The Big Bail Out Circle - the Chancellor's missed £500 billion trick

The £500 billion set aside by the UK government to bail out the banking system seems to me missing the target. There are about 60 million people in the UK and of these we can estimate one sixth have a mortgage. Now if the prime minister used this tax payers' money to give each person with a mortgage £50,000 it would do wonders for the economy and especially the weak housing market. Financial burdens would be lifted on many households, and people would feel the world is wonderful and doom and gloom would lift. Not only that, but by circulating the money directly through mortgage bank accounts, the banks themselves would still get the money to ease their fluidity problems - a double whammy if ever there was one.

Unfortunately this idea would never take off, it would spark riots by those people without mortgages demanding their fair share.

Of course we all suffer if the banks go under but unless the rules of the game are changed, we are unlikely to learn from the mistakes of the sub-prime crisis that started this chain of events. Someone should give the regulators a copy of Nassim Taleb's Black Swan - the case is argued there that the finance community has been using risk models based on thin tail, Gaussian (normal or bell curve) event probability distributions, whereas actual markets have fat tails: bad things happen more often than in equilibrium conditions.

The regulators should also demand more information about what the financial community is actually up to, a case for proactive use of Business Intelligence. But the sub-prime fiasco is at its roots a mis-selling scandal that was clothed to look triple A by derivative instruments, in turn based on faulty risk models - a rather ugly mess.