Banks, Lending and Stupidity

From the Guardian:

Britain's banks lent more money to companies in August than was paid back to them for the first time in six months, the Bank of England reported today.

Unfortunate news for Ann Pettifor (see here).

Lord Oakeshott, the Liberal Democrat treasury spokesman, said: "Britain's banks have turned banking on its head – these days they borrow from British business, not the other way around. What's the point of pumping billions into the economy through quantitative easing when the banks just suck it out again?"

To keep the banks afloat, employing people and lending at least some money?

He added: "Small business lending is going from bad to worse. The annual rate of contraction is approaching 5%. The smaller your business, the harder you're hit."

Or the higher the risk you pose the harder it is to get credit. Shock.

Confusion Over Banks

I'm no economist and no expert about anything but this article from Ann Pettifor seems to be completely ridiculous.

First she says:

But government deficits cannot be managed like that. The UK Treasury cannot cut the deficit, only government expenditure. Whether or not the budget deficit comes down depends entirely on how the rest of the economy reacts.

This is probably true, but then she goes on to say:

Only by the public sector stimulating the private sector can we reduce the deficit.

But if she recognises that the government cannot force the reaction it wants by cutting surely the same applies to spending. So her earlier dismissal of cuts applies just as much to spending.

The banking system exists to serve the real economy

Since banks are (or were) privately owned companies with shareholders they actually exist, like all private companies, to make money for their owners.

As a result of liberalisation (including the 1971 Competition and Credit Control Act), the system as a whole has been burdened by bad debts and is effectively bankrupted.

So nothing to do with government interference at all then.

In a truly bizarre twist, the banking system has become a borrowing machine, not a lending machine. 

Banks have always been borrowing machines and lending machines, haven't they? They borrow money from people and lend it to others.

in terms of balance sheets, the UK private sector is repaying more to the banks than the banks are lending.

Well that makes sense, doesn't it? The banks have already lent lots of money, some of it to people who probably won't pay it back. So in order to be able to pay back its own debts it must gather in some cash.

How can Ms Pettifor declare:

It is the banks that are broken, not government.

when all evidence is that the banks are doing exactly what you'd expect them to do?

She concludes that:

Pensioners, depositors and savers will continue lending their precious savings to bankers earning bonuses, in return for derisory rates of interest.

If they're continuing to lend to the banks then these depositors have surely calculated that it is in their best interests to do so rather than keeping the cash under their mattresses. Or are all savers also idiots?

If my understanding is completely off please let me know in the comments

Am I Missing Something?

The BBC is reporting that Alex Salmond is calling on the Coalition to force banks to lend more money to small Scottish businesses.

Maybe I'm missing something here, but isn't the reason we're in a recession because banks made loans that were too risky? So how is it sensible to try and get out of it by forcing them to do the same thing again?