'Should we nationalise the banks?' poll discussion

bunking_off

I'm not going to get into a prolonged debate, but your argument is analogous to blaming the sky when it rains.

You're absolutely correct that US ex-homeowners defaulted when interest rates increased...albeit omitting the bit that there's plenty of evidence that many could never have made the payments when they resorted to variable after the introductory discount, regardless of what happened to underlying interest rates.

What you missed is that the lenders took on custom from people who would not be able to cope with a rise in interest rates, making assumption that the asset value of the property would ultimately protect them as they could always repossess.

It's hardly the fault of interest rates rising that caused the issue...it was the fault of the banks for not adequately quantifying the risk of the inevitable outcome that mass repossessions would knock a ...ing great hole in the underlying assets that were supposed to derisk the situation.

Oh, and

Let me make it really simple for you.

...I object to your tone. I'm post-graduate educated, including an MBA with finance specialism. You undoubtedly are similarly qualified. Please don't talk down to me as if I'm some schoolkid who understands nothing of finance.

Mary_Hartnell

USA interest rates were forced too low by governments.
Liar loans, teaser rates, the spiral of securitisation, NINJA etc. all these were invented by banks.
Interest rates were forced up by foolish wars and the realisation that the world had too much money for the available goods.
The shock of high interest rates did no just bankrupt sub prime borrowers it also showed up the affluent folk who had geared up their life styles by borrowing from their futures and commercial organisations, especially banks who were doing something similar.
Government run by incompetents and finance run by wide boys.

grumpynotoldman

My personal take on Peston's contribution, which just coincides with getting a laptop, and being able to browse blogs while watching telly, was the prediction here;
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/06/13/index.html
and here;
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2007/06/29/index.html

which was coincidentally when he started telling everyone about the Emperors' very antisocial clothes.
I'm no fan of any particular economic theory except the ones described by Dickens, and in the last 2 and a bit years have become even more confused by the delayed effect that nobbled everything. I thought everyone would get it once it was explained.
Take my own decision to "wait and see" with Endowments (FP, !!!!!!!s), which seems to be what even the hedge funds and private equity, banks and governments did too.
Their investment in the tailors' income from the Empire Clothing franchise,diverted their gaze, which all tricksters, magicians and smoke and mirrors people wanted.
Time to shift their positions and dump the rubbish on someone else.
I may be cynical, and I may be sceptical, but my fallability is never in doubt.
Shame others don't do self examination in the same fashion.
We are all "Doomed, Mr Mainwairing!", but then we always were.
You can have differing views, and you can agree to differ, but if you don't say "Sorry!", you'll regret it.
Insomnia from stress fracture, foot pain and too much tea!
They said "Rest it!" I didn't, and it still hurts.
Rest it is then.:rolleyes:

bunking_off

Personally I'm no massive fan of Peston...over the last year he's showboated a lot on being in the right place at the right time.

I have to concede, though, that he got it spot on in his August 2007 blog that you published a couple of days ago.

May not be a fan of the messenger but at times I've got to concede the message is correct...

PhiltheBear

bunking_off wrote: »

...I object to your tone. I'm post-graduate educated, including an MBA with finance specialism. You undoubtedly are similarly qualified. Please don't talk down to me as if I'm some schoolkid who understands nothing of finance.

Sorry about that. But I'm a PhD (in Credit Control) who specialised in Financial Engineering and spent about 35 years working with banks. Therefore, I can claim, with slightly more justification than you, that this is my specialist subject. I also know, first hand, that a lot of the claims you make about banks - for example: 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 - are total rubbish. Banks have whole departments that specialise in risk and both American and European banks have to meet specific and strict risk gudelines by law.

I wouldn't claim that the banks are blameless in lending to people that can't afford to pay back when things get tough but the major share of the blame has to be with the borrower, I have yet to meet any financial institution that doesn't spell out - and investigate - the potential of a borrower to pay back when interest rates rise.

What I currently see is the total floundering of our government to do anything properly to address the issue. Nationalisation would just be plain stupid - look at the never ending farces that the government promotes like ID cards, NHS computer system, London Olympics, etc. Politicians, by and large, simply don't understand finance. If you don't believe me have a look at the reports of the committee that interviewed the hedge fund managers yesterday. Not one of those politicians grasped the fact that although the hedge funds made money when bank share prices collapsed they didn't cause the price collapse. And if they can't understand something as fundamental to financial trading as that then they would be totally at sea with something complicated.

It would be quite fair to argue for better future regulation (but not via the FSA, which is just a hopeless bureaucratic nightmare) but the fact remains that our banks need to compete and make money on a global stage - not just a British one and any future regulation needs to ensure their fitness to do so. The worst possible scenario is a Labour government taking control of the banks - I guarantee that this country woud be bankrupt within 2 years if they did.

And you are right about the prolonged debate

bunking_off

There are shades of nationalisation though.

I work in an industry which was nationalised between the last war and the Thatcher era, now one of the most competitive around. Before my time, but I know enough of the people who were around at the time. Nationalisation is absolutely anti-everything I stand for, but there's lots of shades of nationalisation.

At one extreme there's the NHS, where the Government pull the organisational control strings. A bit further in would be the likes of British Leyland when it existed, where politicians intervened all-too-often for political goals. But there are state owned concens where that wasn't the case...in UK historic terms think of Amersham International, Cable & Wireless, or overseas more recently e.g. Porsche has a significant holding by the local state government and many foreign telecoms companies have significant state ownership. Thanks goodness, but the Government's so far taken a largely hands-off approach with Northern Rock. On the historic state-owned companies I mention above, the state involvement was largely restricted to saying what dividend they expected and a seat at the Audit Committee - the running of the business was left to those who understood.

I would agree that politician controlled banks would be a bad thing. But where banks such as RBS are on their uppers, there may be merit in having that state underwriting that being a nationally-owned enterprise could bring...strictly for a period until stability returns to the sector. Of course, this could be done while it remains in private hands, but I'd be loathe for state intervention to ultimately benefit the shareholders of RBS (and I say that as someone who was wiped out on my B&B shares). I also know from the attitude of friends who work in the City that the culture of something for nothing is very much alive (e.g. I recall before Christmas one bemoaning that they had to arrange their own party and were allowed only £100 each).

Oh, and I still don't accept that the banks had a good handle on the risks they were undertaking...they wouldn't have had to go cap in hand to the state if that were the case...

mcgazz

t.hatchett wrote: »

I seem to remember that the labour party something called clause 4 in their manifesto I.e. the control of finance . production & distribution, it seems that they are about to achieve the control of finance, how long before they take over all failing businesses and control production shortly followed by distribution. be very careful ot they will achieve their aim of a communist state after all.

Where have you been for the past 15 years? Labour scrapped Clause 4 before Blair became PM. Not that the Labour Party ever wanted to impose Communism anywhere - as Tony Benn put it, "Labour always had more in common with Methodism than Marxism".

Your post resembles the weird right-wing meme currently doing the email rounds in the US, which fabricates a quote, attributes it to Karl Marx, and then uses it to claim that nationalising banks is the government attempting to impose State Communism gradually(*). There's a curious old-fashioned feel to this flavour of right-wing frothing - again, where have you been? Are we going to see the return of swivel-eyed right-wing loons banging on about Communism, as if it's a very real threat? Then it definitely will be like the 70s again ;-)

(*) ignoring the fact than neither Leninists not Trotskyists believe Communism can be brought in by reform...