Is Another Banking Crisis just around the Corner?
Discussion
I read with interest today that the American regulator is suing the Banks including our own, Dear, RBS,HSBC, Barclays and other for miss selling mortgages on a massive scale to Freddie Mac and Fanny May in the years before the Banking crisis.
See
http://www.bbc.co.uk/news/business-14771936
I have thought for some time that the idea that the Banks were going to recover rapidly and soar into profits was misplaced. Fundamentally misplaced
Add into the equation the PFI disaster and my bet is that the Banks are years way from recovering from the daft miss selling that went on over the 20 years prior to the Banking Crisis in 2008.
I just do not think placing the entire assets of a Bank on the 3.30 at Kempton is Banking. Or business at all.
There is also the question of who banks will find to lend to now that they require a deposit that is bigger than the sale price of the prospective purchase plus all parents and grandparents to act as guarantors.
I appreciate my examples may be a bit off the wall (?) but I just cannot see the Banks recovering. Anyone agree.
See
http://www.bbc.co.uk/news/business-14771936
I have thought for some time that the idea that the Banks were going to recover rapidly and soar into profits was misplaced. Fundamentally misplaced
Add into the equation the PFI disaster and my bet is that the Banks are years way from recovering from the daft miss selling that went on over the 20 years prior to the Banking Crisis in 2008.
I just do not think placing the entire assets of a Bank on the 3.30 at Kempton is Banking. Or business at all.
There is also the question of who banks will find to lend to now that they require a deposit that is bigger than the sale price of the prospective purchase plus all parents and grandparents to act as guarantors.
I appreciate my examples may be a bit off the wall (?) but I just cannot see the Banks recovering. Anyone agree.
I am certain that the 'Banking' we have at the moment is dangerously flawed with the 'Too Big to Fail' mentality being abused by Banker's in all directions.
With a weak government in power , (this one Cons/Lib lot, not the last disaster Tony/Gordon), now anticipating the changes proposed to Investment Banking taking until 2015 we are heading for another catastrophe.
Can anyone can seriously support the ridiculous Bonus payments continuing when the taxpayer has lost so much money? It seems madness to me.
In my view the Banking 'profits' have been illusionary for years.
I just do not think these business practices are really business at all.
With a weak government in power , (this one Cons/Lib lot, not the last disaster Tony/Gordon), now anticipating the changes proposed to Investment Banking taking until 2015 we are heading for another catastrophe.
Can anyone can seriously support the ridiculous Bonus payments continuing when the taxpayer has lost so much money? It seems madness to me.
In my view the Banking 'profits' have been illusionary for years.
I just do not think these business practices are really business at all.
Steffan said:
I am certain that the 'Banking' we have at the moment is dangerously flawed with the 'Too Big to Fail' mentality being abused by Banker's in all directions.
With a weak government in power , (this one Cons/Lib lot, not the last disaster Tony/Gordon), now anticipating the changes proposed to Investment Banking taking until 2015 we are heading for another catastrophe.
Can anyone can seriously support the ridiculous Bonus payments continuing when the taxpayer has lost so much money? It seems madness to me.
In my view the Banking 'profits' have been illusionary for years.
I just do not think these business practices are really business at all.
Sorry can you demonstrate where the taxpayer has as yet lost so much money?With a weak government in power , (this one Cons/Lib lot, not the last disaster Tony/Gordon), now anticipating the changes proposed to Investment Banking taking until 2015 we are heading for another catastrophe.
Can anyone can seriously support the ridiculous Bonus payments continuing when the taxpayer has lost so much money? It seems madness to me.
In my view the Banking 'profits' have been illusionary for years.
I just do not think these business practices are really business at all.
In the other thread where this got raised, I asked how long American lawsuits of this type take to settle, since then we can get some idea of what 'just around the corner' means, not forgetting of course that the situation at the time these mortgages were re-packed and sold wasn't as simple as banks doing the deed alone as ratings agencies and governments were at work. Using the term 'work' loosely. And not forgetting also that, as a result, the lawsuits may fail.
Irrespective of the mechanism for acquisition these 'investments' represent massive losses to the taxpayer.
In business no one that I know of would invest in an insolvent company just to keep the company going. They would want an immediate continuing and healthy return from the start of the investment. My experience of Liquidators and prospective investors is that they are hard b
ds who want their pound of flesh. At least.
This was not an investment it was a lifeline for the Banks. A misguided one at that.
I cannot see a return for years if ever. There is too much still coming out.
In business no one that I know of would invest in an insolvent company just to keep the company going. They would want an immediate continuing and healthy return from the start of the investment. My experience of Liquidators and prospective investors is that they are hard b
ds who want their pound of flesh. At least.This was not an investment it was a lifeline for the Banks. A misguided one at that.
I cannot see a return for years if ever. There is too much still coming out.
Steffan said:
Irrespective of the mechanism for acquisition these 'investments' represent massive losses to the taxpayer.
