are the banks paying off their loans?

[sidicks]

Ozzie Osmond said:

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

You're becoming very boring.....

[youngsyr]

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

1 & 2: There's a fundamental difference between a bank underwriting a debt and a government underwriting a debt.

[thegman]

youngsyr said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

1 & 2: There's a fundamental difference between a bank underwriting a debt and a government underwriting a debt.

What's that then?

[SplatSpeed]

mike325112 said:

Soovy said:

Try reading a newspaper that doesn't have tits in it.

what is wrong with having a nipple count??

[andymadmak]

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

Banks needed bailing out because of the level of toxic debt in western economies - mostly UK/USA it has to be said. Much of that toxic debt was created by politicians - not specifically though overspending (although UK did that to spectacular levels) but moreso because banks were told to
1) Lend to people that they would traditionally not have touched with a barge pole
2, Keep lending against rising asset values (usually property) that any fool could see were unsustainable.

Clinton started the ball rolling with his changes to Fannie May and Freddie Mac, but the errors were multiplied by politicians the world over who saw an artificial property value lead boom as the way to conceal gross over expenditures by Governments.
People say it was Thatcher who de-regulated and thus created the conditions that allowed the debt crisis to envelope the UK banking sector. In fact, whilst Thatcher did de-regulate, she had left in place just enough comand and control to ensure things did not get out of hand. Brown effectively removed the last pit props holding up the scrutiny and regulatory frameworks within the UK and THATS how come the UK was worse hit by the US banking crisis than any other western economy. Quite literally years before Northern Rock collapsed, questions were being asked in the HoC by Lib Dem and Conservative MPs who were expressing concern about the level of sub prime debt that NR was taing on. Brown told them to bugger off and stop being so pessimistic.....

Why didn't the bankers rescue themselves? Erm, I'm not sure you quite have a handle on the scale of the problems involved. I doubt any single banker had the money as an individual to rescue a major bank In fact Barclays did rescue themselves, but other banks were too far in the crap and could not negotiatedeals with lenders. And who would want to? Barclays didn't touch the Governments (our) money but they still get tarred with the same "it's all the banks fault" by the public and media and bonuses to Barclays execs attract just as much opprobium as those to HBoS bods. Nobody could accurately predice how the crisis would end. Remember, for every pound that banks lend they must have an ammount in reserves, either as cash or assets. The banking crisis came about because the value of certain assets (the toxic debt bundles) fell, and banks very quickly became "over lent" against their reserves. This meant they could not loan money to anyone, whether a good customer or a sub prime one. When credit dried up, business stops, and the whole system collapses. This is what was at stake, and this is why ONLY Government level intervention in the form of nationalisation and loan guarantees would calm the international markets.
As toxicity from the debt markets is cleared, bank values will rise again. The Guarantees can be removed and those shares that we the tax payer hold in the nationalised banks can be sold at a significant profit. There are parrallels with the Governments rescue of Rolls Royce aero engines in the 1970s.

HTH

Andy

[sidicks]

theaxe said:

That is 100% not true and is a common error repeated in the press. The government underwrote £80bn. For example if you ensure a car worth £10k then the insurance company is underwriting that value, ie they'll pay it if you write the car off. That's not the same as the insurance company just giving/lending you £10k.

Agreed, but i was simply using an oft-quoted number to put the scale of the bank-bailout in the context of the overall debt!

Sidicks

[youngsyr]

thegman said:

youngsyr said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

1 & 2: There's a fundamental difference between a bank underwriting a debt and a government underwriting a debt.

What's that then?

Well, to put it in very simplistic terms:

1) the banking crisis and ongoing credit crunch may have passed you by, but banks have been extremely reluctant to put their money into even minor and apparently sound projects over the past few years, due to most of them being in a lot of financial trouble themselves and not wanting to take on even more.

2) Even if the banks did want to bail each other out, none of them had enough money to do so.

3) the UK government has an annual income of £550bn, over one hundred times more than that of HSBC.

4)the UK government can legally require 60m people to give them more money should they be short of a few bob (did the VAT rise last week pass you by?).

