Protecting Icesave depositors, was it a mistake?

feisty1

13 October, 2008 (source mortgage introducer)

Dr Ros Altmann, an independent policy adviser says:" The Government's decision to protect 100% of all retail deposits in the Icelandic bank IceSave is the most dangerous, misguided act of the credit crisis so far."



Dr Altmann goes on to say that: "Anyone who put their money into this bank was doing so because it offered attractive interest rates. The press has been full of information explaining that only the first £50,000 was protected by compensation schemes and any amounts above that were at risk. Depositors knew that. Yet, in another panic reaction, the Government has promised taxpayers' money to reimburse unlimited amounts to all IceSave retail depositors. This is crazy.
In fact, it is really dangerous. Firstly, it was not even a British bank so why should taxpayers fund people who saved in an Icelandic institution? This implies that anyone saving in any bank that fails (not just a British one) will have to be bailed out by the taxpayer too _ where will it stop? This is the road to hyperinflation. Secondly, why should those who were seeking higher returns be rewarded with both better interest rates and a 'money-back guarantee' from the rest of society? If people take a risk, they cannot expect it will always pay off, otherwise it is not a risk at all! This makes a mockery of the whole idea on which capitalism is based. There have to be failures and Governments cannot just prevent them by printing money to bail people out and please the bankers. Thirdly, if all bank deposits are 100% protected, but pensions and other long-term savings are at best 90% safe up to a £35,000 cap, why bother with pensions? Keep all your money on overnight deposit and forget about investing longer term. This is the opposite of what we need as society ages.
We urgently need to get away from short-term thinking. Here are some suggestions.
Banks are short of liquidity. They need longer term money _ why not only offer a guarantee of safety above £50,000 for money that is tied up for a longer time? Why not only offer a guarantee if people are willing to forego interest on the money and use the interest to shore up the system? At least that would be some quid pro quo.
Promising that taxpayers will print money is not a solution. Some banks cannot pay the money back and have to fail. Of course it will be painful if people lose money, but that is what has to happen if the system is to survive and thrive again. . I believe that Mervyn King can see the longer term dangers and the futility of the short-term panic measures being taken. He has not been able to voice his concerns but they are valid. We cannot avoid recession, it is inevitable. The bubble has burst and the authorities cannot just keep trying to blow it up again. Having lived beyond our means for years, it is time to retrench. The markets will have to find a level from which they can start to recover and that will be painful for all of us but it is the result of many years of unsustainable growth and borrowing from the future which has to be repaid. It is time for straight talking, not throwing good money after bad. But the politicians and financial experts who got us into this mess have not understood that short-term thinking is responsible for the crisis. Until they do, they will not take the necessary measures to start a recovery. That economic recovery is some way off as there is so much debt to be repaid first. We need canny policymakers to steer us through these difficult times, not to destroy pensions as the population ages."

dkmax_2

feisty1 wrote: »

13 October, 2008 (source mortgage introducer)
Dr Ros Altmann, an independent policy adviser says:" The Government's decision to protect 100% of all retail deposits in the Icelandic bank IceSave is the most dangerous, misguided act of the credit crisis so far."

A number of us here have been making exactly the same points.

South_Bound

Fair points made. Maybe the Government should stand up and make an unequivocal statement along the lines of:

'Take this as a warning. We will not bale out anyone else in the same situation. You should place your money where it is safest, noting the FSCS guarantees and take responsibility for your own wealth. You have been warned.'

But that would take balls and leadership, rather than spin.

nilrem_2

feisty1 wrote: »

Dr Ros Altmann, an independent policy adviser says:" The Government's decision to protect 100% of all retail deposits in the Icelandic bank IceSave is the most dangerous, misguided act of the credit crisis so far."

I bet she would not have that view if she had her cash in Icesave!

Isn't it strange how so many of these experts are now crawling out of the woodwork all very wise and telling us what idiots we were to invest with a foreign bank!

A lot of these so-called experts are the ones who just a few short months ago were advising us how stupid we are to keep our cash in the UK banks when we could get a better rate at places such as Icesave and telling us how safe it was and unthinkable that they would fail, in many cases it was them who suggested we tie up our savings in Fixed rate bonds because of falling rates, now they bleat that we should have kept our savings down to £35k max, I would like to know how we could after we had taken their advice to go the fixed routes.

