Why bail out failed banks?

nicko33

mrposhman wrote: »

Though this may be the case CURRENTLY.

True, but from a Governments point of view, it's not only our assets/cash that's at risk, there are also votes to think about.

blackwidowz

What annoys me is the government are useless , they spend money on stupid things when hospital beds etc are needed.
I understand we need banks etc but what about all the small companies who are making people redundant like my husband. They could do with help too.
Now they are going to help other banks out as well.

It's our money help us all out first.
Then if anything is left, help someone else.

edwinac_2

Ratatosk wrote: »

Sorry, but this is nonsense. The foreclosure legislation is different in the UK than the US, and whilst such a scenario may have happened in 30s America it can't happen here.

Nonjudicial foreclosure is still common in most US states.

A nonjudicial foreclosure is "a procedure in which your lender has your property sold to recover money you owe after you've defaulted on your loan."

"The main feature of a nonjudicial foreclosure is that your lender can have your property auctioned without going to court.

"To start the procedure, the Trustee mails you a document called a Notice of Default and Election to Sell.

Ironically, there's no requirement that you receive "actual" notice of the foreclosure. It doesn't matter if you were out of the country, in the hospital, or for some other reason didn't actually receive a copy of the Notice of Default."

Here is such a Notice...

Because of the enormity of the financial crisis, state legislatures are being urged to adopt a law that, amongst other things, would ensure that...

all foreclosures shall be frozen, allowing American families to retain their homes. Monthly payments, the equivalent of rental payments, shall be made to designated banks, which can use the funds as collateral for normal lending practices, thus recapitalizing the banking systems. These affordable monthly payments will be factored into new mortgages, reflecting the deflating of the housing bubble, and the establishment of appropriate property valuations, and reduced fixed mortgage interest rates.

This shakeout will take several years to achieve. In the interim period no homeowner shall be evicted from his or her property, and the Federal and state chartered banks shall be protected, so they can resume their traditional functions, serving local communities, and facilitating credit for investment in productive industries, agriculture, infrastructure, etc.

See: Homeowners and Bank Protection Act 2008

LucyTheDwarf

blackwidowz wrote: »

What annoys me is the government are useless , they spend money on stupid things when hospital beds etc are needed.
I understand we need banks etc but what about all the small companies who are making people redundant like my husband. They could do with help too.
Now they are going to help other banks out as well.

It's our money help us all out first.
Then if anything is left, help someone else.

The banks have thousands of employees too...

You might think the government wastes too much money, and I am sure they could save money in many ways (MPs salaries perhaps...), but handing out money to small failing businesses is hardly a good plan! If they fail, it's for a reason, they're just not good enough to operate in this financial climate. True, this may also be said about the banks, but a small business going under does not affect the entire economy in such a drastic way as if a bank was allowed to collapse.

isofa

esbo wrote: »

Most people have no saving, so it's no skin off their noses.

That's a sweeping generalisation - and not one I agree with. You only have to read through some of the thousands of recent posts to see many MSE members panicking they might lose money in savings if a bank collapsed.

I can't think of any friends or colleagues without savings or owned assets of less than 35K.

This country's population has a high percentage (and growing) of older people, and many of these will be home owners with no mortgages, and significant savings, many supporting children who can't afford to move out or buy homes of their own.

Not to mention those who have sold houses to downsize, or sold houses to rent for a while, you can't buy a standard house where we live for under 300K, so that means a lot of people can have massive deposits sitting about in accounts.

sabretoothtigger

Here's the full text of the bill:

http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1424:

It's version number 5.

There is oversight now. Here's the current section on judicial oversight:

SEC. 119. JUDICIAL REVIEW AND RELATED MATTERS.

(a) Judicial Review-

(1) STANDARD- Actions by the Secretary pursuant to the authority of this Act shall be subject to chapter 7 of title 5, United States Code, including that such final actions shall be held unlawful and set aside if found to be arbitrary, capricious, an abuse of discretion, or not in accordance with law.

(2) LIMITATIONS ON EQUITABLE RELIEF-

(A) INJUNCTION- No injunction or other form of equitable relief shall be issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, other than to remedy a violation of the Constitution.

(B) TEMPORARY RESTRAINING ORDER- Any request for a temporary restraining order against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court within 3 days of the date of the request.

