Let banks fail, says Nobel economist Joseph Stiglitz

ray123

Pot odds imply that something is worth calling for -
the government is DRAWING DEAD...

stevetodd

ray123 wrote: »

Pot odds imply that something is worth calling for -
the government is DRAWING DEAD...

No it is drawing to avoid the calamity and all the costs associated with the chaos of the banks failing (plus not losing their stake of course)

Radiantsoul

Generali wrote: »

FWIW, I think that any company that is insolvent should be allowed to go bust. I don't see what's different about banks.

The first GBP50k is guaranteed. If people have more than that in any one bank then they know (or should know) they are taking a risk.

Why should my money be used to prop up the savings of unwise rich people?

It is not just rich people, but the cash that businesses hold to transact. Few small business are likely to have dozen of bank accounts and even if deposits are below £50k the time taken to claim would risk their solvency.

Moreover current insolvency legislation is not well designed to wind up complex organisations such as banks. The history of the BCCI liquidation is an interesting case in point. The liquidation commenced in 1991 is still to this day ongoing and creditors have currently received 86% of their money back. It is likely that the matter will be ongoing for another few years. Arguably it would have been easier for the decline to be better managed via another method. .

louiser123

they should have been made to go bankrupt, savers who have large amounts have known for months that anything over 50k is not guaranteed and should have made arrangements sensibly to ensure thier savings were transferred to other accounts so they would get thier money back.
banks after all are a business, end of.! they do not have our interests at heart only how much money they can make from us.
just like the average man in the street who owns a business if it goes belly up he has to go bankrupt, the flaming govt dont jump in with millions to save them. the govt are as corrupt as the banks.
those who have savings as said before have a guarantee if they choose to keep over that amount in a savings account its thier risk to take no good shouting when its lost. most people with large savings have gained tremendously over the boom years they have thier original amount they placed in with interest to bump it up. im my eyes they have actually lost nothing!! only the prospect of making more money on it.

mortgages are not being treated in line with the savings that again is corrupt and underhand, most lenders after the initial boe cut have not passed on the full cut as asked to do so by the govt, but yet have cut savings rates inline with those cuts.

in a nutshell, my opinion. govt and banks are like the mafia, they work for each other trying to make it look like they are working for us, and we as a nation sit back and meekly let them do it with no protest.


they should have been made to face the same process as all businesses in trouble yet they still dare to stick the fingers up and admit to the large bonuses they will get this year!!

Wookster

Radiantsoul wrote: »

Moreover current insolvency legislation is not well designed to wind up complex organisations such as banks. The history of the BCCI liquidation is an interesting case in point. The liquidation commenced in 1991 is still to this day ongoing and creditors have currently received 86% of their money back. It is likely that the matter will be ongoing for another few years. Arguably it would have been easier for the decline to be better managed via another method. .

Think what administrator's fees would be! Eye popping amounts of money. I'll bet PwC are rubbing there hands and feet in glee with the fees they will receive from the Lehman's liquidation.

Also, in the intervening period, who on earth would do business with the UK? We all saw what the UK did to Iceland after they reneged on their obligations - imagine the repercussions for the UK if we reneged?

ray123

stevetodd wrote: »

No it is drawing to avoid the calamity and all the costs associated with the chaos of the banks failing (plus not losing their stake of course)

How much of our stake have we lost in the last few months?
Billions due to the drop in the share price of RBS,etc., another 500 million pound a year having converted the original preference shares in ordinary shares and most likely billions more...
If you see my original post in this thread - there are positives and negatives for each argument:
1. Let the banks go bust - worse in the short term, but better in the long term (which is more important in my humble opinion).
2. Keep the banks afloat by investing in them without doing much research and as soon as this happens the banks expose some of their bad debts .eg. rbs write downs of 28 billion. Thereafter, the share price collapses, so we re-invest and lose billions more... This might be better for the economy in the short term, but will lead to the future generations paying for our mistakes!
The banks will take our steak and eat it!

