'Should we nationalise the banks?' poll discussion

teddyco

I think the key in this argument is 'control'!

Adam Smith wrote about 'Laissez Faire' or the 'invisible hand' theory of economics that has been the backbone of the capitalist system for hundreds of year.

We absolutely don't want Gordon Brown getting his hands on the banking system and bringing more government control to a country that is already choking to the death with government control.

Let the 'invisible hand' guide our economy as it always has........hands off government!

stockportguy

I voted C because I feel that we cant just let banks collapse. I mean yes the banks have been very irresponsible with money handling, But if people think its bad now can you imagine how bad it would be if a few banks collapsed. I say we do have to save the banks but then in the same sense we can not leave the control of the banks to the people who got them in this mess.

PhiltheBear

Let's be completely and absolutely clear - what our banks did was no different to what other banks all round the world did. The 'collapse' of the banking industry wasn't about irresponsible banking. Banks lent money according to financial conditions in the world - particularly in the USA. They lent large sums at low interest to people who were too dumb to realise that if interest rates went up they'd have a problem repaying.

The rise in interest rates in the US was in reaction to POLITICAL activity - not banking. It was because the Bush administration was out of control on spending (just like our Labour government). The Federal Reserve, taking the role of financial policeman, just as the Bank of England does here - put up interest rates. And did it again - and again. Net result - lots of 'poor' people couldn't pay back home loans. The rest you know.

But don't blame the banks - blame the politicians, in particular blame Bush and Brown because it's their fiscal policy in both US and UK which means that both countries are being hit harder than anywhere else in the world.

And, if you think that bankers shouldn't be being paid huge bonuses, remember that most bank employees only get huge bonuses if they make large profits. Also remember that those bonuses tend to be paid out in investment banks - not 'High Street' banks.

Fruggle

I think those people voting to let the Banks fail, or to fully nationalise them don't have enough knowledge of the ramifications to make a truly informed decision. I'm not suggesting I do but I realise that the ramifications on the man in the street would be huge. Many people believe share-holders are fat cats who dabble in the market, but in reality many are staff who used share options in their companies to save money. Nationalisation renders any shares worthless.

Also many pension funds have got large investments in the sector and will be severely impacted.

If Banks fail then their customers go down with them and whilst the FSA covers savings it doesn't look after the Corporate sector so well and therefore businesses could fail.

I worked hard for many years and recently retired meaning that, whilst lucky to be mortgage free, my savings are very important. I'm tired of hearing about the poor old borrowers and it is time the savers were rewarded and protected.

bunking_off

PhiltheBear wrote: »

The 'collapse' of the banking industry wasn't about irresponsible banking. Banks lent money according to financial conditions in the world - particularly in the USA. They lent large sums at low interest to people who were too dumb to realise that if interest rates went up they'd have a problem repaying.

Oh p-lease.

I can agree with you there is a strong case that customers take responsibility for their actions, but equally the banks need to as well.

The banks that made the loans in the US blatantly did so to people who had no hope of repaying. There's plenty of cases of loans which ballooned after an initial low-interest period, being given to people who were on social security benefit. They had no chance of repaying without selling the property, and never did have any chance. The lending banks had sold the debt on so didn't care.

The banks who took over the loans...the notable ones of which have now ceased to be...packaged the loans up in securitised derivatives that were so complex that the usual rules of return = risk free return + risk premium fell apart because no-one had a clue what risk they were taking on.

This is all rank incompetence on the part of the bankers.

The politicians do have a rap to take in the context of they ultimately controlled the regulators, who allowed this situation to develop, but to try to exonorate the banks and blame it all on the politicians is fantasy IMHO.

As for the dangers on nationalisation...well if banks have any shareholder value left, then that's just fine. But RBS is currently trading at what, 2% of peak shareprice. Sounds to me that it's an institution that needs to be put out of its misery, albeit for a temporary period until the world stabilises and it can be floated again.

PhiltheBear

bunking_off wrote: »

The banks who took over the loans...the notable ones of which have now ceased to be...packaged the loans up in securitised derivatives that were so complex that the usual rules of return = risk free return + risk premium fell apart because no-one had a clue what risk they were taking on.

That, frankly, is rubbish.

The US mortgage market is totally different to ours. The vast majority of US mortgages are bundled into Freddie Mac / Fannie Mae which both, in turn, sell packages of mortgages out to investment houses. Those packages were sold in open market. The only thing 'derivative' about them is that they mature some time in the future - as do millions of other contracts.

There's nothing complex about them and banks have been investing in them for years - without any problems at all - including through the last 'global' recession.

People who buy and sell derivatives know exactly what they are doing - and they know the risks. In a normal market Freedie Mac / Fannie Mae were seen as one of the safest investments going - simple because they were based on mortgages and because they were secured on underlying property values. There is an argument that the regulatory authorities should have stepped in earlier but the everyone was operating properly inside the regulations (except for those who were playing Ponzi schemes ).

Further, our banks' investments in them was only part of overseas investment e.g. spreading risk globally rather than investing solely in the UK - normal and admirable banking practice. The fact that outfits like Northern Rock were using them as a large part of their investment strategy only shows that were investing in what they knew best - the housing market. Yes, that was misguided - but only in hindsight. It's been a general rule for many years that property is about the safest investment you can make (otherwise, why bother to buy a house?)

