On 8th October 2008 the British government announced a deal to bail out banks in the United Kingdom, in order to encourage the banks to start lending again. At a press conference in Downing Street the Prime Minister, Gordon Brown, oulined how much would be made available.

At least £200 billion would be made available for them in loans under a ‘special liquidity scheme’. The government is also going to invest directly in the banks by buying ‘preference shares’ worth £50 billion. On top of that the government will guarantee £250 billion, which Mr Brown said would ‘allow banks to raise their money in the market and so resume normal lending’.

£500 billion has been made available by the government to the banks, all of which will have to be paid for by the tax payer. As the government does not have such a huge sum readily available, it will have to borrow the money from another lender before passing the cash on to the banks and the bill on to the tax payer. Obviously the lender or lenders will demand their own regular interest payments from the government on such a huge amount. The question needs to be asked: who is lending the money to the government which the government is lending the banks?

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