Radiantsoul

Wookster wrote: »

Think what administrator's fees would be! Eye popping amounts of money. I'll bet PwC are rubbing there hands and feet in glee with the fees they will receive from the Lehman's liquidation.

Also, in the intervening period, who on earth would do business with the UK? We all saw what the UK did to Iceland after they reneged on their obligations - imagine the repercussions for the UK if we reneged?

The liquidators fees are a matter of public record on BCCI and currently stand at about $1.6bn dollars including legal fees to recover $7.4bn for creditors+$1bn in interest.

http://www.bcci.info/pdf/BCCISummarySchedules15Jul08.pdf

Wookster

Radiantsoul wrote: »

The liquidators fees are a matter of public record on BCCI and currently stand at about $1.6bn dollars including legal fees to recover $7.4bn for creditors+$1bn in interest.

http://www.bcci.info/pdf/BCCISummarySchedules15Jul08.pdf

Thanks for that.

That works out to a cost of 21% (and rising) of the debts to unravel the mess and pay back the creditors.

Eyepopping!

Radiantsoul

ray123 wrote: »

How much of our stake have we lost in the last few months?
Billions due to the drop in the share price of RBS,etc., another 500 million pound a year having converted the original preference shares in ordinary shares and most likely billions more...
If you see my original post in this thread - there are positives and negatives for each argument:
1. Let the banks go bust - worse in the short term, but better in the long term (which is more important in my humble opinion).
2. Keep the banks afloat be investing in them without doing much research and as soon as this happens the banks expose some of their bad debts .eg. rbs write downs of 28 billion. Thereafter, the share price collapses, so we re-invest and lose billions more... This might be better for the economy in the short term, but will lead to the future generations paying for our mistakes!

Future generations also gain from our successes and will more than likely be significantly richer than us. If incomes rise by 2% per annum then in 30 years time people will be almost twice as rich as us.

Also the idea that future consumption is more valuable than present consumptions seems undemocratic as few argue for higher taxes and lower current spending.

harry_w

Generali wrote: »

Like it or not, saving with a bank carries risk or at least used to.

Saving doesn't imply nil risk.

Yes, saving with a bank carries a risk; that should be minimal in a licensed bank within a sound regulatory framework. It doesn't imply the same type of risk as an investment.

As the government understood when faced with a very public bank run on Northern Rock, any perceived threat to retail deposits would risk starting a run on one bank spreading to others. If that were allowed to proceed it could lead to a general collapse of confidence in the any government, possibly in the state itself.

What I was taking issue with was your application of a term appropriate to investments to savings instead: "Why should my money be used to prop up the savings of unwise rich people?"

They're different, savings may or may not be guaranteed, but they're not 'propped up' in the way an investment might be.

[There are legitimate questions over the extent of any guarantees, the amount, the types of deposit/depositors covered and which banks (e.g. the blanket Irish guarantee is reckless). The only groups of savers I'd say have been 'propped up' have been rate-tarts saved from Icelandic banks and kept on the same rates of interest that attracted them offshore in the first place.]

I've no problem with insolvent banks going down with their liabilities, and I guess most British banks would have gone by now -- due to their own borrowing against a capital base of deposits to make poor investments in derivatives and bad loans against other assets which have since collapsed in value -- not from straining to 'prop up' savings at some extortionate interest rate.

In the wake of that and the capital flight I guess such a collapse would prompt, unless the bulk of retail depositors were adequately compensated, then I think it would be very difficult to re-establish a successor banking system.

The reality of the current situation is that the government are turning the economy inside out trying to prop up asset values and investments against deflation (denying savers any return on deposits with ZIRP, using emergency facilities to accept the 'troubled assets' and guaranteeing bank liabilities).

In general, it's debtors being propped up to protect them from the deflating bubble in asset prices and investments, not savers who could benefit from deflation, as long as it was a short sharp correction rather than the protracted deflation and long term economic stagnation under a gargantuan national debt, which government policies seem likely to achieve.