How Insurance Works

Vermeend – Keynesian encore

Wouter Bos loans ING €10 billion. Does Willem Vermeend believe this is a good idea? There is not enough money to regularly wash the elderly… …or to construct more roads. Yet now we just hand over €10 billion. It’s not paid for by the Treasury. The finance minister doesn’t use the Treasury. He’s borrowing the money on the money market. And cheaply too, about a 4% rate. But he gets 8.5% from ING. A very good deal. It will make us all rich? Chances are, he’ll make money. Chances are, it will be a net benefit to tax payers. But past results are not indicative… It’s still impressive. A deal has been made… …which might be benefitial to tax payers. Unusual! ING has offices around the world. It took over the Barings Bank… …after Nick Leeson caused trouble there. It made ING an international player… …in the market for complex financial products… …which took a hit. ING had invested in American mortgages… …which turned out worthless. Does the finance minister reward… …the reckless behaviour of a bank? No, it’s not a treat. The finance minister has made a buffer. Banks decide if they need to make use of it. I think it’s sensible for ING to make use of it… …because it will strengthen their international position. The markets are uncertain… But anyone looking at ING sees… …that it’s protected by this government buffer. It’s good for the Dutch economy. It’s good for ING’s employees and business partners. Overall a very good deal. Fortis Bank was nationalised by the Dutch government. ING instead, gets a large sum of money… …to play with. What is the better solution? With nationalisation there is a risk… …of returns… …because you become shareholder. You become a market participant. With ING, the finance minister made a plain business deal. He offered a buffer… …and if you make use of it you pay 8.5%. Yet the government can borrow at a meager 4%. The finance minister… …can look the tax payer straight into the eyes. And the ING shareholder is not worse off. The Postbank is also part of ING. The government created the Postbank… …as savings bank for the common man. And that common man has too look on… …as the government has to guarantee… …the credit of Postbank’s big brother ING. Is the Postbank still the Postbank? I think that customer confidence in Postbank and ING… …has been reinforced today. Because where else do you have a finance minister… …and the president of the central bank… …tell you’re a healthy bank. They say they have confidence in this healthy bank! It’s a great day for clients of ING. ING was the first bank… …to make use of the loan facility of the Dutch government. Vermeend thinks ING made a couragous move. Does he think others will follow suit… in making use of the loan facility? You have to realize that the finance minister… …made a stern deal with ING. So it’s not without hassles. You think banks are not interested… …in increased government oversight of their business? You’re correct. But it might still be sensible… …with the current market uncertainty in the world… …to accept the loan terms of the government. It’s for the banks to decide. ING can now make use of the €10 billion as it sees fit. Is this not causing panic in the market? The whole world is facing difficulties at the moment… …including ING. But ING should be commended for taking this step.

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