I can forgive ordinary posters who come here and sneer at those of us stuck up in the Icesave debacle because they are not experts on the issue and do not consider the facts but IMHO these supercilious all-seeing 'financial experts' are more nauseating than the PM of Icesave!:mad:

Footnote, when she says foreign bank don't forget we were told that it was a safe UK bank operating in the UK with the same guarantees but owned by an Icelandic bank, we were also advised that it was unthinkable that any bank would fail!

Seajays

South_Bound wrote: »

Fair points made. Maybe the Government should stand up and make an unequivocal statement along the lines of:

'Take this as a warning. We will not bale out anyone else in the same situation. You should place your money where it is safest, noting the FSCS guarantees and take responsibility for your own wealth. You have been warned.'

But that would take balls and leadership, rather than spin.

(A) When you're trying to keep fear and panic under control, the last thing you want to do is make statement like that, which will only server to create a stampede of people moving money from institutions that are "foreign", (like some of those other big high street banks).

(B) You'd then end up having to compensate even more customers of those collapsed banks as well - all at the taxpayers expense. The best idea at the moment is to get the message out that your money is safe where it is, and if any do fold anyway, guarantee them, so that you don't create even more fear and panic (see A above), although I agree that the prudent thing is still to stick within the £50k limit.

IT_nerd

I had money in icesave, and even I think it was foolish to guarentee the lot.
Up to £50,000. Fine, I have no problem with that.
If anyone had more than that in icesave then it's their own damn fault. I would argue that only 35K or less should be covered really, since no withdrawals or deposits could be made a few days before the 50K increase was made.
Why are they going above and beyond the call of duty for icesave customers? It doesn't make sense.
And it's a waste of money.

bryanb

South_Bound wrote: »

Fair points made. Maybe the Government should stand up and make an unequivocal statement along the lines of:

'Take this as a warning. We will not bale out anyone else in the same situation. You should place your money where it is safest, noting the FSCS guarantees and take responsibility for your own wealth. You have been warned.'

But that would take balls and leadership, rather than spin.

Should the same apply to the Post Office?

XXXX

IT_nerd wrote: »

I had money in icesave, and even I think it was foolish to guarentee the lot... I would argue that only 35K or less should be covered really,...Why are they going above and beyond the call of duty for icesave customers? It doesn't make sense. And it's a waste of money.

Totally agreed. Maybe Mrs. Brown has stashed all her dosh there?

feisty1

nilrem wrote: »

I bet she would not have that view if she had her cash in Icesave! Isn't it strange how so many of these experts are now crawling out of the woodwork all very wise and telling us what idiots we were to invest with a foreign bank! . I can forgive ordinary posters who come here and sneer at those of us stuck up in the Icesave debacle because they are not experts on the issue and do not consider the facts but IMHO these supercilious all-seeing 'financial experts' are more nauseating than the PM of Icesave!:mad: Footnote, when she says foreign bank don't forget we were told that it was a safe UK bank operating in the UK with the same guarantees but owned by an Icelandic bank, we were also advised that it was unthinkable that any bank would fail!

nilrem I didnt write this,' if u read u will see where the source is from. I didn't post it with the intent of incite, I am an "ordinary" poster.

quote "I would like to know how we could after we had taken their advice to go the fixed routes" quote
Who exactly gave you advice & have you gone back to yr advisor to discuss this?
quotewe were told quote
i could tell u to jump off beachey head, would you do it?

nikell

Dr Ros Altmann, an independent policy adviser. Advisor in what? Please don't tell me it is Economics as their understanding in that statement is laughable.

mobfant

IT_nerd wrote: »

I had money in icesave, and even I think it was foolish to guarentee the lot.
Up to £50,000. Fine, I have no problem with that.
If anyone had more than that in icesave then it's their own damn fault. I would argue that only 35K or less should be covered really, since no withdrawals or deposits could be made a few days before the 50K increase was made.
Why are they going above and beyond the call of duty for icesave customers? It doesn't make sense.
And it's a waste of money.

As an Icesave investor, I completely agree with the above. I deliberately kept my money at the compensation limit and spread money around various accounts. If people had substantially more than that, or it was short term because of a house sale, etc, and spreading it around was a hassle, then they should have kept it somewhere far safer such as Northern Rock or NS&I.