In business no one that I know of would invest in an insolvent company just to keep the company going. They would want an immediate continuing and healthy return from the start of the investment. My experience of Liquidators and prospective investors is that they are hard bds who want their pound of flesh. At least.
This was not an investment it was a lifeline for the Banks. A misguided one at that.
I cannot see a return for years if ever. There is too much still coming out.
I did not agree with the RBS bailout, as they had been complete planks in the sector for many years.In business no one that I know of would invest in an insolvent company just to keep the company going. They would want an immediate continuing and healthy return from the start of the investment. My experience of Liquidators and prospective investors is that they are hard b
ds who want their pound of flesh. At least.This was not an investment it was a lifeline for the Banks. A misguided one at that.
I cannot see a return for years if ever. There is too much still coming out.
However, i am not sure what "loss" you keep referring to.
An up to date valuation of the Taxpayers holdings in Banks would represent a massive loss on disposal.
Look at Northern Rock just for a start.
Or RBS.
The fact that the taxpayer is continuing to hold the investment is a matter of policy. A disposal would represent massive losses and in my view will continue to do so for years.
This is NOT good investment its Lifeboat Economics. And getting worse.
I just cannot see the Banks returning to profits.
Too many snouts in the trough.
Look at Northern Rock just for a start.
Or RBS.
The fact that the taxpayer is continuing to hold the investment is a matter of policy. A disposal would represent massive losses and in my view will continue to do so for years.
This is NOT good investment its Lifeboat Economics. And getting worse.
I just cannot see the Banks returning to profits.
Too many snouts in the trough.
Steffan said:
Irrespective of the mechanism for acquisition these 'investments' represent massive losses to the taxpayer.
As a taxpayer, i would say that the 'mechanism for acquisition' was of upmost importance - just another example of how the previous Labour government were keen to spend away the national coffers without any regards towards those funding it.Steffan said:
In business no one that I know of would invest in an insolvent company just to keep the company going. They would want an immediate continuing and healthy return from the start of the investment.
By the same sentiment - you would be happy if Rolls-Royce had been dissolved in 1971 - and their was no aero-engine industry in the UK.Don't worry UK Bankers will be fine.
"A key Bank of England policymaker has contradicted the public statements of senior bankers by revealing that some privately expect the taxpayer to pick up the tab in the event of another financial crisis.
In a paper published yesterday, Paul Fisher, the Bank's executive director for markets, disclosed that "some banks have told us that they think they should not be required to hold capital and liquidity to deal with such extreme tail events – leaving the public sector to be the capital provider of last resort".
His comments clash with the public statements of bankers who claim lenders should not be a burden on the taxpayer.
Mr Fisher was speaking as banks have stepped up their campaign against structural reforms proposed by the Independent Commission on Banking to prevent a repeat of the crisis.
He claimed the crisis was partially caused because bank bosses "seemed to have had no grasp of how risky their exposures really were". The reason was the weakness of stress tests, which looked at each bank in isolation and failed to "make consistent assumptions about ... general market conditions".
"At some level, there is always a stress scenario that forces bankruptcy. Perhaps the greatest sin in the years preceding the financial crisis was blatantly ignoring what really would happen if the 'unthinkable' ... actually happened."
Directors’ reluctance to bullet-proof their banks against extreme risks, however, “leads directly to moral hazard and excessive risk-taking”, Mr Fisher said.
“Tail events seem to happen far more often than people assume and if the risks were properly acknowledged at the outset, many structures would be avoided or risks re-structured so as to limit losses in the event of tail risks. That has obvious implications for financial stability.”
http://www.telegraph.co.uk/finance/newsbysector/ba...
"A key Bank of England policymaker has contradicted the public statements of senior bankers by revealing that some privately expect the taxpayer to pick up the tab in the event of another financial crisis.
In a paper published yesterday, Paul Fisher, the Bank's executive director for markets, disclosed that "some banks have told us that they think they should not be required to hold capital and liquidity to deal with such extreme tail events – leaving the public sector to be the capital provider of last resort".
His comments clash with the public statements of bankers who claim lenders should not be a burden on the taxpayer.
Mr Fisher was speaking as banks have stepped up their campaign against structural reforms proposed by the Independent Commission on Banking to prevent a repeat of the crisis.
He claimed the crisis was partially caused because bank bosses "seemed to have had no grasp of how risky their exposures really were". The reason was the weakness of stress tests, which looked at each bank in isolation and failed to "make consistent assumptions about ... general market conditions".
"At some level, there is always a stress scenario that forces bankruptcy. Perhaps the greatest sin in the years preceding the financial crisis was blatantly ignoring what really would happen if the 'unthinkable' ... actually happened."
Directors’ reluctance to bullet-proof their banks against extreme risks, however, “leads directly to moral hazard and excessive risk-taking”, Mr Fisher said.