5) The UK government has access to additional funds from the EU central bank and the IMF, should it require them.

Therefore, when the UK government stands behind a debt, especially a very large one, it means people are much more comfortable that the debt will be repaid.

Edited by youngsyr on Monday 10th January 14:41

[Ozzie Osmond]

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

[sidicks]

Ozzie Osmond said:

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

Any you know for a fact this isn't true?

[andymadmak]

Ozzie Osmond said:

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

I'm a bit busy at the moment - but some of what you need is here:

http://en.wikipedia.org/wiki/Community_Reinvestmen...

Sadly Wiki is the quickest source I could find. It is a long and complex subject though. The laying of the blame at Clintons (Rather than Carters) door is born of the fact that Clinton garnered a fair chunk of the black vote in his campaign by promising to make the legislation work for poor (in Arkansas and other states, read black) voters.

An interesting graph which helps the explanation

http://en.wikipedia.org/wiki/File:Subprime_Crisis_...

Edited by andymadmak on Monday 10th January 15:03

And although the source is a bit controversial, this also helps the explanation

http://alfin2100.blogspot.com/2008/09/jimmy-carter...

Edited by andymadmak on Monday 10th January 15:04

[petemurphy]

andymadmak said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

Banks needed bailing out because of the level of toxic debt in western economies - mostly UK/USA it has to be said. Much of that toxic debt was created by politicians - not specifically though overspending (although UK did that to spectacular levels) but moreso because banks were told to
1) Lend to people that they would traditionally not have touched with a barge pole
2, Keep lending against rising asset values (usually property) that any fool could see were unsustainable.

Clinton started the ball rolling with his changes to Fannie May and Freddie Mac, but the errors were multiplied by politicians the world over who saw an artificial property value lead boom as the way to conceal gross over expenditures by Governments.
People say it was Thatcher who de-regulated and thus created the conditions that allowed the debt crisis to envelope the UK banking sector. In fact, whilst Thatcher did de-regulate, she had left in place just enough comand and control to ensure things did not get out of hand. Brown effectively removed the last pit props holding up the scrutiny and regulatory frameworks within the UK and THATS how come the UK was worse hit by the US banking crisis than any other western economy. Quite literally years before Northern Rock collapsed, questions were being asked in the HoC by Lib Dem and Conservative MPs who were expressing concern about the level of sub prime debt that NR was taing on. Brown told them to bugger off and stop being so pessimistic.....

Why didn't the bankers rescue themselves? Erm, I'm not sure you quite have a handle on the scale of the problems involved. I doubt any single banker had the money as an individual to rescue a major bank In fact Barclays did rescue themselves, but other banks were too far in the crap and could not negotiatedeals with lenders. And who would want to? Barclays didn't touch the Governments (our) money but they still get tarred with the same "it's all the banks fault" by the public and media and bonuses to Barclays execs attract just as much opprobium as those to HBoS bods. Nobody could accurately predice how the crisis would end. Remember, for every pound that banks lend they must have an ammount in reserves, either as cash or assets. The banking crisis came about because the value of certain assets (the toxic debt bundles) fell, and banks very quickly became "over lent" against their reserves. This meant they could not loan money to anyone, whether a good customer or a sub prime one. When credit dried up, business stops, and the whole system collapses. This is what was at stake, and this is why ONLY Government level intervention in the form of nationalisation and loan guarantees would calm the international markets.
As toxicity from the debt markets is cleared, bank values will rise again. The Guarantees can be removed and those shares that we the tax payer hold in the nationalised banks can be sold at a significant profit. There are parrallels with the Governments rescue of Rolls Royce aero engines in the 1970s.

HTH

Andy

thanks interesting

who did the gov borrow off in simple terms ( geniune question ) to spend so much? were the banks "told to" as i thought the politicians are telling them to do this now but they are ignoring them?

[youngsyr]

sidicks said:

Ozzie Osmond said:

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

Any you know for a fact this isn't true?

It isn't true in the terms it's been presented, as far as I'm aware.

Gordon Brown didn't tell or even directly force the UK banks to keep lending to risky people or against massively over valued security. I can't comment on the US set up.

