Modern Alchemy

The pensions and insurance companies explain how to magically transform bad assets in to good ones in today's City AM:

The firms instead suggest the Bank of England use QE money to buy overvalued PFI and infrastructure assets from banks then sell them to pension funds at a lower price, unburdening banks and giving pension funds a good long-term asset in one action.

The notion that the government has some magical spare QE money sloshing around is infuriating enough - the government does not hold QE money as an asset; the government (or some department of the central bank) owes QE money. It has already spent it on buying back government bonds.

If we ignore that bit, what we get is a gift of free money to banks (overpaying for assets) and another free gift for the insurance companies (underpaying for assets).

By subtraction, UK government borrowing will go up. Of course this "unburdens" banks, in the same winning £1 million in the Lottery would unburden you or me.

But why are those "good long-term" assets not already "good long-term assets" from the point of view of the banks?

Maybe you bought some shares when they were 73p and I bought them today for £1.23. We own the same shares, they are as good as each other. The fact that you paid less than I did does not make the shares any better or any worse, does it?

And those "good long-term assets" like "PFI and infrastucture assets" are only worth what they are worth because the government is subsidising them. They themselves are pushing up public sector debt.

So what these geniuses are asking for is another two layers of subsidy (and increased government debt) to people who are already entitled to one layer of subsidy (the PFI or infrastructure assets, which themselves increased government debt).

FFS.

H/t Stillthinking at HPC.