What needs to happen to fix this?

econo_2

!!!!!!? wrote: »

The banks have come to depend too much on the money markets to make up the shortfall between deposits and lending - we need to get back to a situation like the year 2000 where they broadly matched.

That means people need to pay down debt and save more.

It also means no more slashing interest rates wildly (not that there is much left to slash).

Radical action needs to be taken to consolidate the banking system into something that is viable. That means proper mergers and layoffs where there is duplication of work. Shareholders get wiped out if necessary.

House prices need to fall to levels where people can buy one by borrowing a sensible amount (3.5x single, 2.5x joint) with a minimum 10% deposit saved. The sooner vendors get over the fact that peak 2007 prices are history, the better.

Businesses need to focus on producing stuff that people (in particular, foreigners) want/need to buy instead of playing with money to synthesize new 'wealth' that is merely an illusion, or flogging imported consumer goods to people borrowing the money generated from the money games in the City and Wall Street.


This will be extremely painful but we are going to have a lot of pain no matter what happens - there is no magic bullet to make it all better.


What I reckon is going to happen however is that the govt send rates to zero, print up money to recapitalise the banking system and then finish the job of nationalising it. They will then use the banks to dole out new money like Ben Bernanke was hypothetically using a helicopter and we'll end up with raging inflation as the government attempt to redistribute wealth from the sensible to the spendthrifts.

This might produce an illusion of 'recovery' in the near term but will collapse in a huge, irredemable heap a year or two down the line.

The first serious economic post to an economic question I've read in many a day. :T

econo_2

!!!!!!? wrote: »

The banks have come to depend too much on the money markets to make up the shortfall between deposits and lending - we need to get back to a situation like the year 2000 where they broadly matched.

That means people need to pay down debt and save more.

It also means no more slashing interest rates wildly (not that there is much left to slash).

Radical action needs to be taken to consolidate the banking system into something that is viable. That means proper mergers and layoffs where there is duplication of work. Shareholders get wiped out if necessary.

House prices need to fall to levels where people can buy one by borrowing a sensible amount (3.5x single, 2.5x joint) with a minimum 10% deposit saved. The sooner vendors get over the fact that peak 2007 prices are history, the better.

Businesses need to focus on producing stuff that people (in particular, foreigners) want/need to buy instead of playing with money to synthesize new 'wealth' that is merely an illusion, or flogging imported consumer goods to people borrowing the money generated from the money games in the City and Wall Street.


This will be extremely painful but we are going to have a lot of pain no matter what happens - there is no magic bullet to make it all better.


What I reckon is going to happen however is that the govt send rates to zero, print up money to recapitalise the banking system and then finish the job of nationalising it. They will then use the banks to dole out new money like Ben Bernanke was hypothetically using a helicopter and we'll end up with raging inflation as the government attempt to redistribute wealth from the sensible to the spendthrifts.

This might produce an illusion of 'recovery' in the near term but will collapse in a huge, irredemable heap a year or two down the line.

The first serious economic post of value to an economic question I've read in many a day. :T
My two penneth would be the first country to announce they were going back to the gold standard. Brown would never do it of course because it would mean having to actually be financially responsible! I will be surprised however if we don't see some smaller and very vulnerable nations resort to it by the time this is all through, might end up how private citizens start paying for stuff.

Insured gold linked and debited by their debit cards. Might even see an enlightened bank start offering it as a service, if there was such a thing as an enlightened bank!

Wookster

davilown wrote: »

Why?

We earn money, we pay our bills. Anyway, i said don't bail the banks outs. Not all of them need bailing out. Why should our money be used to bail out the share holders so they don't lose any money?

I get paid, I buy my food, pay rent, save , buy a house cash. why do I need a mortgage or bank for those? Postal system works well to cover all bill payments.

The global economy revolves around cash & credit - cash & credit are mechanisms for settling transactions.

How much cash do you have in your wallet right now? £20? £30? Well if RBS or HBOS had gone down that's all you'd have. Period. The contagion would bring down the secure banks as depositors rushed to withdraw funds. THe entire banking system would collapse.

You would only be able to purchase goods to the value of what you had in your pocket - £20 or £30.

Think you can use your debit or credit card? Well think again - the underwiriting party (the Bank) is bust - no one is going to accept it.

The world as we know it collapses - simply down to logistics of honouring transaction settlement.

chucky

!!!!!!? wrote: »

The banks have come to depend too much on the money markets to make up the shortfall between deposits and lending - we need to get back to a situation like the year 2000 where they broadly matched.

savings vs lending equal ratios don't really work anymore; they aren't attractive as they are not as profitable.

making sure banks have fungible assets and realistic margins in place against their lending would work much better.