BBC – HM Treasury today becomes perhaps the biggest hedge fund in the UK: it is investing £25.5bn in Royal Bank of Scotland shares and £5.7bn in Lloyds shares, financed almost exclusively by borrowing.
If we’re past the nadir for the economy and for bank shares – and that’s a fair bet – it’s not a bad punt to borrow at an average interest rate of around 3% (by selling new gilt-edged stock with maturities of five years or ten years) to invest in assets with substantial potential upside.
I’m not sure that I’d recommend that the government speculate its way out of its debt problem by taking further stock-market punts, but there is a delicious irony that economic and financial woes caused by banks gearing up their balance sheets in the boom years are being solved by HM Treasury now gearing up the public-sector balance sheet.
