An article this morning says the British government has become the majority shareholder (at least 65%) in Lloyds Banking Group PLC in exchange for insuring more than 260 billion pounds (U.S.$367 billion dollars) in risky assets.  The article further says that as a condition of the deal, Lloyd’s promised to increase lending by 28 billion pounds (U.S.$39 billion) over the next two years, the majority to businesses.

My Comments:  First, I have no idea what the underlying value of Lloyds assets is (i.e. the net ‘real’ equity valued on a ‘mark to market’ of Lloyds).  That said, Iintuitively think that in the current economic circumstances it may not be nearly as high as Lloyd’s net book equity as reported in its latest publicly released financial statements.  Second, and in my view of paramount importance, is that this is but one more example of a government taking over a major financial institution with taxpayer money where I believe government’s almost without exception ‘run things’ in a far more bureaucratic, time consuming, and less efficient cost control manner than does the private sector.  Getting up to 20,000 feet and looking down at the current world economic morass, one has to wonder how things can get better where governments control more and more large financial institutions and other assets.  I consider this particularly troubling for countries such as the U.S. and the U.K., who in the recent past have watched as their respective economies have been converted from having a strong manufacturing base to having much reduced manufacturing bases with high dependence on the viability of ‘service based’ economies.  In my view none of what governments are doing by way of subsidizing financial institutions and other businesses likely will turn out well.  Increasingly, these governments look to me like ‘drowning men 10 feet under water with 8 foot straws’.

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