Government backs off banks

[Frankeh]

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.
The person that £900K goes to isn't going to spend it on cheese either.

If the majority of the bonuses really are just a couple of grand then there's no real problem and I don't see what everyone's getting their panties in a twist about.

[Marf]

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.

Stamp Duty
Estate agent income - taxable
Surveyor income - taxable
removals company income - taxable.

So there are 4 examples of where the money would trickle down in this narrow little example

[Du1point8]

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.
The person that £900K goes to isn't going to spend it on cheese either.

If the majority of the bonuses really are just a couple of grand then there's no real problem and I don't see what everyone's getting their panties in a twist about.

Cause desk heads and their assistances can get a few million for doing well and making a lot of money for the bank...

I work as a senior code monkey and despite the fact I have designed and built a system in 3 months that just won us a £1.8 million per year contract I dont see a £300k+ bonus and in fact get very little.

People just dont get this and just see the figures and dont really think about it... If we all got multi million pound bonus in my area... there are 140 of us in the dept so lets get £3 million each, there goes £420 million even before you get to anyone else and we are just the monkeys in Prime Finance, there are loads more deptments.

Lets do it another way: 10000 in the building in canary wharf, give us all £500k, thats 5 billion, so know we dont all get multi million bonus in the city.

Can you see now were the media is sensationalising just to stir up the public??

[Ozzie Osmond]

munky said:

So, maybe I can come up with a better comparison (still not great though). You have a million in bank X in a 25 year fixed term deposit account. Dave whom you have never met has a million in bank Y. Bank Y goes bust and Dave only gets back £400k. Imagine accounting rules say that because bank Y went bust so might bank X, so £600k is deducted from your account. If Bank X doesn't go bust, then you get your £600k credit back gradually over the next few years. Happy with that?

Good description, and focuses on the "judgement" required when dealing with illiquid assets. In your example no-one knows whether bank X is or isn't going bust until after the event, by which time it's too late. Therefore it's vital to err on the side of caution and it all falls apart if caution is thrown to the wind.

Back to boring old housing as an easy example, if you lent 80% on a mortagage there's 20% leeway before any risk of loss. Many would consider that a comfortable buffer and the "value" of the loan isn't threatened at all if the market drops 5%.

If you lent 100% then a 5% drop in the market starts to question the "value" of the loan, although you might not feel at all threatened in the context of normal market fluctuations.

If you lent more than 100% then the instant the market drops 5% you're in deep trouble. Not because you've lost the cash but because the fall totally undermines the view of the world which you held at the outset, namely a guaranteed rising market. In other words, it is the fact they ever held that view which marks out certain bankers as idiots. Collapse of the market was just the effect.

Even if "the Americans started it" that's no excuse for so many others jumping on the bandwagon. As often happens in disasters, those responsible for risk management were fiddling about in the detail whilst blind to the massive risk they were running.

[Sticks.]

Marf said:

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.

Stamp Duty
Estate agent income - taxable
Surveyor income - taxable
removals company income - taxable.

So there are the only 4 examples of where the money would trickle down in this narrow little example

Oh, and Council Tax, and.........

[Marf]

Sticks. said:

Marf said:

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.

Stamp Duty
Estate agent income - taxable
Surveyor income - taxable
removals company income - taxable.

So there are the only 4 examples of where the money would trickle down in this narrow little example

Oh, and Council Tax, and.........

So what's your point??

Are you suggesting that how these evil evil bankers spend their money shoud be legislated??

Edited by Marf on Friday 14th January 12:12

[ZondaMark]

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.
The person that £900K goes to isn't going to spend it on cheese either.

If the majority of the bonuses really are just a couple of grand then there's no real problem and I don't see what everyone's getting their panties in a twist about.

If they're not spent then as long as they aren't stuffed under a matress, it's no bad thing. Spending isn't the only way to support the economy.

[Sticks.]

