Some thoughts to bear in mind before digging a grave for the Funding for Lending Scheme

FFS, FLS!

Six months into the Bank of England’s Funding for Lending Scheme (FLS), and we seem eager to anticipate its demise, like wolves padding after a limping bison.

The scheme, which offers banks funding at a discounted rate of interest so long as those lower rates are passed on to customers, has so far seen £13.8bn drawn from the Bank’s pot of £100bn, of which £9.5bn was accessed in last year’s final quarter.

The problem was, Q4 also saw overall bank lending drop by £2.4bn compared to the previous three months.

Oh those naughty, naughty banks. Lloyds Banking Group, RBS and Santander cut their lending totals by a combined £7.6bn during the quarter, despite drawing down £4.8bn between them through the scheme, while Barclays, despite growing lending during Q4, did so by only £5.7bn while drawing down £6bn.  

Of course, if banking was simple, we’d expect lenders to have squirted money into the hands of consumers and small business owners with wild abandon, in exactly the quantities drawn down.

But then, despite all our desires to the contrary, banking isn’t particularly simple. Here’s some thoughts to bear in mind before digging the FLS’ grave early.

First, as the Bank has already pointed out, the fourth quarter is never the strongest time for lending in the first place, and we would have been worse off without the boost of the FLS

Second, we shouldn’t forget the wider context, of major banks being mandated to shore up their capital bases in order to avoid being as exposed to ruin as they were in 2008. Unfortunately, the main way for them to do this is by cutting back on lending.

Third, there is a time delay on the reduced cost of funding offered by the scheme trickling through to customers, as it takes time for loans to make it through from application to payout. This has now been stated by the Bank often enough to feel a tiny bit “dog ate my homework”, but is still a fair point.

All things considered, I’m surprised people’s expectations were so high. Even before launching the scheme, the Bank predicted that we’d have to get some way into 2013 before we saw the real benefits of the scheme.

And before we expect miracles, let’s remember the fundamental obstacle facing the scheme: it can’t do anything at all about the cost of risk, i.e. what banks have to put aside in contingency for loan defaults.

Very small businesses, very new ones, and those in sectors considered by lenders to be on the ropes, will still have great difficulty being touched with a bargepole while the discounted funding can be channelled into lending to safe bets.

And who can blame the banks? We’ve spent five years pillorying them over subprime lending, so is it really a surprise they are so risk averse now? By demanding that banks pile more money into the SME sector, we are explicitly asking them to take greater risks.

So let’s give Threadneedle Street the benefit of the doubt and have this whole conversation again after Q1. If the scheme isn’t working, replacement isn’t out of the question - after all, the FLS was created to replace the underwhelming National Loan Guarantee scheme, which was quietly phased out after only six disappointing months.  

But let’s also revise down our expectations of what will constitute success for the FLS. If used correctly it will be able to soothe the symptoms of a deeply troubled system, but it’s never going to touch the roots of the problem.

Bank of England. Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

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The Randian Republican who could rein in Trump isn’t a coward – he’s much worse

Paul Ryan's refusal to condemn Trump is not caused by terror or fear; rather, it is a cynical, self-serving tactic.

Poor ol’ Paul Ryan. For a few brief hours on 27 January, a week after the inauguration of Donald Trump, the Wikipedia entry for “invertebrates” – which defines them as “animals that neither possess nor develop a vertebral column (commonly known as a backbone or spine)” – was amended to include a smiling picture of the Republican Speaker of the House of Representatives.

The online prank reflected a growing consensus among critics of Ryan: confronted by a boorish and authoritarian president plagued by multiple conflicts of interest, the House Speaker has behaved in a craven and spineless manner. Ryan, goes the conventional wisdom, is a coward.

Yet as is so often the case, the conventional wisdom is wrong. Ryan’s deafening silence over Trump’s egregious excesses has little to do with pusillanimity. It’s much worse than that. The House Speaker is not a coward; he is a shameless opportunist. His refusal to condemn Trump is not caused by terror or fear; rather, it is a cynical, self-serving tactic.