However, what Brown did do was make it possible for banks to do the above by deregulating the markets and not legislating against it (he was Chancellor or PM for the entire period of the property bubble, don't forget), and as it was profitable in the short term for the banks to continue lending as they were, it became extremely difficult for them not to do so in an extremely competitive market.

It was a case of keep lending and hope for the best, or stop lending and go out of business (or at least the directors and staff lose their jobs for relative underperformance). Hardly a straight choice for them.

[andymadmak]

petemurphy said:

andymadmak said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

Banks needed bailing out because of the level of toxic debt in western economies - mostly UK/USA it has to be said. Much of that toxic debt was created by politicians - not specifically though overspending (although UK did that to spectacular levels) but moreso because banks were told to
1) Lend to people that they would traditionally not have touched with a barge pole
2, Keep lending against rising asset values (usually property) that any fool could see were unsustainable.

Clinton started the ball rolling with his changes to Fannie May and Freddie Mac, but the errors were multiplied by politicians the world over who saw an artificial property value lead boom as the way to conceal gross over expenditures by Governments.
People say it was Thatcher who de-regulated and thus created the conditions that allowed the debt crisis to envelope the UK banking sector. In fact, whilst Thatcher did de-regulate, she had left in place just enough comand and control to ensure things did not get out of hand. Brown effectively removed the last pit props holding up the scrutiny and regulatory frameworks within the UK and THATS how come the UK was worse hit by the US banking crisis than any other western economy. Quite literally years before Northern Rock collapsed, questions were being asked in the HoC by Lib Dem and Conservative MPs who were expressing concern about the level of sub prime debt that NR was taing on. Brown told them to bugger off and stop being so pessimistic.....

Why didn't the bankers rescue themselves? Erm, I'm not sure you quite have a handle on the scale of the problems involved. I doubt any single banker had the money as an individual to rescue a major bank In fact Barclays did rescue themselves, but other banks were too far in the crap and could not negotiatedeals with lenders. And who would want to? Barclays didn't touch the Governments (our) money but they still get tarred with the same "it's all the banks fault" by the public and media and bonuses to Barclays execs attract just as much opprobium as those to HBoS bods. Nobody could accurately predice how the crisis would end. Remember, for every pound that banks lend they must have an ammount in reserves, either as cash or assets. The banking crisis came about because the value of certain assets (the toxic debt bundles) fell, and banks very quickly became "over lent" against their reserves. This meant they could not loan money to anyone, whether a good customer or a sub prime one. When credit dried up, business stops, and the whole system collapses. This is what was at stake, and this is why ONLY Government level intervention in the form of nationalisation and loan guarantees would calm the international markets.
As toxicity from the debt markets is cleared, bank values will rise again. The Guarantees can be removed and those shares that we the tax payer hold in the nationalised banks can be sold at a significant profit. There are parrallels with the Governments rescue of Rolls Royce aero engines in the 1970s.

HTH

Andy

thanks interesting

who did the gov borrow off in simple terms ( geniune question ) to spend so much? were the banks "told to" as i thought the politicians are telling them to do this now but they are ignoring them?

Well the Government did a number of things to finance its spending spree.

1, It taxed, - alot! Wind fall taxes on this and that - the damage to the private pensions sector was utterly shameful.
2, It was creative in how it borrowed - PFI is a good example
3, It consistently talked up UK economic prospects and quashed any questionning of the endless "we have ended boom and bust" mantra that Brown regurgiated every day.
4, point 3 above enabled the Government to sell more loan notes (Gilts) internationally than perhaps it would ordinarily have been able to do.
In the absolute final analysis, the Government borrowed all this money....from us, and other tax payers around the world. Thats it in a nutshell. And we had better hope that the people we have borrowed it from continue to believe we can pay it back - otherwise if they think we might possibly default in any way, then they will put the interest rates up and we will be deeper in the st. Given that £1 in every £6 the Government spends goes on paying interest on the debt we already have!, and £1 in every £4 the Government spends is currently borrowed its not hard to see that we are ACTAULLY borrowing money as a nation to pay off Labours spending induced debts. If the interest rate we pay as a nation goes up (either cos it actually goes up, or we have to offer more interest on Gilts just so institutions will buy them) then watch those figures get far worse very quickly.