“Tail events seem to happen far more often than people assume and if the risks were properly acknowledged at the outset, many structures would be avoided or risks re-structured so as to limit losses in the event of tail risks. That has obvious implications for financial stability.”
http://www.telegraph.co.uk/finance/newsbysector/ba...
Ozzie Osmond said:
Nooooo! All our banking experts here on PH say the collapse was nothing to do with them!
That is a feature of PH which I have noticed.I really cannot see the profitability of banks returning to previous levels.
There has to be a reduction on overall worldwide debt. Making money in a reducing lending market is far more difficult.
Furthermore the Banks undoubtedly misled the likes of Freddie Mac and Fanny May in the poor credit mortgages fiasco that cost Billions of pounds to put right. I think there is every chance that the Regulator in the USA now managing the Freddie Mac / Fanny May portfolios WILL will a successful and massive claim against the Banks.
Indeed I think the defense of the Banks throughout this affair is so weak they will settle with massive penalty payments long before this ever comes to trial.
These huge penalties must weaken the Banks recovery.
Equally the PFI scandal (I use the word advisedly) has once again bitten the Banks profitability hard. In itself.
And if you look at mortgages presently offered in the UK such as at:
http://www.moneysupermarket.com/mortgages/
You will see that a fee of £1995 is now required by lenders before they will even look at a case. A perfect credit score and very substantial deposit is also needed. And the actual APR is pushing 5% which is ten times the current bank rate.
And these are the BEST rates available.
When Banks were flying high 100% and even 120% mortgages were the rage.
Reckless lending undoubtedly.
The problem is that reducing the risk means no longer offering easy mortgages to all. That is what held up the house prices and it has gone forever.
Which means that the Banks cannot make money as they did. They need to charge more and risk less. Now that is difficult to achieve and I do not think they can actually make money as they did.
And we all know how Banks are refusing to fund growing business in the UK. How does that make money?
I do not wish to be right in this but I cannot see the Banks returning to stable long term profitability in the near future.
I believe another Banking crisis is a far more probable outcome.
I dont think its a case of banks not wanting to fund things, its more a case of people and busnesses not wanting to take the risk of borrowing. I would never expect a bank to loan anyone any money if they did not have a low risk business case.
Many of the tales of woe in the papers from people not getting loans are from deluded fools wanting someone to give them some free money to remain solvent for a few more weeks.
If a business has a good case then it should be generating cash itself. If the business owners cant be bothered remortgaging, or putting their house up as collateral, what does that say to the bank?
Anyway Im sure there are cases in the grey zone where the argument can be made either way, but there is always private equity, lendingcircle and similar.
That being said everyone was overleveraged, that includes the banks. Everyone is suffering, and finally now so are the banks, this is all good as in the long run its for the best. Its just not pleasant in the meantime.
I believe the fix is for fiscal stimulus from the govt. Maybe make the first £20k of income tax free. Might be a good time to reform the tax code, perhaps a flat tax rate. 25% across the board, VAT, Income, Capital gains, Corp tax etc. Never let a disaster go to waste
Many of the tales of woe in the papers from people not getting loans are from deluded fools wanting someone to give them some free money to remain solvent for a few more weeks.
If a business has a good case then it should be generating cash itself. If the business owners cant be bothered remortgaging, or putting their house up as collateral, what does that say to the bank?
Anyway Im sure there are cases in the grey zone where the argument can be made either way, but there is always private equity, lendingcircle and similar.
That being said everyone was overleveraged, that includes the banks. Everyone is suffering, and finally now so are the banks, this is all good as in the long run its for the best. Its just not pleasant in the meantime.
I believe the fix is for fiscal stimulus from the govt. Maybe make the first £20k of income tax free. Might be a good time to reform the tax code, perhaps a flat tax rate. 25% across the board, VAT, Income, Capital gains, Corp tax etc. Never let a disaster go to waste
I never cease to be amazed at the utter insanity that has taken over our Banking Industry.
See http://www.bbc.co.uk/news/business-14775177
Where RBS is disputing liability.
Well the train robbers always claimed innocence so I suppose the Bankers may as well try it.
In reality the are in the same daft hole they got into with the life insurance and employment insurance packages nonsense.
It was a money spinner but clearly misrepresentation.
To the man on the Clapham Omnibus. On any reasonable assessment.
Result? Losses all round.
IMO if RBS seriously believe they have an arguable case given the extent of the misrepresentation that went on in packaging poor risk mortgages as good risk loans they should not be in business at all.
See http://www.bbc.co.uk/news/business-14775177
Where RBS is disputing liability.
Well the train robbers always claimed innocence so I suppose the Bankers may as well try it.
In reality the are in the same daft hole they got into with the life insurance and employment insurance packages nonsense.
It was a money spinner but clearly misrepresentation.
To the man on the Clapham Omnibus. On any reasonable assessment.
Result? Losses all round.
IMO if RBS seriously believe they have an arguable case given the extent of the misrepresentation that went on in packaging poor risk mortgages as good risk loans they should not be in business at all.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff