IMPORTANT: Why the banks MUST be allowed to fail!

DigitalJedi

If the banks failed and their debts written off, many would have their mortgages wiped. If you have paid all the demands made upon you by the bank the bank doesn't have the right to reposses your home. If your bank fails and stops making claims on you who are you going to pay?

The author of that obviously doesn't quite understand how modern economics works. In the event of a bank failure, the administrator would "sell" the mortgages as an asset to another institution. They don't just get written off. So no-one would suddenly find their mortgage wiped.

Secondly the fundamental problem is that banks are not lending to each other due to lack of confidence and therefore banks cannot lend to joe public at a decent interest rate.

So allowing banks to fail makes that situation even worse. The likely outcome is loans being at silly APR's which means industry cannot invest for the future. Joe Public cannot get an affordable mortgage, car loan, kitchen loan etc. The general economy then goes down the toilet in a vicious circle.

1694

DigitalJedi wrote: »

The author of that obviously doesn't quite understand how modern economics works. In the event of a bank failure, the administrator would "sell" the mortgages as an asset to another institution. They don't just get written off. So no-one would suddenly find their mortgage wiped.

Secondly the fundamental problem is that banks are not lending to each other due to lack of confidence and therefore banks cannot lend to joe public at a decent interest rate.

So allowing banks to fail makes that situation even worse. The likely outcome is loans being at silly APR's which means industry cannot invest for the future. Joe Public cannot get an affordable mortgage, car loan, kitchen loan etc. The general economy then goes down the toilet in a vicious circle.

Yes, the concept has been revised. Please read the rest of the thread.

rjm2k1

1694 wrote: »

Your money hasn't been stolen from you. You agreed to lend it to an instituoin without understanding what that instition does or how it does it.

There was risk involved hence the reward of % interest.

What was accepted as the "sensible and safe option" was far from it. Who would invest in a company which had 9 times as much money lent as it had in in it?

it would be interesting to hear what you do with your money if you don't put it in the bank, property is a no-no at the moment (wait til it bottoms out and dive in), the stock markets are in turmoil (again, wait and dive in), gold is good is that where you invest? Or money under the matress maybe, which has its own risks of course.

1694

rjm2k1 wrote: »

it would be interesting to hear what you do with your money if you don't put it in the bank, property is a no-no at the moment (wait til it bottoms out and dive in), the stock markets are in turmoil (again, wait and dive in), gold is good is that where you invest? Or money under the matress maybe, which has its own risks of course.

I am self employed, when I need to pay for something I do some work, get paid and pay for what i need/want. Then I ease off on the work and don't earn much more till I need/want it. I have a bank account but never have alot in it to lose.

alchemistkevin

What a load of tosh!

The author obviously has his head above the clouds and can't see earth! or anything at the moment!


Loans, mortgages will NOT be written off if a bank does go under.

What will be lost is the savings above what FSCS guarantees.
Savings made by companies in those banks.
Savings made by councils and other utilities in those banks.
No more lending from that bank to anyone thus ensuring that anyone who needs legit debt for expanding his/their business doesn't receive it, which might in turn take that company down, making the employees and owners redundant, unable to repay their debts and causing those banks to fail and so on and so forth.

What you are suggesting, if adopted, will create absolute and total anarchy.

None of us, in our lifetime, has seen anything like it or anywhere close to it in real life, reading about Zimbabwe and countries with broke economies in our glossy magazines is all good, but let me tell you this: Feeling the heat will be an absolute nightmare that you wouldn't like to have even when sleeping, let alone have it brought on you in reality.

Please switch the light off and go back to bed. When you wake up and are in your senses, you may post a sensible message of apology.

rjm2k1

1694 wrote: »

I am self employed, when I need to pay for something I do some work, get paid and pay for what i need/want. Then I ease off on the work and don't earn much more till I need/want it. I have a bank account but never have alot in it to lose.

What banks do is not very different to what you do, the only difference is that rather than doing a job only when you need something you might do many jobs on the premise that when you need the something in return in future you get it, you may also aquire things in advance based on the premise that in the future whoever you got it from will call on you to do your job. It all works, until the day that they ALL ask you to do the something in return for what you have had at the same time, or you (and many others) ALL ask for whatever you were promised for doing work upfront and they can't provide it to ALL of you at the same time. It's a matter of liquidity, not profitability. It's a complex juggling act, a complex machine, some bits of the machine have stopped playing ball so the whole thing has siezed up, the government is trying to lubricate that machine.

1694

alchemistkevin wrote: »

What a load of tosh!

The author obviously has his head above the clouds and can't see earth! or anything at the moment!


Loans, mortgages will NOT be written off if a bank does go under.

What will be lost is the savings above what FSCS guarantees.
Savings made by companies in those banks.
Savings made by councils and other utilities in those banks.
No more lending from that bank to anyone thus ensuring that anyone who needs legit debt for expanding his/their business doesn't receive it, which might in turn take that company down, making the employees and owners redundant, unable to repay their debts and causing those banks to fail and so on and so forth.

What you are suggesting, if adopted, will create absolute and total anarchy.

None of us, in our lifetime, has seen anything like it or anywhere close to it in real life, reading about Zimbabwe and countries with broke economies in our glossy magazines is all good, but let me tell you this: Feeling the heat will be an absolute nightmare that you wouldn't like to have even when sleeping, let alone have it brought on you in reality.

Please switch the light off and go back to bed. When you wake up and are in your senses, you may post a sensible message of apology.

This has been covered in some detail. The existing system will lead to anarchy. This time might not be it, but it can't last for ever.

Can no body see that you are putting off paying today so that your children will pay more.

I am sorry this thread was posted here as the theory of how to avoid the huge tax burden has been debunked. That is not to say the huge tax burdon has been debunked, we are all being asked to pay an impossible amount.

rjm2k1

1694 wrote: »

This has been covered in some detail. The existing system will lead to anarchy. This time might not be it, but it can't last for ever.
Can no body see that you are putting off paying today so that your children will pay more.

The existing system got us to the world in which we live today, without it the growth that got us here would not have happened but it is a system which depends on growth, how long and how far that growth can continue is anyones guess.

Pssst

1694 wrote: »

Your money hasn't been stolen from you. You agreed to lend it to an instituoin without understanding what that instition does or how it does it.

There was risk involved hence the reward of % interest.

What was accepted as the "sensible and safe option" was far from it. Who would invest in a company which had 9 times as much money lent as it had in in it?

Are you talking about bank accounts,savings or investments? My moey is in current accounts and savings accounts. No where duting the application process for those accounts did it/does it say that your money is at risk and that you might not get it back. It may well make reference to a depositors compensation scheme. It is the banks who may have taken an element of risk,not me. But then they are the "experts" in finance,not me.

I have /had no idea what sort of ratios of lending to cash reserves that banks had. I had no idea it was or could be as high as 9:1. I would hope that a more conservative ratio is set in future !

Either way, if depositors money is not cast iron guaranteed, then they must either be made fully aware of any risk,keep the money at home in a big Chubb safe or under the mattress,or else adopt your supply/demand lifestyle of only generating cash as and when required.

Surely you must have a buffer? I mean,what if your transport broke down and you needed a new vehicle? No vehicle =no work so you wouldnt be able to replace it. May not wholly apply to your situation but you get the idea.

So what level of buffer is sensible? Well it depends on your lifestyle.

A single mom on benefits might have a wee buffer of maybe 10 or £20 from week to week (unless your Afghan and living in Ealing) whilst HM Queen might have a slightly more healthy buffer.

So for the average working man,what should be a realistic buffer to allow a bit of forward security and planning but not have so much that you have to take a risk in having to put it in a high street savings account and having the temerity to expect that you can draw it out when you like?

Milarky

Talk of why the Government is supposedly powerless to prevent bank CEOs from taking their executive bonuses (and the broader 'bonus' culture) was discussed on the Radio this afternoon. Nobody mentioned the obvious instrument- tax!

Tax executive bonuses twice as heavily as other bonuses for the next few years. Tell the country the tax change is effective immediately and will be retrospective if anyone tries to get paid before the legislation. I'm not saying this is ideal and not 'rough and ready' but it is near enough to be targeted at the right sort of undeserving fat cat.

This isn't about envy it's about bringing to heal (or to book) socially irresponsible and rapacious behaviour and laying down a marker; "This government is no door mat"

In effect, taxing CEO pay differently from others is just like a 'windfall' tax (or 'sin' tax) there is nothing inherently wrong about it but it will need to be looked at regularly to see if there really is a 'brain-drain' effect. As far as I am concerned however, they've had their shot at 'self-regulation/incentives' and they shouldn't complain if the apparently 'drastic' step of taxing them is now taken - it isn't drastic, it is long overdue..