Marf said:

So what's your point??

Edited by Marf on Friday 14th January 12:12

....that large bonuses don't always trickle down very much.

[Sticks.]

ZondaMark said:

Spending isn't the only way to support the economy.

You'd better tell the govt then

[Frankeh]

Du1point8 said:

Frankeh said:

Sticks. said:

Frankeh said:

If they're £1m+ bonuses, then they'll just be hoarded. No one's going to spend £1m on cheese in their local corner shop.

FWIW was talking to an estate agent in a town popular for second homes and holiday lets. Said he's hardly done any mortgage applications since moving there and some properties are as much as £900k, bought as second homes with bonuses, he said.

That's still hoarding. It's never going to trickle down.
The person that £900K goes to isn't going to spend it on cheese either.

If the majority of the bonuses really are just a couple of grand then there's no real problem and I don't see what everyone's getting their panties in a twist about.

Cause desk heads and their assistances can get a few million for doing well and making a lot of money for the bank...

I work as a senior code monkey and despite the fact I have designed and built a system in 3 months that just won us a £1.8 million per year contract I dont see a £300k+ bonus and in fact get very little.

People just dont get this and just see the figures and dont really think about it... If we all got multi million pound bonus in my area... there are 140 of us in the dept so lets get £3 million each, there goes £420 million even before you get to anyone else and we are just the monkeys in Prime Finance, there are loads more deptments.

Lets do it another way: 10000 in the building in canary wharf, give us all £500k, thats 5 billion, so know we dont all get multi million bonus in the city.

Can you see now were the media is sensationalising just to stir up the public??

I never thought that everyone was getting million pound bonuses. That's stupid.
I was asking if the bonuses were spread over many people, or if a few higher ups were just getting huge bonuses.

[munky]

Ozzie Osmond said:

munky said:

So, maybe I can come up with a better comparison (still not great though). You have a million in bank X in a 25 year fixed term deposit account. Dave whom you have never met has a million in bank Y. Bank Y goes bust and Dave only gets back £400k. Imagine accounting rules say that because bank Y went bust so might bank X, so £600k is deducted from your account. If Bank X doesn't go bust, then you get your £600k credit back gradually over the next few years. Happy with that?

Good description, and focuses on the "judgement" required when dealing with illiquid assets. In your example no-one knows whether bank X is or isn't going bust until after the event, by which time it's too late. Therefore it's vital to err on the side of caution and it all falls apart if caution is thrown to the wind.

Judgement - exactly, but the rules don't allow for judgement. They simply say that if someone trades it, you have to value yours the same, regardless of why the price paid was what it was. The price Bear got for its MBS book reflected not the quality of the securities and underlying mortgages, but the fact that 1) Bear was in trouble and a forced seller. If buyers know you're a forced seller, they will rip your eyes out. 2) Other banks were in no mood to take on more mortgage risk even if they could find the extra funding. Leaving only hedge funds as buyers, who are even more adept at eye ripping.

Should this type of securities have been marked at 100%? No. Or marked to a theoretical model price (aka mark-to-make-believe)? No. But not 40% either. Judgement would be allowing the other banks to decide on a suitable credit and liquidity provision against the risk, and for this to be checked by auditors and regulators (as long as they actually do), not forcing losses on any bank holding mortgage securities because of some arbitrary price achieved by a distressed seller being held hostage.

Mark-to-market is arguably the lesser of all evils and most of the time is perfectly sensible, but not always. FAS 115 allowed certain debt and equity instruments to not be marked to market for instance.

Ozzie Osmond said:

Back to boring old housing as an easy example, if you lent 80% on a mortagage there's 20% leeway before any risk of loss. Many would consider that a comfortable buffer and the "value" of the loan isn't threatened at all if the market drops 5%.

If you lent 100% then a 5% drop in the market starts to question the "value" of the loan, although you might not feel at all threatened in the context of normal market fluctuations.