[andymadmak]

youngsyr said:

sidicks said:

Ozzie Osmond said:

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

Any you know for a fact this isn't true?

It isn't true in the terms it's been presented, as far as I'm aware.

Gordon Brown didn't tell or even directly force the UK banks to keep lending to risky people or against massively over valued security. I can't comment on the US set up.

However, what Brown did do was make it possible for banks to do the above by deregulating the markets and not legislating against it (he was Chancellor or PM for the entire period of the property bubble, don't forget), and as it was profitable in the short term for the banks to continue lending as they were, it became extremely difficult for them not to do so in an extremely competitive market.

It was a case of keep lending and hope for the best, or stop lending and go out of business (or at least the directors and staff lose their jobs for relative underperformance). Hardly a straight choice for them.

Yes, you are right. Brown did not tell UK banks to lend to bad borrowers, (That was the USA situation) but what he did do was change regs and control to allow UK banks to buy HUGE levels of toxic (subprime) debt bundles from the US banks, and then turned a blind eye to the dangers that he was warned about of over expose of UK banks to these toxic assets. He did this so that he could continue to ride the artificial housing lead boom that he stoked throughout his period in office.

[petemurphy]

andymadmak said:

petemurphy said:

andymadmak said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

Banks needed bailing out because of the level of toxic debt in western economies - mostly UK/USA it has to be said. Much of that toxic debt was created by politicians - not specifically though overspending (although UK did that to spectacular levels) but moreso because banks were told to
1) Lend to people that they would traditionally not have touched with a barge pole
2, Keep lending against rising asset values (usually property) that any fool could see were unsustainable.

Clinton started the ball rolling with his changes to Fannie May and Freddie Mac, but the errors were multiplied by politicians the world over who saw an artificial property value lead boom as the way to conceal gross over expenditures by Governments.
People say it was Thatcher who de-regulated and thus created the conditions that allowed the debt crisis to envelope the UK banking sector. In fact, whilst Thatcher did de-regulate, she had left in place just enough comand and control to ensure things did not get out of hand. Brown effectively removed the last pit props holding up the scrutiny and regulatory frameworks within the UK and THATS how come the UK was worse hit by the US banking crisis than any other western economy. Quite literally years before Northern Rock collapsed, questions were being asked in the HoC by Lib Dem and Conservative MPs who were expressing concern about the level of sub prime debt that NR was taing on. Brown told them to bugger off and stop being so pessimistic.....

Why didn't the bankers rescue themselves? Erm, I'm not sure you quite have a handle on the scale of the problems involved. I doubt any single banker had the money as an individual to rescue a major bank In fact Barclays did rescue themselves, but other banks were too far in the crap and could not negotiatedeals with lenders. And who would want to? Barclays didn't touch the Governments (our) money but they still get tarred with the same "it's all the banks fault" by the public and media and bonuses to Barclays execs attract just as much opprobium as those to HBoS bods. Nobody could accurately predice how the crisis would end. Remember, for every pound that banks lend they must have an ammount in reserves, either as cash or assets. The banking crisis came about because the value of certain assets (the toxic debt bundles) fell, and banks very quickly became "over lent" against their reserves. This meant they could not loan money to anyone, whether a good customer or a sub prime one. When credit dried up, business stops, and the whole system collapses. This is what was at stake, and this is why ONLY Government level intervention in the form of nationalisation and loan guarantees would calm the international markets.
As toxicity from the debt markets is cleared, bank values will rise again. The Guarantees can be removed and those shares that we the tax payer hold in the nationalised banks can be sold at a significant profit. There are parrallels with the Governments rescue of Rolls Royce aero engines in the 1970s.

HTH

Andy

thanks interesting

who did the gov borrow off in simple terms ( geniune question ) to spend so much? were the banks "told to" as i thought the politicians are telling them to do this now but they are ignoring them?

Well the Government did a number of things to finance its spending spree.

