Gordon off the pace on bank debts

baby_boomer

Sleepy old Gordon wakes up to the real issue a little late

[It's the weekend before the short-selling ban on UK bank shares expires. Talk about policy made on the hoof:rotfl: ]

Yahoo Finance

:idea: "Gordon Brown has demanded banks come clean over their "toxic assets" :idea: amid signs the Government is preparing a second bail-out of the sector. [Liam Halligan has been saying that this is the key issue for about a year.]

The Prime Minister said it was essential to know the true level of banking losses before futher [FONT=Verdana,arial,sans-serif]steps can be taken to kick start the economy.

[/FONT] In an interview with the Financial Times, he refused to rule out full-scale nationalisation or a further injection of taxpayers' cash to restore lending.

Despite shoring up banks with £37bn of public money, many otherwise healthy businesses are still struggling to get financial support.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," Mr Brown said.

"We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with.".................."

Unfortunately it's anything but clear. The rumour was that the Barclays deputy just stood down because of disagreements within Barclays about the extent of their bad debts.
Perhaps he banks a) didn't know and b) didn't want to fess up all at once because the extent of their incompetence is even more mind-boggling than anyone could have imagined.

And for someone who's invested £billions of our money in these banks, and is making key decisions for our economy, shouldn't he have have insisted on getting the banks' unexpurgated figures for bad debts months ago? :eek:

Generali

baby_boomer wrote: »

Sleepy old Gordon wakes up to the real issue a little late

[It's the weekend before the short-selling ban on UK bank shares expires. Talk about policy made on the hoof:rotfl: ]

Yahoo Finance

:idea: "Gordon Brown has demanded banks come clean over their "toxic assets" :idea: amid signs the Government is preparing a second bail-out of the sector. [Liam Halligan has been saying that this is the key issue for about a year.]


The Prime Minister said it was essential to know the true level of banking losses before futher [FONT=Verdana,arial,sans-serif]steps can be taken to kick start the economy.

[/FONT] In an interview with the Financial Times, he refused to rule out full-scale nationalisation or a further injection of taxpayers' cash to restore lending.

Despite shoring up banks with £37bn of public money, many otherwise healthy businesses are still struggling to get financial support.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," Mr Brown said.

"We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with.".................."

Unfortunately it's anything but clear. The rumour was that the Barclays deputy just stood down because of disagreements within Barclays about the extent of their bad debts.
Perhaps he banks a) didn't know and b) didn't want to fess up all at once because the extent of their incompetence is even more mind-boggling than anyone could have imagined.

And for someone who's invested £billions of our money in these banks, and is making key decisions for our economy, shouldn't he have have insisted on getting the banks' unexpurgated figures for bad debts months ago? :eek:

Unfortunately things aren't quite that simple.

How much will the banks have to write off in bad debts? I have no idea and nor do the banks. Which of their customers will lose their jobs? How many have lied about their income? How far will house prices drop and how much will banks have to slash prices still further to shift repossessed stock? If you know the answers to those questions please PM me and we can make a killing trading bank stocks!

With derivatives written against mortgages things get more complicated still.

You can't come clean if even the question isn't clear, let alone the answer.

baby_boomer

Sounds like a recipe for a bottomless pit, to me, Generali.

Even so, the UK taxpayer is entitled to the bankers' best (honest) estimates as we fork out more £10billions. And they should be held to account [via withdrawing bonuses] for their answers.

Making those estimates is surely a key part of their job?

And if they don't have the slightest clue about the risks they have taken on, it rather begs the question why they invested in those areas!

Generali

baby_boomer wrote: »

Sounds like a recipe for a bottomless pit, to me, Generali.

It is, pretty much. That's why I've argued against the bailout from the start. Better to let the banks go bust and start again.

baby_boomer wrote: »

Even so, the UK taxpayer is entitled to the bankers' best (honest) estimates as we fork out more £10billions. And they should be held to account [via withdrawing bonuses] for their answers.

Making those estimates is surely a key part of their job?

And if they don't have the slightest clue about the risks they have taken on, it rather begs the question why they invested in those areas!

It really is very complicated.

