The Banks and Lending to Business
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The Banks and Lending to Business

The Banks and Lending to Business


Trading Features / Strategies from Simon Denham of Capital Spreads.

The old Keynesian saying that “when times get tough you should pay a man to dig a hole and then pay another to fill it in” makes for good press but the whole point about the little parable is that the hole no longer costs you money after it has been filled.

The current spending plans from this government seem to be turning this on its head. The huge array of regulatory, testing, planning, box ticking, form filling, NHS, Education, Social Security infrastructure is now pretty much set in stone. This is now the hole in the public finances that will not just require filling in now but will have to be filled in again next year (plus inflation and pay and pension rises) and the year after ad nauseam.

The Tory party remains completely in thrall to the idea that you only get elected in this country if you continue to back the public sector spending plans of ‘New Labour’. This is not helped by the fact that the leader of the Conservatives is an ex-PR man, a job which practically sums up the saying “Style over Substance”.

The favourite pastime of virtually everyone these days is to blame the banks for just about everything. You can understand the Government doing this as if they repeat it often enough maybe they can fool the electorate one more time.

However commentators should beware hammering too much on this point. If I was lending my own money (as journalists forever say the banks are now propped up with ‘our’ money) would I lend to a company that was running into difficulties now?


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With another 12 months of a, probably, contracting economy, I would look with a pretty jaundiced eye at a small business that required money to survive right at the beginning of the down turn. I might ask “when times were good did you lay down funds to take you through the bad, or did you just pay it to yourself to fund that holiday in the Maldives”?

As many banks are indeed surviving on the back of “our money” then I want them to lend and invest those funds responsibly NOT just hand out to any sob story that comes in my door. This is what is meant by harsh business decisions.

If banks prop up all failing businesses then, yes, some may survive but in the medium to long term they would endanger their own survival AND maintain the downturn for far longer than would otherwise be the case.

Wounded businesses limping on with ever larger overdrafts would damage better run companies who would have to compete with basket cases on an even playing field. Recessions run their course and we come out of the other side with the weak and plain ‘out of date’ gone and the survivors leaner but better placed for growth.

Spending huge sums now on the mortally wounded is not good use of either the bank’s or the public’s money. Identify the walking wounded and fund them.


The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.


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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'The Banks and Lending to Business' edited by DB, updated 01-Dec-08



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