1, It taxed, - alot! Wind fall taxes on this and that - the damage to the private pensions sector was utterly shameful.
2, It was creative in how it borrowed - PFI is a good example
3, It consistently talked up UK economic prospects and quashed any questionning of the endless "we have ended boom and bust" mantra that Brown regurgiated every day.
4, point 3 above enabled the Government to sell more loan notes (Gilts) internationally than perhaps it would ordinarily have been able to do.
In the absolute final analysis, the Government borrowed all this money....from us, and other tax payers around the world. Thats it in a nutshell. And we had better hope that the people we have borrowed it from continue to believe we can pay it back - otherwise if they think we might possibly default in any way, then they will put the interest rates up and we will be deeper in the st. Given that £1 in every £6 the Government spends goes on paying interest on the debt we already have!, and £1 in every £4 the Government spends is currently borrowed its not hard to see that we are ACTAULLY borrowing money as a nation to pay off Labours spending induced debts. If the interest rate we pay as a nation goes up (either cos it actually goes up, or we have to offer more interest on Gilts just so institutions will buy them) then watch those figures get far worse very quickly.

has just pfi and gilts ended up being trillions of pounds of debt? what would happen theortically speaking if we just defaulted on all gilts and started again and dont borrow anything internationally but just used tax to pay for things?

[SplatSpeed]

andymadmak said:

petemurphy said:

andymadmak said:

Ozzie Osmond said:

Soovy said:

The bailout is certain to be MASSIVELY cash positive for the taxpayer. That is to say that the taxpayer will be making billions in profit.

So,

1. Remind us, why did the banks need "bailing out"?

2. If the "billions in profit" for the taxpayer are "certain", why didn't the bankers bail out the banks and pocket the billions for themselves?

Banks needed bailing out because of the level of toxic debt in western economies - mostly UK/USA it has to be said. Much of that toxic debt was created by politicians - not specifically though overspending (although UK did that to spectacular levels) but moreso because banks were told to
1) Lend to people that they would traditionally not have touched with a barge pole
2, Keep lending against rising asset values (usually property) that any fool could see were unsustainable.

Clinton started the ball rolling with his changes to Fannie May and Freddie Mac, but the errors were multiplied by politicians the world over who saw an artificial property value lead boom as the way to conceal gross over expenditures by Governments.
People say it was Thatcher who de-regulated and thus created the conditions that allowed the debt crisis to envelope the UK banking sector. In fact, whilst Thatcher did de-regulate, she had left in place just enough comand and control to ensure things did not get out of hand. Brown effectively removed the last pit props holding up the scrutiny and regulatory frameworks within the UK and THATS how come the UK was worse hit by the US banking crisis than any other western economy. Quite literally years before Northern Rock collapsed, questions were being asked in the HoC by Lib Dem and Conservative MPs who were expressing concern about the level of sub prime debt that NR was taing on. Brown told them to bugger off and stop being so pessimistic.....

Why didn't the bankers rescue themselves? Erm, I'm not sure you quite have a handle on the scale of the problems involved. I doubt any single banker had the money as an individual to rescue a major bank In fact Barclays did rescue themselves, but other banks were too far in the crap and could not negotiatedeals with lenders. And who would want to? Barclays didn't touch the Governments (our) money but they still get tarred with the same "it's all the banks fault" by the public and media and bonuses to Barclays execs attract just as much opprobium as those to HBoS bods. Nobody could accurately predice how the crisis would end. Remember, for every pound that banks lend they must have an ammount in reserves, either as cash or assets. The banking crisis came about because the value of certain assets (the toxic debt bundles) fell, and banks very quickly became "over lent" against their reserves. This meant they could not loan money to anyone, whether a good customer or a sub prime one. When credit dried up, business stops, and the whole system collapses. This is what was at stake, and this is why ONLY Government level intervention in the form of nationalisation and loan guarantees would calm the international markets.
As toxicity from the debt markets is cleared, bank values will rise again. The Guarantees can be removed and those shares that we the tax payer hold in the nationalised banks can be sold at a significant profit. There are parrallels with the Governments rescue of Rolls Royce aero engines in the 1970s.

