?200Bn to Bail out the Bankers; Henry Paulson: U.S. Bail-Out Plan

Article excerpt

Byline: Sam Fleming

TAXPAYERS could be loaded with up to ?200billion of so-called toxic bank debts in a move to prevent a financial collapse.

Gordon Brown is under pressure from the City to follow the U.S., where the government has agreed to help bail out the banks.

But the calls provoked claims that Downing Street risks playing 'fairy godmother' to incompetent bankers.

The Government has refused to rule out a U.S.-style scheme, while insisting nothing similar is currently being planned.

City experts claimed that if the Prime Minister does not act, Britain could ultimately follow the U.S. into a financial and economic meltdown.

Such a move could ultimately load taxpayers with ?200billion of stricken loans, City estimates suggest. On Friday the White House stepped in to the market chaos with a pledge to nationalise American banks' bad loans, in an attempt to prevent a banking crisis rivalling that seen in the Great Depression.

Traders are braced for another stormy week on markets as further details of the proposals emerge.

Over the weekend U.S. Treasury Secretary Henry Paulson said his plan will be worth an initial $700billion (?382billion). Economists expect the bill to exceed $1,000billion (?546billion).

Crucially, British banking giants such as Royal Bank of Scotland, HSBC and Barclays will be awaiting news on whether they will benefit. The

U.S. Treasury said its fund will be open to firms with 'significant operations' in America, but Congressional leaders may try to block attempts to offload foreign banks' toxic loans on to U.S. taxpayers.

Mr Paulson said it was right that foreign institutions should participate. He said: 'If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution.' A draft of the U.S. legislation suggested the bailout will extend only to banks with headquarters in America - dealing a blow to British lenders.

Experts including former Bank of England official Willem Buiter and economists from financial giants Citigroup and UBS said Britain must consider a U.S.-style scheme. This is because the UK faces its own spiral of soaring debt defaults and plummeting property values - a crisis that will be exacerbated by the events of last week.

Mr Buiter, a professor at the London School of Economics, said America is effectively 'socialising' its financial sector by creating a 'Toxic Asset Dump'. …