Bank Losses and Nationalisation

Generali

Well we've had another load of losses in bank stocks in the US today and it looks like yet more cash is going to have to be pumped in.

I was wondering how people feel about this. Is there any point at which the Government should say, the banks are insolvent if they can't live without Government money and then be allowed to fail and nationalised? The UK Government seems very reluctant to nationalise, I suspect because then the liabilities of the banks are added to the national debt. Is that something that bothers you?

What should be done to stop a recurrence? The banks are pretty closely regulated already. My feeling is we should have more smaller banks so it's less of a problem if one or two are insolvent.

What about the losses. Who's going to pay for all this? At the moment everyone will pay through future taxes. Is this reasonable? If not, where's the money going to come from?

adr0ck

were going to print the money

the pound will then collapse

and we will then join the euro

bubblesmoney

the best option will be to have smaller banks, so that they can go bust safely without affecting the larger economy if they are not profitable.

larger banks must be forcibly broken up for the sake of the economy or the bigger banks must have proper capital adequacy ratios and excessive leveraging must not be allowed. excessive risk taking must have penalties for the bank as well as for the managers doing the excessive risk taking for bonuses.

global banks just privatise the profits and tax income will be less because they are frequently based offshore in tax havens. smaller banks will be based locally and pay tax locally and wont endanger the economy as a whole if a few go bust. any losses at bigger banks falls on the tax payer due to bailouts etc.

if a car driver took a joy ride and injured a pedatrian then the driver is taken to task in court. similarly these banks as drivers of the economy taking excessive risks and harming countless lives by their gambles should have personal consequences for the said managers. bonuses should always have claw back clauses. secrecy must not be allowed as happened in the usa hedge fund industry. they must have independent auditors. also auditors missing fraud must pay the price if they signed off the accounts. same applies to regulators too, they should pay the price for complicity in ignoring fraud. surely madoff didnt operate alone, loads of people in the industry and regulators must have been on the take for such a massive ponzi scheme to go undetected inspite of numerous complaints detailing the fraud to the regulators. complicity in fraud by regulators must have life sentences without parole (throw away the key and let them rot or better make them work in chain gangs like in the usa) compulsorily to deter others from committing fraud.

The_White_Horse

the best option would have been for the govt to let the banks fail in the first place.

they could have guaranteed every individuals savings (and any salarys lost in the collapse).

they could then offer 100% safety and 0% interest. they could set off that against lower taxes.

I am a genius.

Brown is a fool.

and remember, if you're gonna ride...

don't ride the white horse.

Guy_Montag

I'm in a quandary: Granny Montag's pension is primarily made up of RBS shares after three generations of RBS bank managers in the family - Ma & Pa Montag also have considerable holdings sustaining their retirement - Pater Montag's Equitable Life (!!) pension doesn't provide much.

On t'other hand RBS have been driven into the ground & probably don't deserve to survive in their current form.

If HM Govt. start nationalising the big banks that brings a lot of !!!! onto the State's books, if they don't we might see the total collapse of most UK banks.

If the banks collapse or alternatively are nationalised we won't see any investors wishing to buy into UK financials for a long time.

Ho hum. When it comes down to it bailing out seems to be the best solution.

In the long term, I agree that we need more smaller banks & building societies to spread the risk, I'm just not sure how we get there & how we stop them turning into a few big banks again.


One question I have is how much are institutional investors have some responsibility for this shitstorm. It is they who hold the power over these banks, it is they who allow the banks to pay massive bonuses and allow directors to take stupid risks. The small investor has no power to change the way a bank (or other operation is run).

harry_w

Generali wrote: »

Well we've had another load of losses in bank stocks in the US today and it looks like yet more cash is going to have to be pumped in.

I was wondering how people feel about this. Is there any point at which the Government should say, the banks are insolvent if they can't live without Government money and then be allowed to fail and nationalised? The UK Government seems very reluctant to nationalise, I suspect because then the liabilities of the banks are added to the national debt. Is that something that bothers you?

What should be done to stop a recurrence? The banks are pretty closely regulated already. My feeling is we should have more smaller banks so it's less of a problem if one or two are insolvent.

What about the losses. Who's going to pay for all this? At the moment everyone will pay through future taxes. Is this reasonable? If not, where's the money going to come from?

I've been wondering what the consequences of allowing them to fail and not nationalising them would be (or have been) - obviously the banks, pension funds, insurers would have been decimated, but after they're bankrupted...? I mean aiming to force the maximum amount of settlements and defaults within the financial sector in a process of consolidation and bankruptcy.

At the same time seeking to aid those damaged by that process on a more equitable basis, which distinguishes between speculators and those serving basic economic needs (basic housing, savings and pensions over investments in landlording and financial assets/instruments).

Politically, it requires people to insist the state to legislate to preserve their economy and society from the overweening demands of finance - which has turned from largely fictitious wealth creation to wealth destruction which is real due to the debt taken on in the process.

Public wealth needs to be preserved to 'stimulate' or even bridge finance the productive economy and to provide a basic safety net for those caught in the fallout whose basic means of living (jobs, housing, savings, pension) are threatened, rather than investors whose overall wealth is threatened by a deflation of assets when they were happy to take profits in the asset bubbles in housing and finance.