HTH

Andy

thanks interesting

who did the gov borrow off in simple terms ( geniune question ) to spend so much? were the banks "told to" as i thought the politicians are telling them to do this now but they are ignoring them?

Well the Government did a number of things to finance its spending spree.

1, It taxed, - alot! Wind fall taxes on this and that - the damage to the private pensions sector was utterly shameful.
2, It was creative in how it borrowed - PFI is a good example
3, It consistently talked up UK economic prospects and quashed any questionning of the endless "we have ended boom and bust" mantra that Brown regurgiated every day.
4, point 3 above enabled the Government to sell more loan notes (Gilts) internationally than perhaps it would ordinarily have been able to do.
In the absolute final analysis, the Government borrowed all this money....from us, and other tax payers around the world. Thats it in a nutshell. And we had better hope that the people we have borrowed it from continue to believe we can pay it back - otherwise if they think we might possibly default in any way, then they will put the interest rates up and we will be deeper in the st. Given that £1 in every £6 the Government spends goes on paying interest on the debt we already have!, and £1 in every £4 the Government spends is currently borrowed its not hard to see that we are ACTAULLY borrowing money as a nation to pay off Labours spending induced debts. If the interest rate we pay as a nation goes up (either cos it actually goes up, or we have to offer more interest on Gilts just so institutions will buy them) then watch those figures get far worse very quickly.

This is what i have been saying for years to my dad when he said blair was wonderfull.

no one i talked to believed me!

[SplatSpeed]

youngsyr said:

sidicks said:

Ozzie Osmond said:

andymadmak said:

banks were told to....

That's where it all falls apart, this claim that the banks were "only doing what they were told".

Any you know for a fact this isn't true?

It isn't true in the terms it's been presented, as far as I'm aware.

Gordon Brown didn't tell or even directly force the UK banks to keep lending to risky people or against massively over valued security. I can't comment on the US set up.

However, what Brown did do was make it possible for banks to do the above by deregulating the markets and not legislating against it (he was Chancellor or PM for the entire period of the property bubble, don't forget), and as it was profitable in the short term for the banks to continue lending as they were, it became extremely difficult for them not to do so in an extremely competitive market.

It was a case of keep lending and hope for the best, or stop lending and go out of business (or at least the directors and staff lose their jobs for relative underperformance). Hardly a straight choice for them.

stamp duty!

[Fittster]

From the leftie Telegraph:

"Britain needs to put "capitalism back into the heart of capitalism", he told the Treasury Select Committee a year ago. He was talking about the banks, of course, the beating heart of Western capitalist society. And, specifically, he was talking about bonuses.

The crisis revealed that, somehow, banking was so all-powerful that whole economies had become supplicants to financiers and their bumper pay deals. Bail-out guarantees had been so deeply hard-wired into the system that everyone had forgotten they were there.

But there they were, and expensive too. In Ireland, taxpayer guarantees for its reckless lenders nearly bankrupted the nation, and may still. In the UK, according to Bank of England calculations, implicit state support was worth £10bn to Britain's biggest banks in 2007 – a year before the crisis engulfed them. In 2009, that subsidy was £100bn, on top of the explicit £955bn rescue package.
Tucker's comment drew out a perverse irony in all that implicit state support. At capitalism's banking heart beat a fundamentally socialist principle. Though, of course, it wasn't socialism but vested-interest capitalism, where Vince Cable's interpretation of Adam Smith, that "capitalism takes no prisoners and kills competition where it can", had the ring of truth.

QE harboured other forms of moral hazard. Questions were raised about the Bank's independence as critics claimed it was financing the Government deficit by buying gilts through QE. On the continent, Jean-Claude Trichet at the European Central Bank made it clear he was intensely uncomfortable about doing something similar by buying sovereign bonds off stricken peripheral member nations' banks. But, with little room for manoeuvre, he continues to do so, biting his tongue.

Responding to Cable's "anti-capitalist" remarks, the Adam Smith Institute was quick to point out that the Business Secretary had missed the founder of modern economics' important addendum. Capitalists may aspire to monopoly power but the free market ensures rivals stop them.