If you lent more than 100% then the instant the market drops 5% you're in deep trouble. Not because you've lost the cash but because the fall totally undermines the view of the world which you held at the outset, namely a guaranteed rising market. In other words, it is the fact they ever held that view which marks out certain bankers as idiots. Collapse of the market was just the effect.

Being prime mortgages, we can safely assume that LTV was less than 100%

Ozzie Osmond said:

Even if "the Americans started it" that's no excuse for so many others jumping on the bandwagon.

I didn't even say the Americans started "it", I just said that the first cracks appeared there (whatever "it" is, but yes the origins of the crisis go back to low interest rates following the dotcom bubble, continued post-911, global imbalances and excessive liquidity looking for yield, Bill Clinton and his mortgages for everyone, there was the "Greenspan Put", and over here Winky was busy reducing regulation on banks and approving mega-mergers, making speeches at Mansion House and generally cosying up to the banks while Britons gorged themselves on debt)
There have always been and there always will be (I think we now know that Winky didn't solve this) booms and busts. Economies overheat, bubbles form, bubbles burst. The longer the boom, the worse the bust. Add to that financial crises, which in capitalist systems have happened roughly every 100 years, and probably always will.

Back to accounting, and I see there there have been further developments on this

wikipedia said:

On March 16, 2009, FASB proposed allowing companies to use more leeway in valuing their assets under "mark-to-market" accounting, a move that could ease balance-sheet pressures many companies say they are feeling during the economic crisis. On April 2, 2009, after a 15-day public comment period, FASB eased the mark-to-market rules. Financial institutions are still required by the rules to mark transactions to market prices but more so in a steady market and less so when the market is inactive. To proponents of the rules, this removes the unnecessary "positive feedback loop" that can result in a deeply weakened economy.[19]

On April 9, 2009, FASB issued the official update to FAS 157[20] that eases the mark-to-market rules when the market is unsteady or inactive. Early adopters were allowed to apply the ruling as of March 15, 2009, and the rest as of June 15, 2009. It was anticipated that these changes could significantly boost banks' statements of earnings and allow them to defer reporting losses.[21] The changes, however, affected accounting standards applicable to a broad range of derivatives, not just banks holding mortgage-backed securities.

Opponents argue that the implications for investors are that the valuation of assets underlying such securities will be increasingly difficult to analyze, not less so. An example would be determining a company's actual assets, equity and earnings, which will be overstated if the assets are not allowed to be marked down appropriately.[citation needed][22][23]

In January 2010, Adair Turner, Chairman of the UK's Financial Services Authority, said that marking to market had been a cause of inflated bankers' bonuses. This is because it produces a self-reinforcing cycle during a rising market that feeds into banks' profit estimates.[24]

taking that last statement, MtM accounting feeds the boom as well as exacerbating the bust. And that's without even getting onto the topic of capital rules doing the same.

Ozzie Osmond said:

As often happens in disasters, those responsible for risk management were fiddling about in the detail whilst blind to the massive risk they were running.

Ah I know a bit about this, as it's what I do for a living. Don't you think you're rather generalising?

We saw the crash coming well in advance, all the signs were there, and did something about it. As a result losses here were very slight and not one penny of taxpayer money (or of foreign investor money for that reason) was needed.

At a couple of banks, risk management wasn't good enough. At others they were, but were not listened to by the business side, and especially in American banks the revenue generators win (or used to). The exception was Goldman, where risk management was uniquely allowed to trade in the market, taking opposite positions to the business in order to hedge. Of course that didn't stop them getting slated by politicians for selling the property market and "profiting from homeowners misery" whereas in fact all they were doing was sensibly managing risk.

Were "banks" at fault? Yes, although not all of them. Were governments also at fault? Yes. Regulators? Yes. Accounting rules? Yes. Ratings agencies? Yes. Consumers? Yes. Property speculators and the buy-to-let brigade? Yes. Central banks? Yes. Financial Guaranty Insurers (monoline and multiline)? Yes. Other macro factors - interest rates? Yes. Sovereign wealth funds and others looking for yield in ever more exotic products in a low interest environment? Yes.