Let's take a small part of banking, corporate lending. Let's say you've lent money to Bristol-Myers Squibb, a fair sized drug company. So, what's their exposure to property? Well they have some factories and offices, the asset value of which will need to be written down presumably.

What else? Well very little. I suppose you have a Key Man risk if someone important to the company is declared bankrupt and they have a job (eg accountant) that they can't do when bankrupt. So you keep a close eye on sales and profit warnings and all will be well.

But...................................................................................................

Pharmaceutical companies need lots of cash because they do all those expensive trials and also have to hold lots of stock. Of course in the glorious days of the early C21, who held actual cash. Of course you put your money into Mortgage Backed Securities and you'd never know it by reading their balance sheet.

So how do you really measure the risk of lending to Bristol-Myers Squibb? The truth is you can't except by looking at the past and the past never predicts exceptional cases like what we're going through right now.

amcluesent

We've had a decade of the ratings agencies being 'in' on this merry-go-round of re-re-re-re...sales of packages based upon a tiny amount of real assets and a pyramid of derivatives. And amazingly, everything was AAA - how about that!

Now each margin call is forcing another round of sales, the "assets" are found to be toxic and worthless, triggering more forced sales. Just as the spiral went up for years, now it would take another 12 months to spiral all the way back down to fundamentals while every business mired in debt would collapse.

There isn't enough real cash, even when the tax-payer is bled white, to cover up the loses from this wheeze. Only running the printing-presses can spew out enough 'new' money to pour into the black hole. With hilarious consequences!

Generali

The ratings agencies are a massive joke, that's been clear since the dot com fiasco.

Unfortunately, this time the joke's on the tax payer.

bubblesmoney

Generali wrote: »

Unfortunately things aren't quite that simple.

How much will the banks have to write off in bad debts? I have no idea and nor do the banks. Which of their customers will lose their jobs? How many have lied about their income? How far will house prices drop and how much will banks have to slash prices still further to shift repossessed stock? If you know the answers to those questions please PM me and we can make a killing trading bank stocks!

With derivatives written against mortgages things get more complicated still.

You can't come clean if even the question isn't clear, let alone the answer.

were things deliberately complicated in the past with derivatives etc and really meant to hide bad investments and over leverage with very little hard assets to back those derivatives and forward trading or rather sell 100s of times of derivates over the value of real assets. all this for getting performance bonuses which increased with the increase in 'productivity'. perhaps the businesses involved and the regulators involved forgot that ANY business has got a cealing for growth and that an industry cannot grow indefinitely or perhaps they didnt forget and they deliberately sought to 'manufacture' growth when they had hit that natural cealing of growth in that industry and the only way they could get their performance bonuses was to find a way to con people by over complicating things and starting derivatives and forward trading and start selling more derivates 100s of times more than the true value of the assets they were hedged on, all this in the name of performance bonuses.

similar logic to what tesco etc is facing now, there is only so many tescos a city or country can support, there is only so many potatoes or chickens that a finite number of people can eat. there is only so many shoes and clothes that people can wear. people might buy more and waste it but at a certain point of time reality is going to sink in and they will cut down on their excesses. NO industry can expect to achieve 50% growth endlessly or even 10% growth endlessly. the same applies for potatoes or chickens or credit cards or mortgages. wanting to have growth endlessly and actually being able to achieve that are two different things. when people cant achieve that growth in the normal way people find ways to create an illusion of growth to achieve their performance bonuses.

savings are the only way to prosperity for the individuals or the govt, the sooner the people and the govt realises this and stops banking on using other peoples money and hoping that you can always borrow more money or print money to service their old debts and live in fools paradise, the better for everyone.

moral of the story: you cant spend money that you dont have for ever. sooner or later you have to pay for what you owe or reality will hit your head like a brick wall with the ensuing consequences.

maybe i am wrong and flash gordon will keep pulling money and the ensuing growth out of his backside till eternity and all of us can keep borrowing money and keep stoozing till eternity and all of us will keep becoming rich because house prices will keep rising forever and there will be no more boom and bust once they have fixed the system :mad: . f*ckwits so long as they allow nonrecourse debt (aka mortgages in usa even now after all these bad debt!!!!) and people to become bankcrupt and escape their debts and expect other people to pay for their mistakes, we wont see the back of this mess. or maybe i am just too traditional and a fool to save and spend only what i can afford.

