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Never Mind Tax Cuts, Save Up for the Coming Bail-Outs

Before we get too carried away with the prospect of (unfunded) tax cuts, perhaps the government should be keeping back some of their non-existent funds to bail out other industries.  After setting a precedent by promising (but not yet delivering) shed loads of cash to bail out the banks, how will it react to the inevitable clamour for similar support from other parts of industry that will hit the skids over the coming months?

We've already seen reports that the automotive industry in the UK is looking for support of up to £25 billion.  This might well be just the start.  One area I wouldn't be surprised to see coming cap in hand is the private equity business.  You might remember the feeding frenzy that took hold in the early noughties, up until recently, where quite a bit of big corporate UK was swallowed up by highly-leveraged private equity firms.  Somewhere down the line, I imagine that some or all of their loan facilities will be up for renewal.  If and when this happens, it will be interesting to see how well they fare.  What, with banks being strapped for cash to lend to home buyers, and the likelihood that, with falling stock values and reduced profits, those deals are now in 'negative equity' (excuse the pun), we could well see banks demanding repayment, rather than providing loan extensions.

What would happen then?  Would some of these companies be closed down, broken up, or what?  If they are, and the owners come to the government for funding, how could HMG say no after lending and investing so much in the banking industry?  Would they be prepared to stomach the huge number of job losses that would ensue?

Did the powers that be think about this when they dived into banking?  Probably not, but I bet the begging bowls will come out, and it will be interesting to see what HMG's excuse is for not helping these companies out.

Maybe they're better off saving the remainder of the country's overdraft limit for those events, rather than providing tax cuts.


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