To think that only one of those factors is to blame is for simpletons and the media.

[Ozzie Osmond]

munky said:

Were "banks" at fault? Yes, although not all of them. Were governments also at fault? Yes. Regulators? Yes. Accounting rules? Yes. Ratings agencies? Yes. Consumers? Yes. Property speculators and the buy-to-let brigade? Yes. Central banks? Yes. Financial Guaranty Insurers (monoline and multiline)? Yes. Other macro factors - interest rates? Yes. Sovereign wealth funds and others looking for yield in ever more exotic products in a low interest environment? Yes.

All very well. But what that adds up to is nothing is ever anybody's fault so long as there is are plenty of people involved somewhere in the system. Which is nonsense. On that basis no big project would ever get off the ground and BP wouldn't be paying out $billions for the Gulf oil leak.

In this case the ONLY people doing the lending were the banks. Not the regulator. Not the accountancy rules. Not the others. And as we have seen, doing something for a living doesn't guarantee the doer is any good at it. Adam Applegarth for instance.

[Du1point8]

Ozzie Osmond said:

munky said:

Were "banks" at fault? Yes, although not all of them. Were governments also at fault? Yes. Regulators? Yes. Accounting rules? Yes. Ratings agencies? Yes. Consumers? Yes. Property speculators and the buy-to-let brigade? Yes. Central banks? Yes. Financial Guaranty Insurers (monoline and multiline)? Yes. Other macro factors - interest rates? Yes. Sovereign wealth funds and others looking for yield in ever more exotic products in a low interest environment? Yes.

All very well. But what that adds up to is nothing is ever anybody's fault so long as there is are plenty of people involved somewhere in the system. Which is nonsense. On that basis no big project would ever get off the ground and BP wouldn't be paying out $billions for the Gulf oil leak.

In this case the ONLY people doing the lending were the banks. Not the regulator. Not the accountancy rules. Not the others. And as we have seen, doing something for a living doesn't guarantee the doer is any good at it. Adam Applegarth for instance.

What a blinkered approach...

Of course anyone who actually borrows from them is not at fault as they are all sheep and not responsible for their own borrowing and forgetting to pay the banks back...

[Ozzie Osmond]

Du1point8 said:

What a blinkered approach...

Of course anyone who actually borrows from them is not at fault as they are all sheep and not responsible for their own borrowing and forgetting to pay the banks back...

When you take you car to the garage you expect it to be fixed correctly. If the garage makes a mess of it and you break down at the side of the road do you expect to be told, "Well, it's your fault Mr Customer, you should have had more sense than to bring the car to us!"

Blinkered approach?

[Frankeh]

Give a monkey a loaded gun.
If it shoots its self, whose fault is it?

That is, unfortunately, the way you must perceive Mr Average Joe.

It is therefore my opinion that it's the banks fault, not the consumers.
The consumers were morons and this was known from the start. The banks decided to give those morons a tactical nuclear weapon and then were surprised when it exploded.

[munky]

Ozzie Osmond said:

munky said:

Were "banks" at fault? Yes, although not all of them. Were governments also at fault? Yes. Regulators? Yes. Accounting rules? Yes. Ratings agencies? Yes. Consumers? Yes. Property speculators and the buy-to-let brigade? Yes. Central banks? Yes. Financial Guaranty Insurers (monoline and multiline)? Yes. Other macro factors - interest rates? Yes. Sovereign wealth funds and others looking for yield in ever more exotic products in a low interest environment? Yes.

All very well. But what that adds up to is nothing is ever anybody's fault so long as there is are plenty of people involved somewhere in the system. Which is nonsense. On that basis no big project would ever get off the ground and BP wouldn't be paying out $billions for the Gulf oil leak.

