Oppose the bank bailout!

[Mitre10]

It does seem rather like the Govt is throwing good money after bad with the bank situation.

If it all goes tits up after this latest round of bail-outs and the banks still refuse to lend to us or each other, the country will head down the karzi pretty sharpish - this is the sort of time that the Govt could do with some "spare" cash.

What are they going to say? "Excuse me Mr Bank, you know that money I gave you which you've just kept to enhance your P&L sheets rather than lend it to anyone, can I have it back please?".

End result, they say no, some better off corporations and one royally shafted country.


ETA: Hipipol's post sounded like a good explanation of what should happen - am pretty clueless about macroeconomics tbh

 

[kyser_soze]

The consipranoid fruitloop in me wonders if the real reason behind all the authoritarian legislation we have seen in recent years was in preparation for exactly these circumstances, but maybe that's crediting the government with more foresight than they actually possess.

I think it's part of the process if you've ever come into contact with Marxist thinking TBH - I think of taffy and his Bilderberg stuff as 'Good Marxists gone bad' sometimes - and I know what you mean as well, but I take the following views:

1. No one is this competent to plan anything this far in advance and have it work.

2. If they are, then the conspiracy is too deeply embedded in society to make uncovering it more than a fart in a hurricane.

The authoritarian legislation is typical, badly thought out and badly planned nonsense; crediting a government with combining 'they knew it was going to happen' economic policies (and lets not forget, if the sub-prime mortgagees had been able to pay their mortgages the whole house of cards wouldn't have collapsed), managing to plan and execute 9/11, Madird, 7/7 etc all part of the same long term plan...nah. And if they did, I refer you to point 2, above.

 

[Fruitloop]

My point does concern the toxicity of these debts - just how toxic are they?
No matter how daft the banks have been in the main they would have sought collateral of some sort against the loan, very little is totally unsecured.
The value of those assets may have dropped but by how much? Currently no-one knows which is a major part of the problem. The interbank market dried up mainly because the banks didn't trust each - they had no way of knowing the value of other banks, so they sat on the cash they had - equally they couldn't value their own asset base.
They couldn't raise cash by selling those assets as no-one wanted to buy something that had dubious value.
However, at some point those assets will have value, they will be possible to price - but it will take time. Only Governments can have the longterm approach - tho I agree looking at the behaviour of our own Govt that idea is somewhat suspect in their case!! - the value/price of anything is only important when I want to realise some of that value, either by selling or using it as collateral.
Govts can neatly avoid selling the shit by issuing new debt in its place and holding the so called "Toxics" untill such time as the market returns for same. You never get fair value if you have to sell in a panic

In a certain sense I agree, in that as Marx said, capital can survive any crisis so long as the working class are prepared to foot the bill. However I think that the toxics will probably never return to the value that they had during the bubble, that the government is already loaded up with debt and may simply not be able to afford to hold that level of bad debt for the period that would be required to generate any significant return on it, and that the costs to the rest of the country in terms of what cannot be paid for because the money has been soaked up in insuring bad lending may be severe, and will affect those who are already struggling (a group that is only going to get larger for the forseeable future).

Fundamentally though I think the problem for the UK is far greater than interbank lending grinding to a halt - that's not the cause but a symptom of the fact that a significant part of the growth in capital that has occurred here in the last decade has been illusory, in that it has been based on overseas lending that 'overseas' is no longer prepared to maintain.

 

[Fruitloop]

I think it's part of the process if you've ever come into contact with Marxist thinking TBH - I think of taffy and his Bilderberg stuff as 'Good Marxists gone bad' sometimes - and I know what you mean as well, but I take the following views:

1. No one is this competent to plan anything this far in advance and have it work.

2. If they are, then the conspiracy is too deeply embedded in society to make uncovering it more than a fart in a hurricane.

The authoritarian legislation is typical, badly thought out and badly planned nonsense; crediting a government with combining 'they knew it was going to happen' economic policies (and lets not forget, if the sub-prime mortgagees had been able to pay their mortgages the whole house of cards wouldn't have collapsed), managing to plan and execute 9/11, Madird, 7/7 etc all part of the same long term plan...nah. And if they did, I refer you to point 2, above.

I do agree with points one and two. Still, the fact is that legislation is now in place that in the event of a severe economic collapse and the social ills that such a collapse would likely bring this country is on track to become a pretty scary place, regardless of whether that was the plan all along or not.

Personally I think the sub-prime fiasco was just the weakest link in a chain that was bound to break sooner or later. CDOs etc are a symptom of what happens when something (in this case credit) is in over-supply; the investments become riskier and riskier once all the sane ones are already taken up. When the crunch comes, the silliest practices are the first to fall, but I don't think that they are fundamentally to blame for the current predicament.

