Clegg calls for gross economic stupidity

I despair sometimes at the stupidity of our politicians. More and more it becomes obvious that the less they have to do with running the economy, the better. The latest stupidity is from Clegg: Clegg calls for RBS and Lloyds giveaway. The idea is that when the government sells its (i.e., our) stakes in RBS and Lloyds that it (i.e., we) were forced (i.e. decided) to acquire, then there should be some kind of bizarre complex free-share giveaway scheme, the biggest experiment in "shareholder democracy" since the Thatcher era of the 1980 as they put it.

There are some obvious problems with this, minor ones like we wouldn't, each, get very many shares, most people would immeadiately re-sell them, and the biggest gainers would be the dealers who would reap a fortune in dealing costs.

But more importantly: the money to buy these shares didn't come from us, individually. It came, collectively, from the treasury. So it should go back to the treasury: i.e., back to us, collectively. Hopefully making enough to pay off the original costs, and if there is any spare, then paying down the national debt would be an excellent idea. Also, the original costs were not borne at a flat rate but at whatever relative rate people contributed to the treasury. So if people were given a flat-rate allocation in return, that would also be wrong.

The entire plan is gross stupidity. As the FT says, it "looks to revive his battered image".

Refs

* Nick Clegg has lost the plot - will he ever re-locate it? - the ever-reliable Torygraph
* Thoughts on Clegg's proposals to give away bank shares - FT blog isn't convinced either

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Another important point is that while banks are responsible to their shareholders, that responsibility is easily diluted into oblivion.

When you have a few large shareholders, they have the power to tell the banks what to do, and how much risk is or is not acceptable. When the shares are diluted into a gazillion minor holders, the banks become effectively unaccountable, since it becomes prohibitively difficult to assemble a large enough "block" of shareholders to have any clout.

By Peter Ellis (not verified) on 23 Jun 2011 #permalink

A simpler mechanism for this type of pandering would be to sell the stock and send everyone a check for his or her "share." But as you say I suspect the amount would be so low that people would more fully realize what a truly silly idea this is.

By Nicolas Nierenberg (not verified) on 23 Jun 2011 #permalink

I think you're wrong. With best case economic assumptions, auctioning the assets and putting the money back in the treasury is like distributing assets in proportion to the existing distribution of wealth, without even a nod to per capita equity.

[Err yes. Which is exactly where the money came from in the first place, no? -W]

If you relax the usual silly assumptions, like everyone is liquid, it's probably even worse. Transaction costs are a small price to pay to avoid that.

Sell the stock on the open market. Return the money to the treasury. Promise not to get in this situation again.

"...putting the money back in the treasury is like distributing assets in proportion to the existing distribution of wealth, without even a nod to per capita equity."

Actually it is distributing assets in proportion to the existing distribution of taxation, the source of the original investment funds.

By Paul Kelly (not verified) on 25 Jun 2011 #permalink

Weeel, not to be disagreeable, and Eli agrees that the stock should be sold on the open market, but as with GM, the money that was used was in excess of taxation, it was borrowed, so to come out clean the Treasury needs to make a profit. Of course this was possible because interest rates are low.

But the point about borrowing the money is interesting because it points out that distributing the stock is the equivalent of a tax rebate.