(C) PRELIMINARY INJUNCTION- Any request for a preliminary injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court on an expedited basis consistent with the provisions of rule 65(b)(3) of the Federal Rules of Civil Procedure, or any successor thereto.

(D) PERMANENT INJUNCTION- Any request for a permanent injunction against the Secretary for actions pursuant to this Act shall be considered and granted or denied by the court on an expedited basis. Whenever possible, the court shall consolidate trial on the merits with any hearing on a request for a preliminary injunction, consistent with the provisions of rule 65(a)(2) of the Federal Rules of Civil Procedure, or any successor thereto.

(3) LIMITATION ON ACTIONS BY PARTICIPATING COMPANIES- No action or claims may be brought against the Secretary by any person that divests its assets with respect to its participation in a program under this Act, except as provided in paragraph (1), other than as expressly provided in a written contract with the Secretary.

(4) STAYS- Any injunction or other form of equitable relief issued against the Secretary for actions pursuant to section 101, 102, 106, and 109, shall be automatically stayed. The stay shall be lifted unless the Secretary seeks a stay from a higher court within 3 calendar days after the date on which the relief is issued.

(b) Related Matters-

(1) TREATMENT OF HOMEOWNERS' RIGHTS- The terms of any residential mortgage loan that is part of any purchase by the Secretary under this Act shall remain subject to all claims and defenses that would otherwise apply, notwithstanding the exercise of authority by the Secretary under this Act.

(2) SAVINGS CLAUSE- Any exercise of the authority of the Secretary pursuant to this Act shall not impair the claims or defenses that would otherwise apply with respect to persons other than the Secretary. Except as established in any contract, a servicer of pooled residential mortgages owes any duty to determine whether the net present value of the payments on the loan, as modified, is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and holders of beneficial interests in such investment, but not to any individual or groups of investors or beneficial interest holders, and shall be deemed to act in the best interests of all such investors or holders of beneficial interests if the servicer agrees to or implements a modification or workout plan when the servicer takes reasonable loss mitigation actions, including partial payments.

benood

Tim Condon has a good piece in the Times today which clarifies why the banks need to be supported:

http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article4863694.ece

dag_2

surely cash in the bank is a more tangible asset?

Whether a mortgage or a savings account is an asset or a liability depends on whether you are a bank, or a customer of a bank.

If you are a customer of a bank, then a savings account is an asset, because it represents a right to demand that the bank gives you money. A mortgage is a liability, because it is an obligation on your part to pay money to the bank.

But if you're a bank, it's the other way round. A savings account is a liability, because it's an obligation to pay money to a customer when they demand it. And a mortgage is an asset, because it's a right to receive the payments that the customer should be making to you.

It's a bit like your left and right thing, and how something that's on your left is on the right of the guy facing you. Have you ever wondered how it is that we all manage to drive on the left without crashing into each other? Indeed - do we really all drive on the left - or is it actually only you that drives on the left? After all, the people coming the other way are quite blatently on the right - yet, if you drive on the right, you crash. But they don't crash. How come?!!! Weird, huh? The same thing goes for this banks and customers assets and liabilities thing. What's on the left and what's on the right, and what's an asset and what's a liability, depends on whose view you're looking at it from.

What if all the political parties are wh0res of the same financier oligarchy?

What if parliamentary democracies such as ours are a fraud, used to create the illusion of democratic choice, and used to fool the people into blaming all their woes on the scape goats of the day - the toothless politicians currently "in power"?

Heh - now there's a conspiracy theory and a half. Have you ever considered the possibility that Labour and Conservatives might actually just be two separate fronts for the same organisation? If not, then how do you explain the fact that the "government" merely alternates between the two, and never actually changes? Sure, the phase length varies a bit from one cycle to the next, but they still merely alternate. Days and nights get longer and shorter with the seasons, but their varying length doesn't change the fact that day and night alternate, and each one will surely lead to the other. Same thing goes for Labour and the Conservatives - or had you not noticed?

Confidence in the financial system is the key to our society. Lose it altogether and we don't operate as a law abiding nation.

Yeah I agree with you there. Once people start thinking that there's no way at all of making their money safe-ish - or at least, no simple way - then people will start to question why they want to bother earning that money, or selling things for that money, in the first place. Once that happens, the currency collapses, and it becomes incredibly difficult for the government to put on any kind of education, healthcare, transport, water, police, court, prison or probation service, because no-one actually wants the money that they're offering as wages.