@perplexis - agee totally. I was watching Michael Howard and some Labour numpty on Sunday morning, and they both started by saying that it was a cross party issue, before proceeding to play pointless party-political ping-pong for fifteen minutes. It was really quite pathetic.

 

[g force]

The consipranoid fruitloop in me wonders if the real reason behind all the authoritarian legislation we have seen in recent years was in preparation for exactly these circumstances, but maybe that's crediting the government with more foresight than they actually possess.

I think it is TBH they've just sort of blundering into the situation and now they're wondering how they can avoid taking any of the blame!!!

 

[kyser_soze]

Agreed, and I didn't intend to make it seem like a 'blame the sub prime mortgagees' comment; the whole house of cards was going to topple because, as has been seen countless times in the financial markets, when niche intruments are made mainstream and everyman and their dog starts using them, the equilibrium state of the markets collapses toward one specific attractor.

On the legislation part - wasn't it already a scary place? There might be specific legislation in place across a whole range of stuff now, but lets face it the OB would and did get away with whatever the govt of the day allowed them to. Even with databases and whatnot I don't think life is really any scarier than when the Economic League were keeping paper records on every political activist under the sun in someone's shed; if Thatch had wanted to turn the place into an authoritarian hellhole she'd have been able to without all the legislation that NuLab have passed.

e2a: I mean look at those bods who've smashed up EDO; does anyone on here who remembers the 80s think that the OB and courts would have been any less likely to treat them like terrs in terms of sentencing and treatment when caught then they will be with the current legislation?

 

[Fruitloop]

To be honest I wasn't politically active in the UK at the time so I don't really feel qualified to comment, although there's no doubt that Thatch was prepared to let the OB off the leash, and they were prepared to be her attack dogs when the situation demanded. I fnid the prospect of that kind of thing being enshrined in law pretty worrying though, as is the governments pretty much explicit pursuit of Total Information Awareness over everyone in the country, whether politically active or not.

 

[happie chappie]

This is VERY serious. Even the Lib Dems are calling for the wholesale nationalisation of the banking sector:

http://news.bbc.co.uk/1/hi/business/7836782.stm

TBH, I'm not too sure how the banks, if they remain in private hands, will be able to turn this around. Unfortunately, banks are not like any other business in that if they go under, either individually (or, more importantly, collectively) it has the potential to bring the entire UK economy to its knees, partly because of the psychological impact on the public when they fear they will lose all their savings, and so start a run on the banks. If that happens, it's not too great a leap of imagination to foresee a complete breakdown of society.

The question is, if the latest bail out doesn't (and, as we are in uncharted waters, there's no knowing if it will) what's next?

Happie Chappie

 

[g force]

Total nationalisation of all banks.....the total collapse has been pretty much avoided (on a global scale) these latest moves are more about trying to reverse and wider UK economic decline through stimulus for lending.

 

[happie chappie]

Total nationalisation of all banks.....the total collapse has been pretty much avoided (on a global scale) these latest moves are more about trying to reverse and wider UK economic decline through stimulus for lending.

A total nationalisation of all banks is just one step up from total economic collapse, albeit an very important one. Just imagine the reaction if, say, two years ago, mainstream UK politicians had called for state ownership of the entire banking system!!

While I agree that nationalisation may be the only option (and I don't think it's that far away), it would have to be handled very carefully, with much of the work done in complete secrecy as, if the markets got wind of it, there would be a wholesale flight of capital out of the UK and a devastating run on the £ which could trigger the very collapse you were trying to avoid.

Happie Chappie

 

[happie chappie]

My point does concern the toxicity of these debts - just how toxic are they?
No matter how daft the banks have been in the main they would have sought collateral of some sort against the loan, very little is totally unsecured.
The value of those assets may have dropped but by how much? Currently no-one knows which is a major part of the problem. The interbank market dried up mainly because the banks didn't trust each - they had no way of knowing the value of other banks, so they sat on the cash they had - equally they couldn't value their own asset base.
They couldn't raise cash by selling those assets as no-one wanted to buy something that had dubious value.
However, at some point those assets will have value, they will be possible to price - but it will take time. Only Governments can have the longterm approach - tho I agree looking at the behaviour of our own Govt that idea is somewhat suspect in their case!! - the value/price of anything is only important when I want to realise some of that value, either by selling or using it as collateral.
Govts can neatly avoid selling the shit by issuing new debt in its place and holding the so called "Toxics" untill such time as the market returns for same. You never get fair value if you have to sell in a panic

Part of the problem is that not only do we (and probably the banks) not know the value of the assets they hold as collateral, but in all probability the value of these assets has fallen since the loans were secured and, more importantly, their value continues to fall.

