This is an extraordinary idea from a government experimenting with ever more wild and expensive ideas. A state bank with loose lending criteria would only prolong this recession.
It's too late, there is nothing the government can do to stop this recession. It could do things to limit the damage, but so far none of its policies or bail-outs have given confidence to the people (a cut in income tax would have) and our currency has plunged at its fastest rate in history.
If there are two essential requirements of a government, they are to foster a stable economy and avoid war. This government has failed on both counts. Brown became "Mr Boom then Bust" and Blair took us into an illegal war against our will. The UK is crumbling under Labour.
Gordon Brown did nothing to prevent a giant property bubble from inflating since Labour came to power in May 1997. Property prices tripled in the 10 years to September 2007 (Nationwide). The collapse of this bubble is the primary cause of our dire economic predicament.
What goes up must come down. But Labour won't accept that. They want to return to the days when getting a £X00,000 mortgage was as simple as signing on the dotted line. That's why they might create a state bank. But it will do more harm than good. This government wastes money on everything it does, be it IT projects, special advisers or general inefficiency let alone ID card and civilian spying projects that have no place in our civilised nation.
The solution? Laissez faire. The private sector should provide banking services, not the government. The banks lent too much money during the boom and now they are compensating for that by lending more carefully. This is a good thing: it helps existing borrowers concentrate on paying back their debts and requires new borrowers to properly justify why they deserve a loan.
This will be a severe recession. But we are British – we'll deal with it and we don't need government interference.