Bankrupt Britain? It's not as bad as you think

Many people think the massive cost of the banking bail-outs will lead Britain to bankruptcy. James Ferguson isn't so sure. So what's the real worst-case scenario?

In last week's issue, I wrote about how the government's latest confused mish-mash of a banking bail-out was likely to do more harm than good. We also reported on fears that bailing out the system could leave Britain facing bankruptcy. It's something that investors certainly seem to be concerned about the CDS (credit default swap) spread on the five-year gilt (the cost of insuring against default) is now higher than Portugal's, a country whose debt has just been downgraded. But I'm not so sure.

Don't get me wrong I look at the blasted financial landscape that Gordon 'Culpability' Brown has fashioned for us and I could weep. But does that mean the country is actually bankrupt? Those who are most concerned point to the near-£4.2trn in liabilities that would transfer to the government's balance sheet if RBS, Barclays and Lloyds (plus HBOS) were nationalised. That would take Government debt from 40% of GDP to 350%. But this ignores the £4.4trn in assets that would accompany the liabilities (the £0.2trn difference represents the banks' capital).

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.