It's possible for the banks to say, today, that they are facing a black hole of of xx billions in their balance sheets, but this may increase in days, weeks and months ahead as the value of the assets continues to slide.

Thus the hole in the balance sheet becomes ever more difficult to plug. Banks still refuse to lend because they are afraid to do so, particularly if the value of the assets they would be willing to take security is likely to fall further.

Happie Chappie

 

[Fruitloop]

They seem to be throwing all their own rules out of the window at the moment. When I worked in the banking sector the maxim was that, as with the 'house' in a casino, the banks didn't gamble; they were supposed to be the custodians that facilitated other people's investment risk, not engage in risk-taking investments themselves. Of course even at the time this rule was more notable for its breach than its observance, but to have the Bank of England directly buying up large amounts of shares is surely an act of desperation.

Personally I can't see who would benefit from a buy-up of the banks by the UK taxpayer, in that I have no particular faith in the governments ability to manage the banks out of the crisis that they have had a hand in creating, and since the current level of collusion between government and the banks is quite bad enough without giving politicians an even larger stake in them.

 

[hipipol]

Big Bang

The repeal of the US Glass-Steagall act

The laws seperating various types of banks, broker and jobbers were repelaed so that there could be some sort of finacial supermarket
The old laws were felt to be very fuddy duddy and limiting

They were put in place DURING and AFTER the last great depression
They had a purpose, to avoid the sort of crap we are in now

 

[Pingu]

think it was keynes that said

"recovery first then restructure" (but I am very probably wrong), this is something that I do believe in lets recover from the current situation and then start with the new regulations\restrictions etc

the other history lesson that is springing to mind is one from the great depression. Someone called Irving Fisher came up with theories surroiunding debt deflation and if you look at this indicators then the current outlook isnt rosey. There are controls in place now that would limit the same things that happened in the depression occuring in the same way nowadays but the indicators are pretty much all there


eta (from wiki)


Debt liquidation and distress selling
Contraction of the money supply as bank loans are paid off
A fall in the level of asset prices
A still greater fall in the net worths of business, precipitating bankruptcies
A fall in profits
A reduction in output, in trade and in employment.
Pessimism and loss of confidence
Hoarding of money
A fall in nominal interest rates and a rise in deflation adjusted interest rates.[10]

 

[A Dashing Blade]

Part of the problem is that not only do we (and probably the banks) not know the value of the assets they hold as collateral . . .

There's no "probably" about it if "ciggie outside" gossip at my place is to be believed.

 

[Idaho]

The consipranoid fruitloop in me wonders if the real reason behind all the authoritarian legislation we have seen in recent years was in preparation for exactly these circumstances, but maybe that's crediting the government with more foresight than they actually possess.

You are crediting the government with an intelligence, foresight and degree of planning well above and beyond that which they have ever showed before

 

[Fruitloop]

Bank shares plummeted today amid concerns that the latest government package to stabilise banks and encourage lending would not solve the deepening economic crisis.

Royal Bank of Scotland was the biggest faller in the FTSE 100 share index, its price collapsing by more than 70%, to 10p, after it warned of the largest loss in British corporate history of up to £28bn and its chief executive Stephen Hester admitted full-scale nationalisation of the bank had been considered.

The taxpayer already owns 58% of RBS but this will soon rise to 68% when £5bn of preference shares owned by the government are converted into ordinary shares.

From the garudnai: http://www.guardian.co.uk/business/2009/jan/19/bank-shares-plummet

Could it also be the quickest failure of a government policy ever?

 

[Fruitloop]

You are crediting the government with an intelligence, foresight and degree of planning well above and beyond that which they have ever showed before

Yeah I though so.

 

[g force]

Big Bang

The repeal of the US Glass-Steagall act

The laws seperating various types of banks, broker and jobbers were repelaed so that there could be some sort of finacial supermarket
The old laws were felt to be very fuddy duddy and limiting

They were put in place DURING and AFTER the last great depression
They had a purpose, to avoid the sort of crap we are in now

Already happening....'investment' arms spun off from the Commercial and Retail arms. Some might suggest the two should remain separate forever to avoid one messing the toher up as has happened across Europe where strong retail banks have been dragged into problems by their investment arm.

As for the "value" of assets - no they don't truly know and that's what's caused all the uncertainty and banks unwilling to lend to each other. That problem has been known for some time.

 

[g force]

From the garudnai: http://www.guardian.co.uk/business/2009/jan/19/bank-shares-plummet

Could it also be the quickest failure of a government policy ever?

Policy isn't to prop up the banks - that's already happened. This package was about the wider economy so we won't know for a while...not that as already discussed it's likely to work.