Long before Trump arrived on the scene with his wacky “birther” conspiracies, Ryan was the undisputed star of the GOP; the earnest, number-crunching wunderkind of the right. He was elected to Congress in 1998, aged 28; by 2011, he was head of the House budget committee; by 2012, he was Mitt Romney’s running mate; by 2015, he was Speaker of the House – and third in line for the presidency – at the grand old age of 45.

The Wisconsin congressman has been hailed in the conservative media as the “man with a plan”, the “intellectual leader of the Republican Party”, the “conscience” of the GOP. Yet, again and again, in recent years, he has been singularly unsuccessful in enacting his legislative agenda.

And what kind of agenda might that be? Why, an Ayn Rand-inspired agenda, of course. You know Rand, right? The hero of modern-day libertarians, self-described “radical for capitalism” and author of the dystopian novel Atlas Shrugged. As one of her acolytes wrote to her: “You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your condition which you simply take for granted you owe to the effort of men who are better than you.”

Ryan is an ideologue who insists on giving copies of Atlas Shrugged to interns in his congressional office. In 2005 he told a gathering of Rand fans, called the Atlas Society, that “the reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand”.

Rolling back the evil state while balancing the budget on the backs of the feckless poor, in true Randian fashion, has always been Ryan’s primary goal. Even Newt Gingrich, who served as Republican House Speaker for five years in the 1990s, once decried Ryan’s proposals to privatise Medicare ­– the popular federal health insurance programme that covers people over the age of 65 – as “right-wing social engineering”.

These days, Ryan has a useful idiot in the White House to help him pull off the right-wing social engineering that he couldn’t pull off on his own. Trump, who doesn’t do detail or policy, is content, perhaps even keen, to outsource his domestic agenda to the policy wonk from Wisconsin.

The Speaker has made his deal with the devil: a reckless and racist demagogue, possibly in cahoots with Russia, can trample over the law, erode US democratic norms and embarrass the country, and the party, at home and abroad. And in return? Ryan gets top-rate tax cuts. To hell with the constitution.

Trump, lest we forget, ran as an insurgent against the Republican establishment during the primaries, loudly breaking with hard-right GOP orthodoxy on issues such as infrastructure spending (Trump promised more), health-care reform (Trump promised coverage for all) and Medicaid (Trump promised no cuts). It was all a charade, a con. And Ryan knew it. The Speaker may have been slow to endorse Trump but when he did so, last June, he made it clear that “on the issues that make up our agenda, we have more common ground than disagreement”.

A year later, Ryan has been vindicated: free trade deals aside, Trump is governing as a pretty conventional, hard-right conservative. Consider the first important budget proposal from the Trump administration, published on 23 May. For Ryan, it’s a Randian dream come true: $800bn slashed from Medicaid, which provides health care to low-income Americans, plus swingeing cuts to Snap (the Supplemental Nutrition Assistance Programme, aka food stamps), Chip (the Children’s Health Insurance Programme) and SSDI (disability insurance).

In Trump, Ryan and his fellow anti-government hardliners in Congress have found the perfect frontman to enact their reverse-Robin Hood economic agenda: a self-declared, rhetorical champion of white, working-class voters whose actual Ryan-esque policies – on tax cuts, health care, Wall Street regulation and the rest – bolster only the billionaire class at their expense.

Don’t be distracted by all the scandals: the president has been busy using his tiny hands to sign a wide array of bills, executive orders and judicial appointments that have warmed the cold hearts of the Republican hard right.

Impeachment, therefore, remains a liberal fantasy – despite everything we’re discovering about Russia, Michael Flynn, James Comey and the rest. Does anyone seriously expect this Republican-dominated House of Representatives to bring articles of impeachment against Trump? With Paul Ryan in charge of it? Don’t. Be. Silly.

Mehdi Hasan is a broadcaster and New Statesman contributing editor. He is based in Washington, DC

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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