Why we should have let the banks go bust

penguine

CLAPTON wrote: »

many view the excessive lending on mortgages in the US as the fundamental cause of the problems

But the mortgages in the US were turned into investments -- bundled up, chopped into bits, rebundled and sold to banks around the world.

baileysbattlebus

carolt wrote: »

As someone who is avowedly left-wing, I see no problem witha safe state-run bank to stash my cash, and let the investment banks do what they will.

After all, we've got the nationalised banks now - BUT we've also got responsibility for all the others too.

Worst of all possible worlds.

We used to have one called Girobank - state run - set up by Harold Wilson in about 1968 as a bank for the people, for those who didn't have bank accounts - sold off by Margaret Thatcher in about 1989.

It lost money until 1971 - was in profit from 1972.
It had 2.5million customers and in 1987 made a profit of £23.1million.

Thrugelmir

baileysbattlebus wrote: »

It had 2.5million customers and in 1987 made a profit of £23.1million.

Another rip-off bank. The profit they made per customer was obscene.

Radiantsoul

Thrugelmir wrote: »

Another rip-off bank. The profit they made per customer was obscene.

Less than a tenner!

p00hsticks

Generali wrote: »

There really is no need for them to be linked in any way. It should be prefectly possible to sell a couple of savings accounts, mortgages, a current account and a credit card in such a way as to turn a profit. Really it would be just about marketing it well and most importantly for a retail bank, having a very efficient back office.
.

Isn't that pretty much describing what a building society does ?

Pee

Someone was telling me that something similiar happened in Sweden a few years ago and one of the biggest banks went down. Another Swedish bank is now offering loans in the UK. I thought we needed to prop them up to keep everything stable, but now I am wondering, too...

matthewcb

By bailing all the banks out, it is a 100% certainty nothing will change. After all, there is no need for fear from the banks, because there's always public money to prop them up.

Perhaps if one or two had gone, the others would have realised something had to change. I am certain that in a decade or two, the banks will be back to pre-2008 levels of lending and poor risk assessment in the name of chasing dividends and senior bonuses.

As things stand now, have *any* of the banks learned from this? They've made plenty of low/middle ranking staff redundant, but the people who made, and will make, the decisions have not really had any hardship at all. So, really, what's the incentive to reform?

It's only a matter of time before greed overtakes fear...

Alan_M_2

matthewcb wrote: »

By bailing all the banks out, it is a 100% certainty nothing will change. After all, there is no need for fear from the banks, because there's always public money to prop them up.

Perhaps if one or two had gone, the others would have realised something had to change. I am certain that in a decade or two, the banks will be back to pre-2008 levels of lending and poor risk assessment in the name of chasing dividends and senior bonuses.

As things stand now, have *any* of the banks learned from this? They've made plenty of low/middle ranking staff redundant, but the people who made, and will make, the decisions have not really had any hardship at all. So, really, what's the incentive to reform?

It's only a matter of time before greed overtakes fear...

That's pretty much the conclusion I've arrived at.

However, from a laymans point of view, it looks to me like Lehman's was "allowed" to go bust as a shot across the bows for everyone else....in a kind of "you're not too big to go" warning......of course I don't know this, I'm just reading between the headlines as it were...

Now the dust has settled, the cycle is starting again already and marches on relentlessly.

CLAPTON

penguine wrote: »

But the mortgages in the US were turned into investments -- bundled up, chopped into bits, rebundled and sold to banks around the world.

was that done by investment banking or 'ordinary' safe banking?

penguine

CLAPTON wrote: »

was that done by investment banking or 'ordinary' safe banking?

Investment banking.

My understanding of the subject is very basic, but I think the knock-on global effects of the sub prime mortgage market came from the mortgages being bundled up into CDOs (and classified as low risk when only some of the mortgages were low risk) and sold on to investors which included commercial banks.

This is from wikipedia's entry on CDOs:

From 2003 to 2006, new issues of CDOs backed by asset-backed and mortgage-backed securities had increasing exposure to subprime mortgage bonds. Mezzanine ABS CDOs are mainly backed by the BBB or lower-rated tranches of mortgage bonds, and in 2006, $200 billion in mezzanine ABS CDOs were issued with an average exposure to subprime bonds of 70%.[citation needed] As delinquencies and defaults on subprime mortgages occur, CDOs backed by significant mezzanine subprime collateral experience severe rating downgrades and possibly future losses.

CDOs purchased much of the riskier portions of mortgage bonds, helping to support issuance of nearly $1 trillion in mortgage bonds in 2006 alone. Investors criticized S&P, Fitch Ratings and Moody's Investors Service, saying their ratings on bonds backed by U.S. mortgages to people with limited credit didn't reflect the lax lending standards that caused their backward-looking default rates to be inapplicable to risk level of the loans being made.[citation needed] In the first quarter of 2008 alone, rating agencies announced 4,485 downgrades of CDOs.[21] Declining ABS CDO issuance could affect the broader secondary mortgage market, making credit less available to homeowners who are trying to refinance out of mortgages that are experiencing payment shock (e.g. adjustable-rate mortgages with rising interest rates).[22]