I really should be more grateful to banks

Yesterday, I received the following comment:

Alice handily ignores the increased quality of life brought to everyone in the UK over the past decade through the substantial contribution to the country's GDP by the financial services industry.

Net-net, this effect dwarfs the amount the Government will have spent re-capitalising the banks... it wouldn't surprise me if the UK taxpayer actually turned a profit when Northern Rock and RBS are sold off.

But don't let facts stand in the way of your vitriol Alice

I have been feeling pangs of guilt all day. Have I really been so ungrateful for all the wonderful things that the financial sector has done for me during the last 10 or so years? Will I be the lucky beneficiary of the bail-out as NRK and RBS are sold off for a profit? Oh, I do hope so.

But what of the relationship between the financial sector and GDP growth? Have I, buried deep in a pile of vitriol, missed the "substantial contribution" to the country's GDP generated by the financial system?

The financial sector can generate real increases in GDP in three ways. First, it offers an efficient payments system. However, banks have been doing this effectively for at least a century. Very little additional GDP was generated in the last 10 years because banks clear cheques and handle inter-bank transfers quickly.

Second, banks help finance investment, which increases the productive capacity of the economy and generates higher living standard. However, the sad truth is that these days most bank lending goes on financing consumption and housing related speculation. Investment levels in the UK have barely changed over the last ten years.

Which brings us onto the third channel through which banks can affect GDP - they can finance consumption. However, this kind of lending simply transfers disposable income from the future into today. If I take a loan to buy a plasma TV. Consumption goes up today, and this is reflected in GDP. However, I have to pay the loan back and this means lower consumption and GDP in the future.

This is why the UK economy enjoyed such strong growth over the last decade. We were spending money we expected to get in the future. Banks allowed us to do this, and we built up a massive pile of household debt. In fact, this debt stock is so high that banks can no longer rely on us to pay it back. This led to many of our banks sliding into insolvency, leading the government to commit 90 percent of GDP to clean up the mess.

For this, anonymous wants me to feel grateful. Sorry, I can't do it. Instead, I am angry about the excesses of the past that have led to this sorry state of affairs. I am fearful for the future because of the cost that the bank bailout will impose on my standard of living.

You can call that vitriol if you want, but that is how I feel.