Now that is nonsense, comparing an oil leak to a recession. If you want to play that game though, why do airliners crash? Is there EVER a single reason? How about Sep 11th? Must be a single person or entity to blame there right? It is this childish, simplistic "someone must be to blame!" mentality which both causes unintended consequences and a failure to fix the problems to prevent re-ocurrence.

Ozzie Osmond said:

In this case the ONLY people doing the lending were the banks. Not the regulator. Not the accountancy rules. Not the others. And as we have seen, doing something for a living doesn't guarantee the doer is any good at it. Adam Applegarth for instance.

Eh? I said I know about something, not that I'm good at it. But since you question it, yes I'm rather good at it thanks, and so are those I work with. Hence my employer took not a penny of anyone's precious tax money, and used the misfortune of other banks to treble in size and steal their market share and their staff. Thanks for asking

[Du1point8]

those examples are crap...

Simple one:

I give you a peanut cause you want a peanut and have been told by the government its good to have a peanut and you deserve it as a member of this country.

I tell you that to have this peanut you must pay me back 2 peanuts, you check that you can do that and say yes... So I give you 1 and you give me 2 peanuts at the end of the period of time.

Monkey Joe public understand and then sign agreement...

Time comes to give me 2 peanuts and Joe public says sorry I ate it or swapped it for shiny LCD TV, which of course it is of no use to me...

Joe public then complains and says that its not their fault that they dont have 2 peanuts and its the banks fault for giving them the peanut as they think its some elses fault other than theirs...

Bank stops giving Joe public deals and then Joe public again complains that he deserves a Peanut and its his right...

At the end of the day if Joe public wants a nut, then Joe public is responsible for a nut... Its not anyone elses responsiblity to look after them, its their own...

To try and blame someone else for their own stupidity is absurd, their are adults and if they dont understand something they why follow what the government says like sheep?

[Frankeh]

Du1point8 said:

those examples are crap...

Simple one:

I give you a peanut cause you want a peanut and have been told by the government its good to have a peanut and you deserve it as a member of this country.

I tell you that to have this peanut you must pay me back 2 peanuts, you check that you can do that and say yes... So I give you 1 and you give me 2 peanuts at the end of the period of time.

Monkey Joe public understand and then sign agreement...

Got to stop you there.
A better analogy would be that Joe Public slams his faeces ridden hand down on the papers and then swings off the lights while thumping his chest.

Never expect Joe Public to understand even the simplest of concepts.

Certainly don't rely on it to keep your business going!

[munky]

Ozzie Osmond said:

In this case the ONLY people doing the lending were the banks

My god, headline news there - "capitalist business sells customers what they want". Business has had it wrong all this time. McDonalds should not be saying "do you want fries with that" but "are you SURE you want a quarter pounder with cheese, with your girth? How about a nice salad without dressing?"

Ferrari should ask "are you SURE you can cope with this power? What if you crash it? May I suggest a nice little cinquecento?"

This is fun, I might think of some more later.

Besides which, again you're getting all simplistic. The US govt were also doing the lending, by guaranteeing Freddie and Fannie. The Chinese, the Norwegians and the Arabs were also doing the lending as they're the ones with the surplus cash, both directly in mortgage backed securities and CDOs and buy buying US Treasuries in their billions, pushing down long term interest rates displacing other investors (thinking hedge fund clients here) into higher yielding riskier instruments such as subprime CDOs which the US banks were happy to create, pooling mortgages bought from the regional US lending banks which bought them from the dodgy US mortgage brokers that didn't ask for silly things like proof of income and lied about interest rates (ok not lied, but neglected to mention the rate reset clauses and the borrowers never read the agreements they signed)

LENDING alone is a problem how exactly? How does anyone (normal) ever buy a house?

Edited by munky on Friday 14th January 15:39

[Marf]

Round and round we go