash payments or shares.
Royal Bank of Scotland, in particular, is close to worthless at 11p, and, while the bank insists that the previous bailout means it has more than enough operating capital to stay solvent, the tanking of its share price suggested that many market participants have already accepted nationalisation as a fait accompli.
As explained in my previous post, I'd also take that view. In fact it would be much easier for the government to get RBS lending if it did step in with full nationalisation. Perhaps it's hoping the bank will collapse and then it'll be able to snap up the remaining part of the bank for nothing. That's possible, but it's also short-sighted - while the govt waits for the collapse, hundreds of firms are going to the wall.
Other banks aren't faring much better. The newly merged, part-nationalised Lloyds Group is down to 65p and will probably join RBS in the state-owned pile before this is all over.
Most satisfying for anybody who dislikes arrogance and idiocy in financial dealings would be if Barclays was forced to go cap-in-hand to the govt for insurance after quixotically refusing assistance back in October, preferring instead to secure wildly expensive funding from the United Arab Emirates. Who will no doubt be less than happy that their investment has fallen so far and so fast... down over 50% since November.
Overall, SoB moves us towards a coherent strategy for resuming lending to UK business but we are still a long way from the endgame here. That will come when the govt takes full ownership of RBS, Lloyds and probably Barclays too. There has already been a turnaround at the already-nationalised Northern Rock, where the government is now planning to expand lending rather than gradually run off the loan book, which was the previous policy. Northern Rock on its own is too small to reverse the economic downturn. But put it together with the big three in a nationalised 'super-bank' and we might have something. Although, of course, co-ordinated international action would make this a lot easier. Let's see what line President Obama takes later this week.