To prevent recurrence, housing costs must count within inflation. Asset valuations must counteract the tendency of mark-to-market to expand bubbles. Leverage must be reduced and capital flows unrelated to trade controlled in volume and speed.

Payment should be extracted from the sectors and activities that produced the bubbles, finance and housing. Taxing transactions and capital gains (because the liabilities have been nationalised).

Reintroducing some barriers between mortgage banks and other sectors which Thatcher did away with before the Lawson boom might create one firewall and revive the mutual model.

baby_boomer

bubblesmoney wrote: »

the best option will be to have smaller banks,

What a pity that Gordon decided to saddle Lloyds with the HBoS disaster - thus ruining two banks for the price of one!

The Lloyds management has a lot to answer for - as do the institutional shareholders who voted it through because they also owned HBoS shares and thought this would better preserve their stakes' value.

Telegraph - Britain doesn't have the option of letting banks go bust

"......Iceland at least had the luxury of letting banks default – shifting losses on to the rest of the world. It refused to honour foreign debts. "They drew a line," said Jerry Rawclifffe, who tracks Iceland for Fitch Ratings. "They created new banks, parking the old losses in resolution committees. It is not easy for other governments to walk away. They have a duty of care."

Indeed, if Britain walked away from UK banks' $4.4 trillion of foreign liabilities – worth eight times Lehman Brothers – it would destroy the credibility of the City and take the whole world into deeper depression.

"The UK cannot go down that route because it would set off an asset price death spiral," said Marc Ostwald, a bond expert at Monument Securities. "The Western banking system is already on life support. That would turn it off altogether......"

kennyboy66_2

I am not sure that smaller banks is the panacea, although it could be.

I suspect that in the debacle we would have had many more runs on banks, and that the majority of smaller banks would have made similar disasterous lending decisions.

In an ideal world, I would like to see Building Societies have a much greater role in residential lending (owner occupied). While there have always been failures amongst Building Societies, the old (and even existing regulation) on who they could lend to and how much they can lend would have mitigated some pain.

Despite what many HPC may think, the majority of write downs so far have not been in owner occupied residential UK housing.

It would have been much better for Halifax, Abbey, Northern Rock and B&B to have stayed as mutals. There rates were usually pretty comepetive for both savers and borrowers (al least compared to what was the mainstream big 4 banks). Apart from a few shares (now worthless), what have we gained from all those de-mutualisations ? I still find the service in Nationwide better than Natwest & Abbey where I also have personal or business accounts.

beaujolais-nouveau

adr0ck wrote: »

and we will then join the euro

I don't yet fully understand why but I gather that Britain's economy would have to be in good shape as a prerequisite to joining the euro. Not in the state it is now.

Can the other euro countries refuse to let us join? Probably.

carolt

I'm no economist.

Obviously, as a non-homeowner, given that the whole root of the problem appears to be that the US and UK housing stocks were desperately overvalued as a result of credit flowing like water, and people's inability to pay off the mortgages they had been lent to buy these houses became apparent the second house prices started falling, thus causing the world economy to crash, I would have prevented the whole collapse of the world banking system by giving all people who didn't own their own homes huge cash handouts to buy at existing prices. Would have cost a damn site less than the trillions currently thrown at the problem and been entirely fair and equitable.

Well, I like it anyway.

dopester

beaujolais-nouveau wrote: »

I don't yet fully understand why but I gather that Britain's economy would have to be in good shape as a prerequisite to joining the euro. Not in the state it is now.

Can the other euro countries refuse to let us join? Probably.

I thought they recently said we wouldn't be welcome - or at least the ECB gave that message out.

I mean.. who wants a nation of HPI worshippers? A country that began the financial destruction by relaxing regulation in finance.. which led the US to follow suit to compete.

ECB deems Britain unworthy of euro

The European Central Bank has deemed Britain unfit for monetary union even if it wants to join following the dramatic slide in sterling and the explosion in the UK budget deficit.

"Great Britain does not meet the entry criteria for the euro," said Lorenzo Bini Smaghi, the ECB's board member in charge of international affairs.

"The public deficit will rise to around 6pc (of GDP) in 2009 and even higher in 2010. Sterling's exchange rate is not yet sufficiently stable," he told Italy's La Repubblica newspaper.

The entry rules impose a deficit ceiling of 3pc of GDP, two years of currency stability, and a public debt limit of 60pc of GDP. The rules were waived for political reasons to let Italy, Belgium and Greece into EMU, but terms are becoming stricter as the ECB seeks to exclude East European states before they are ready.

If anything, Mr Bini Smaghi may have been too kind to Britain. The Treasury expects the deficit to reach £118bn in the 2009 tax year - almost 8pc of GDP - but there are now fears that this will rise even higher as tax revenues collapse. Some analysts have begun to warn that Britain will soon face a deficit of 10pc, the sort of catastrophic levels seen in Latin America in the 1980s.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4161945/ECB-deems-Britain-unworthy-of-euro.html