It's a remedy of sorts to the unholy mess of the current set-up, of which Mervyn King said in October: "Of all the many ways of organising banking, the worst is the one we have today." The Resolution plan puts risk back where it belongs, with banks' investors and creditors, not taxpayers. Risk is the lifeblood at capitalism's heart. Without it, there would be no "creative destruction" and, as Joseph Schumpeter argued, economies would stop evolving.
The eurozone is considering introducing the same "creditor haircut" principle for member states' sovereign debt. Managed bondholder defaults are to be introduced from 2013, restoring responsibility to investing. Even senior debt holders may not be immune.
What of bonuses, perhaps the most egregious example of vested-interest capitalism? Share-based payments are all the rage and may be a step forward, but there is one bold solution I'd urge regulators to consider. Bonuses are currently paid out of profits, but – where banks are concerned – profits all too often bear little relation to performance.
As the Bank of England's executive director of financial stability, Andy Haldane, wrote in a July paper, "banks' profits have been flattered by the mismeasurement of risk" this decade, and profitability has been "as much mirage as miracle".
If you adjust for risk, returns "were flat or even falling" in the past 10 years, Haldane estimated. Not the billions of pounds initially reported that were subsequently wiped out in the crisis. In a good year, profits can be augmented by high levels of debt – as any homeowner who bought during the boom knows. There's no skill in that.

To measure real skill, bankers should be judged against returns on risk-weighted assets – which strips out the debt effect. I'm not alone in thinking it a more suitably capitalist principle for performance pay. Mervyn King noted last month: "I have never understood why people thought [the current structure] was a sensible idea in these institutions – return on assets is a better measure."
The idea is even gaining traction in the banking firmament. One executive has told me they believe it is the only fair way to measure investment bankers' performance, and is seriously considering implementing it. Whether they are strong enough to push against the entrenched orthodoxy is another matter, though.

A reckoning is coming for the public, too. The Bank of England wants to increase interest rates to 5pc as soon as the economy can stomach it. When it does, the age-worn truism that people should live within their means will enjoy a revival. It will be painful for many, but only because the debt-fuelled follies of the past were tolerated for too long.

As the vested interests at the banks have pointed out, though, reclaiming capitalism will come at a price. Strengthening the banks will rob the global workforce of a potential 10m jobs over five years, they say. Regulators dispute the number, but do accept that recoveries from financial crises tend to be slower than from other recessions – the trend growth of the past, after all, was built on the unsustainable froth of debt.

Slow and steady need not be a bad thing, however. Just ask Aesop's tortoise. And capitalism's heart would begin to beat more strongly again.

http://www.telegraph.co.uk/finance/economics/82465...

I'm not holding my breath waiting for reform of either the banking or political systems.

[onesmallstep]

the guarantees are called upon all the time, they are the only way the banks stay solvent, in the mean time the average person is paying the earth for nothing.

Interest rates are 0.5%, mortgages are more like 4%. Savings rates are a joke. All this so that the banks can be weaned of the govt. teat.

The banks are leaches on society creaming of their cut at every turn. They do not make money, they charge money for doing the most mundane tasks.

Oh yes and we have actually lost a lot of money by buying the banks. Don't let the lieing bankers tell you anything else.

The real culprits though are the FSA and the BOE who fell asleep at the wheel.

[onesmallstep]

oh yes and there is a long way to go yet, these stupid banks have a lot of refinancing to do yet, so a lot more harvesting of the average working mans cash to come.

Don't believe all the weasel words, they lend money to people who struggle to pay it back, they take commission, and flog the loans of to somebody else. They went too far and lost a load of money. They still have an awful lot of money secured against assets which are somewhat optimistically valued. Once the boe thinks the idiots can stand on their own two feet, interest rates will rise and so will repos.

Oh yes and they lend money to the economy and for some reason because they totally screwed up they are able to pay themselves huge bonuss while holding the country to ransom. They are unable to distinguish between a perfectly viable business and a ninja.

I would have thought the best thing would have been to take emergency powers and sack all the bankers.