The fact still remains - and it is a fact - that the problem was caused by the Fed putting up interest rates. It did so because the dollar was weak and the economy was weak because of the Bush administration policies.

Our problem is that our economy is seen to be weak - our manufacturing base is small and we are heavily reliant on 'invisible' earnings from the City of London. As Brown and Darling lurch from one stupid move to another they are effectively destroying that City base too, which means that in the future we're going to be even worse off because the City won't be generating as much earnings which, in turn, means it will pay less tax.

Yes, there is a global downturn - but the two countries of the west worse placed to deal with it are the US and the UK. And the underlying reason behind all of it is political. Both countries have deficits. Both borrow heavily. And, bizarrely, our government is intent on borrowing more. However, in our case we will all be the people to pay it back.

As we are finding here - using interest rates alone to 'repair' underlying deficiencies doesn't work. So, reducing the interest rates as they have done is bolting the stable long after the horse has gone.

bunking_off

You totally missed my point.

1) There is evidence that loans were sold...by whom is irrelevant...which could not be repaid even if interest rates had stayed where they were. If your point that defaults only occurred due to rising rates were true, the converse would be true that now that US rates are close to zero, defaults would not be occurring. Not true. Sure, the people taking out the loans were dumb, but that doesn't absolve the banks from blame.

2) If it was true that banks investing normally fully understood and continue to understand the risk profile, the interbank markets would not have seized in the way they have.

Or perhaps every respected commentator's wrong, and you're right.

I can cope with a reasoned argument of whether nationalisation is a good or bad thing (obviously bad thing, question is whether it's the "least worst"). To argue the banks were faultless and it's all the politicians fault is a bit leftfield...

grumpynotoldman

Peston's blog said it all here. august 2007.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/08/
The politics always FOLLOWS the money. They aren't bright enough to lead. The bright ones in the banks are working out how to increase their take by another 0.5%. Numbers, now who invented them?

bunking_off

Highly informative to note the date of that blog from Peston as well...August 2007 and he pretty much hit the nail on the head of what'd happen.

PhiltheBear

You totally missed my point.

1) There is evidence that loans were sold...by whom is irrelevant...which could not be repaid even if interest rates had stayed where they were. If your point that defaults only occurred due to rising rates were true, the converse would be true that now that US rates are close to zero, defaults would not be occurring. Not true. Sure, the people taking out the loans were dumb, but that doesn't absolve the banks from blame.

Let me make it really simple for you. People borrowed at low interest rates - interest rates rose - borrowers defaulted - banks repossessed property - therefore no borrower - therefore when interest rates fell the borrowers had disappeared. At the same time huge numbers of people lost jobs and could no longer afford repayments. So there will be on going defaults because people now have a lack of income. What's so difficult to understand?

2) If it was true that banks investing normally fully understood and continue to understand the risk profile, the interbank markets would not have seized in the way they have.

Duh. The interbank market exists purely on banks lending money, usually overnight, to each other. Precisely because they DO understand what they are doing lending dried up - or, to be more exact, became expensive - because banks were trying to be conservative about risk

Or perhaps every respected commentator's wrong, and you're right.

If you mean Peston let's be quite clear that the only reason he suddenly shot to prominence over all this was that he used to work for the PR company that represented Lloyds TSB and was able to break the Lloyds/HBOS story before anyone else.

What other 'commentators' with financial background would you quote? Brown? Darling? The only other 'name' I've noted is David Buik, who sometimes appears on TV and Radio. His comment was that the government has 'behaved atrociously'.

I can cope with a reasoned argument of whether nationalisation is a good or bad thing (obviously bad thing, question is whether it's the "least worst"). To argue the banks were faultless and it's all the politicians fault is a bit leftfield..

.

I'm afraid that a simple economic analysis will show you that what I've said is true. Of course, the government have now got a convenient scapegoat which they'll use to hang every failure they've got on. It's great for them to talk about fat-cats and rich bankers when people are suddenly caught in a down turn - where was all this rhetoric 2 years ago? Simple answer - nowhere. Because at that time Brown, as Chancellor, was trying to be best buddies with every financial institution in the UK. He'd already screwed the pension funds (that's YOUR money in YOUR pension, if you have one) by levying a tax that they still haven't recovered from - and, if you haven't realised it pension funds / investment banks / asset managers are all caught in this firestorm. But he was starting to realise that the traditional manufacturing industries don't really exist any more and our biggest money maker (i.e. taxable earner) is the City of London.

The only bit the public sees is the retail bank - but there's much, much more money in those areas - and they are all suffering. But, you see, they aren't Labour voters, so Brown will happily let them collapse so that he can be seen to be being tough on the 'rich'. Of course, ask the average bank employee what they earn and you'll find that the vast majority make an average wage. The big money is only made by a few people and most of those only make large sums because they generate large profits.

The trouble is that most people only watch Peston (arbiter of doom and gloom) or scan the newspaper headlines. They see, therefore, what they expect to see. However, the fact remains - this whole crash was precipitated by US interest rate raising. And, however you want to approach it, the interest rate rise was caused by political action.