Your Dear Old Mum's Christmas Present, a Multi-Trillion Dollar Loss and Bank Solvency

Generali

From the ever excellent FT Alphaville blog:

http://ftalphaville.ft.com/blog/2011/12/22/812161/more-angry-birds-less-regulatory-arbritage-please/

To explain (as it is a little complex), let's start with an analogy.

Let's say you just bought your dear old Ma a lovely picture for her birthday worth £1,000 which you wanted to insure against theft. That's pretty simple to arrange: you go to an insurance broker and buy some insurance.

Now let's complicate things. Let's say you forgot to buy the insurance and the picture is stolen from you on your way home. Can you buy insurance now? Hell no! But your Mum will think you useless so you need to come up with a plan. What you do is you agree with a mate to 'insure' the picture for £1,000 against theft. (S)he gives you £1,000 to compensate for your loss and you agree to pay £200 in insurance premia for the next 6 months. That way you get your £1,000 insurance claim and your Ma thinks you're ace, your mate gets a £200 profit and you make a loss but save a lot of face.

"So Generali," you ask, "have you been at the mulled wine? Bit early for that where you are old boy. !!!!!! has this got to do with bankers you bull's walt."

What has been going on is that banks that have made losses on various bits of toxic debt, Government bonds and all sorts of dodgy or misguided investments are insolvent if they write the debt down. This is A Bad Thing as they won't get their bonuses and they might get investigated for fraud and the other criminal acts they committed.

What appears to be happening is that banks are retrospectively insuring against losses that have already happened, allowing them to spread the loss over time, albeit at a cost.

Generali's special bonus Christmas quiz question is, "Who is paying the cost of this loss?".

grizzly1911

Me and you in interested cost of banking passed through to us.

Or you and I through increased tax as they w ill offset the cost against profit and pay less tax.

But is it really a cost to the industry as a whole as somone is making a profit and there is no doubt a broker taking a cut plus they are still retaining an asset and not taking the loss.

Or is it that they are making less, as a group, because if every one only insures after the event then less premiums are taken overall as insurance is loaded in their favour in the long run.

OK I give in.:mad:

Kool_Kool

We are .

John_Pierpoint

Sorry kids.
Back in the 1960's, we were idealistic and really thought we could make the world into a garden of Eden.
Well we totally messed up and you will have to fight for the resources.

The worst thing we did was to give you a sense of "entitlement".
There is no entitlement just as there is no Santa Claus.

This is the can kicking generation.

michaels

Some one has the picture 'worth' £1000 but we can get some of that back from them via inflation (is theft) by increasing the money supply.

Then as tax payers we can loan the 1k very cheaply to the poor deserving bank and as they only have to pay back theri mtm loss over a period in the mean time they can make a good 'turn' on the money by using it to support loans they have made at much higher interest rates.

We can also allow the banks to consolidate to reduce competition in the market and allow them to earn extra oligopoly profits.

Overall those who have borrowed or bonused and consumed but will not pay back will have gained at the expense of those who have produced and saved and will lose their savings so winners are bankers and greeks, losers are germans and chinese...

nearlynew

Bl00dy hell Gen.

That was a long-winded way of saying they are lying thieves.

ManAtHome

You missed the bit where your 'mate' uses the £200 to buy the picture from the (more honest) thief, then flogs it back to Ma for the £1,000 insurance money.