 

[Fruitloop]

Big Bang

The repeal of the US Glass-Steagall act

The laws seperating various types of banks, broker and jobbers were repelaed so that there could be some sort of finacial supermarket
The old laws were felt to be very fuddy duddy and limiting

They were put in place DURING and AFTER the last great depression
They had a purpose, to avoid the sort of crap we are in now

Totally, good point. It was Gramm-Leach-Bliley that I was thinking about, as I was working for a US bank at the time.

 

[ATOMIC SUPLEX]

I think we're going to end up with an economy like Japan's...struggles in bad times, struggles in good due to the hangover of the bad.

They may be struggling (and I think they recently took another little dive) but £1 is worth less than half of what it was against the yen this time last year. That's really socking. I'm over again in March which means everything is going to be about twice as much. Ballsacks.

 

[g force]

Yep my kaiju spending has reduced to 0 now

 

[Skimix]

There's no "probably" about it if "ciggie outside" gossip at my place is to be believed.

Presumably the knock on effect from that is that if they demand more collateral they'll probably wipe out their counterparties anyway.

 

[happie chappie]

As for the "value" of assets - no they don't truly know and that's what's caused all the uncertainty and banks unwilling to lend to each other. That problem has been known for some time.

Agreed, although the problem is not so much that asset values have fallen, but they continue to fall.

Once they stop falling, it's easier to quantify the problem, if not remedy it. At least a line can be drawn. But while they continue to fall, it's difficult to even know the true extent of the disaster that's unfolding.

Happie Chappie

 

[g force]

But that's not to say all underlying assets are falling because some are not. The issue with a lot of these products is unwinding them to actually find what it is you've bought/are buying and what that is valued

 

[elbows]

The consipranoid fruitloop in me wonders if the real reason behind all the authoritarian legislation we have seen in recent years was in preparation for exactly these circumstances, but maybe that's crediting the government with more foresight than they actually possess.

Sometimes I ponder the possibility that government knew this century would be shaped by declining natural resources. For example, US domestic oil production peaked in the early 1970's, and I would therefore expect that some people in government would be aware of the issue from that moment forward. For sure they could choose to ignore it and be optimistic, and things like North Sea oil bought us more time. And some people would not believe it, and would engage in short-term thinking in general. But Im still tempted to believe that people in the civil service, who engage in longer term planning, would have the issue on their radar in some sense.

With that in mind, it would be tempting for me to see the horror legislation as part of a plan to put systems in place that would enable our institutions to survive a dramatic downturn in quality of life for the masses, and the associated unrest.

But I also assume things arent quite that straightforward. I am left thinking that the government does have more foresight than they let on in public, but they do not have one straightforward expectation & plan for the future, everyone is not on the same page, and there is a conflict between long-term and short-term thinking. And when ascending to the giddy heights of a boom, they arent willing to let future reality put an end to the profit party.

 

[kyser_soze]

Can we stop anthropromorphing the term 'government' for a second please people. 'Government' - even in it's permanent form, the bureaucracy - is a collection of individual humans, often working at cross purposes to each other, and is also of a time limited nature.

Irrespective of the boom/bust, irrespective of the inherent conflict between bread now and banquets later, the concept of genuine long term planning is impossible in a party-representative democracy because 4-5 years isn't long enough to even lay the foundations for 25-50 year planning, and politicians never think beyond the next GE.

As for civil service long term planning...well it happens. There was/is this group called 'foresight' at BERR (used to be the DTI) who were tasked with identifying long term problems - a futurology team if you will. I'd suggets looking up some of their stuff.

 

[Fruitloop]

Yeah I think you are right. The point about the civil service occurred to me as I was writing actually, as they are in a position to take a longer-term view and are probably not as 'olympically dim' as some of the politicians. Fairly machievellian some of them, I would imagine.

 

[happie chappie]

But that's not to say all underlying assets are falling because some are not. The issue with a lot of these products is unwinding them to actually find what it is you've bought/are buying and what that is valued

I don't disagree and, in "normal" economic circumstances, the financial system may be better placed to cope. Individual banks have, and probably always will, fail. Look at BCCI.

But this is a systemic problem. Further, toxic debts are being unearthed at a time of deep and deepening recession (if not depression) and so the effect may be magnified as the asset values against which non-toxic loans are secured are very likely to be declining at the same time as those who have taken out the loans are more likely to default.

The current state of the UK housing market is a good example. Those institutions granting mortgages have seen, and will continue to see, the value of the assets against which they have lent fall.

If the mortgage holder loses his/her job and defaults, the asset handed back to the bank will be worth far less than the outstanding value of the loan. Multiply this thousands of times as the recession worsens, and the banks' position become ever more precarious. As more properties handed back by mortgage defaulters come onto the market, house prices fall still further and the downward cycle continues.

Happie Chappie