maybe peeople who approach retirement are fools to save when they can (theoretically at present) get the same care from the state even if they didnt save for their retirement (i dont remember the link to that article where the calculated what amount one needs to save to get better care than provided by the state at present). i remember reading it somewhere that one would get the same care if they had saved 150,000£ as they would even if they didnt save and got the state to provide for them for free. effectively anyone saving less than 150,000 for their retirement would be using their savings for funding their retirement when the present state provided care system would have provided that for free if they had blown that on cruises and holidays instead. (but i wonder how much longer this is sustainable, oh i forgot the govt can do quantitaive easing endlessly and keep on living beyond its means). silly me fretting over whether i can save enough for my care for when i cant wipe my own backside.

amcluesent

>selling more derivates 100s of times more than the true value of they assets they were hedged on<

Contracts for derivatives amount to 100's of $$ TRILLIONS! A house of cards, and now the music has stopped we'll see where the 'value' is! Right now, the only things that matter are :

Food supply, roof over head, gold, guns'n'ammo, yellow-cake. Everything else is fluff.

bubblesmoney

amcluesent wrote: »

>selling more derivates 100s of times more than the true value of they assets they were hedged on<

Contracts for derivatives amount to 100's of $$ TRILLIONS! A house of cards, and now the music has stopped we'll see where the 'value' is! Right now, the only things that matter are :

Food supply, roof over head, gold, guns'n'ammo, yellow-cake. Everything else is fluff.

whats yellow-cake. sorry i can be a little thick at most times!

with quantitative easing i suppose they are effectively trying to devalue their debts by devauing the currency. a high risk stratergy risking a run on the currency aka zimbabwe, atleast to a numpty on the street like me.

i am no financial wizard infact the opposite, but a few things bug me about the present situation.

consider this scenario - the govt keeps spending beyond its means, keep printing money without enough assets to back that printing, currency devalues, debts devalue, the creditor countries must be fools to keep lending when their money gets no returns and infact decreases in value. for example usa owes china so many trillions (i guess). now what happens when the creditors want their money and dont want to lend anymore. how in gods name are they going to finance it. i guess then they rely on military might to say sorry but we cant afford to repay the debt and ask it to be written off or face a miltary stand off. why else would a country keep on endlessly taking on debt and keep printing money when faced with credit crisis???? (with regard to the war and economy link, please see the link between the economy and the start of world war2. may be just a coincidence but the graphs look very similar to a layman like me.)

this is definitely a possibility, reason being - when some countries tried changing from the dollar to other currencies for their trading, quite a few of these suddenly got called the axis of evil, curious coincidence isnt it. was one of the reasons they got labelled this way because they were threatening the position of the dollar as THE trading currency of the world. if the dollar indeed got a real challenger (dont ask me what, i dont think there even is one at present) then the need for all other countries to hoard dollars would decrease drastically and the dollar would devalue and they would find it hard to finance their imports.

i wonder why the other big economies in the world dont insist on trading in their own currencies instead of the dollar. why strenthen another currency instead of your own countries currency. sure there must be complicated explanations but i cant understand why other countries (atleast the bigger economies) have to use another countries currency as a standard for trading. i am not an economist or even remotely educated in finance and am just curious about these things. please excuse my ignorance if some of my doubts look silly to the financial wizards on this site.

amcluesent

>yellow-cake<

Uranium ore. Essential to all civilian nuclear rectors, only power source of note post peak-oil.

1echidna

amcluesent wrote: »

>selling more derivates 100s of times more than the true value of they assets they were hedged on<

Contracts for derivatives amount to 100's of $$ TRILLIONS! A house of cards, and now the music has stopped we'll see where the 'value' is! Right now, the only things that matter are :

Food supply, roof over head, gold, guns'n'ammo, yellow-cake. Everything else is fluff.

Just as a matter of interest who trades in these derivatives and who will bear the losses?