It's true that bail-outs can also have an inflationary effect, though - so, the question is, which will have the greater effect? Which is the lesser of two evils? And I think it's not always cut and dry, it can depend on the amounts, and it can depend on a whole host of other circumstances.

One of those circumstances, in my opinion, is that there's little in the way of international regulation. It's not just banks that compete with each other; nation states compete with each other too. People who are in a position to do it can and do shop around from one country to another for the cheapest taxes. Before the credit crunch happened, the investment banking and finance industry operated in the cities where the taxes and regulation were the lightest. If you raise the sceptre of upping taxes, they all up sticks and go off somewhere else. That's why it's difficult for a government of any colour or stripe to raise the necessary taxes to pay for things like proper hospitals. The bottom line is, you have to tax the poor, because they're the only ones who aren't strong enough to be able to do anything about it.

And right now, we're seeing nation states starting to compete with each other on the guarantees that they are prepared to offer savers. Personally, I don't see how this is any different to the competitive taxation problem that has existed for decades. National governments might refuse to play along with such games if they want, but I don't see how they can stay out of it without their banks and economies taking a hit.

Basically, my point is that the competitiveness that is a natural feature of market economics is screwing the thing up even more. It's a global problem, and it needs a global solution. National governments who act on their own, and who only care about what happens in their own borders, are not in a position to be able to deliver that solution.

sabretoothtigger

In the coming three weeks, payouts of hundreds of billions of dollars may be made - or at least demanded - to cover losses arising from the defaults on the debt of Fannie Mae, Freddie Mac, Lehman and Washington Mutual. Sandy Chen, the analyst at Panmure who's been a smart predictor of credit-crunch accidents, estimates that payments on Lehman's battered bonds could be as much as $350bn.
Now the problem here is that for every beneficiary of these payments, there's an underwriter - those who provided the CDS insurance - which has to find the cash. And, as I've pointed out, this was a largely unregulated market,

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/the_next_threat_1.html

edwinac_2

Ratatosk wrote: »

Sorry, but this is nonsense. The foreclosure legislation is different in the UK than the US, and whilst such a scenario may have happened in 30s America it can't happen here.

Absolute rubbish! Non-judicial foreclosure can happen, and DOES happen here!

Ratatosk wrote: »

The banks can't just simply foreclose a property by sending the bailiffs knocking just as they can't reposses your house in that manner. Both actions require a court order after lengthy court proceedings and foreclosures are almost never granted in the UK.

Drivel!

The banks can do EXACTLY THAT!

And no, the banks DO NOT need a court order to repossess your home should you fall into arrears.

Ratatosk wrote: »

Perhaps it is you that needs to read up on what foreclosures are rather than trying to scare people with tales of cataclysm that can't happen. There's enough fear already without falsely stating that people can be made homeless at the drop of a hat.

Unmitigated nonsense!

The FT reports only today that "a High Court ruling by Mr Justice Briggs reaffirms the 1925 law that gives a statutory right to lenders to sell a property independently after two mortgage payments are missed."

In a nutshell, non-judicial foreclosures are LEGAL in the United Kingdom.

Mr Justice Briggs, a stooge of the financier oligarchy, ruled that the power to circumvent courts was "in the public interest" as it "provided the essential security for mortgage lending at affordable rates."

"In his ruling, Mr Justice Briggs also suggested that borrowers lost their equity when they fell into arrears, although it is unclear whether they were entitled to the balance of the sale proceeds once the debts was cleared."

GMAC -RFC, a specialist sub-prime lender that is part-owned by General Motors, said it "frequently exercised" its power of sale with buy-to-let borrowers who breached contractual terms.

But it said "a receiver would not have been appointed" in the case of a residential home loan, even though the judgment confirmed the power of all mortgage lenders to do so.

Lawyers have responded with "astonishment" and called for new laws as a "matter of urgency".

John Gallagher, principal solicitor with Shelter, the housing charity, said the case "gives the green light" for lenders to sidestep courts with legal remedies "rooted in the 19th century and repugnant to most people's sense of justice".

"It is quite incredible in the 21st century that the law allows the lender to choose whether or not to take possession proceedings and that the borrower then becomes a trespasser in his or her own home," he said.

The full FT article is here.

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"Ratatosk" should apologise for misleading this forum on such a fundamental issue.