santander

grey_gym_sock

sabretoothtigger wrote: »

Nationwide should complain when they see a bank is taking stupid risks they will pay for.

only works if the stupid risks are illegal. banks may legitimately choose to enter higher-risk, potentially higher-reward, areas of business than nationwide choose to. but in that case, shouldn't they pay higher "insurance premiums" to the FSCS?

not sure exactly how that would be done. measuring risk is not easy. but it might be possible to come up with a better system than premiums in proportion to size of deposits.

sabretoothtigger

(2) is FSCS Its obligated by law but I guess a bank can opt out by refusing retail depositors

using short-term borrowings to finance long-term lending - is fundamentally unstable.

Ive always thought the opposite is more likely. What about all those overdraft charges, very short term and super profitable against the cost of borrowing properly long term
Its still unstable because the short term loss can be an absolute long term loss.
Your statement sums up the status quo and yes its incredible unstable. You know the biggest offender is government, the USA has average turnover of 4 years for their 15 trillion. That is a lit stick of TNT and nobody mentions it, I must be wrong..

only works if the stupid risks are illegal. banks may legitimately choose to enter higher-risk, potentially higher-reward, areas of business than nationwide choose to. but in that case, shouldn't they pay higher "insurance premiums" to the FSCS?

The obvious answer would be to split high street from global trading. Nationwide would only pay for cost of failed products they can offer themselves, at present they would pay for vietnam off shore oil venture losses or whatever which isnt FSA or anything to do with UK .

Forcing a split is restrictive government but the alternative is for capital regulation of foreign projects by civil servants, its too messy. If FSCS is divided by retail money in UK it should exclude non UK investment, seems fair ?

The real alternative is that every bank only covers their own losses, RBS would see people switch to Nationwide as RBS risks money in Pakistan and Nationwide is just simple UK houses and stuff. They have open accounts, this part should be simple if it isnt already
The regulator would be people themselves, flawed but somewhere the risk is decided by someone always

grey_gym_sock

yes, splitting the banks could help.

is that restrictive government? the "freedom" of huge corporations, who are very similar to one another, and dominate markets which it's very difficult for new competitors to enter, to organize themselves as they wish has got very little to do with the freedom of human beings. and banks are going to regulated in many respects anyway.

letting banks go bust is an "interesting" idea. i think they are too big for that to be sensible. though you could first split them up into many, much smaller banks. the lehmans bankruptcy demonstrated some of the problems.

ppl would sometimes get it wrong about which institutions are unsafe. less wrong than (say) the credit rating agencies, because it would be against their interests to get it wrong. but it could still happen on a large scale on occasion, which could have unpleasant consequences. banks offering high rates could become investment bubbles. and there is generally a lack of available info about the real finances of banks.

perhaps the model of getting paid a few % interest in exchange for hopefully no risk is flawed.

sabretoothtigger

It is flawed but its subtle enough that we accept it as ok. Any time there is subsidy it sets up a false market.
If we dump free grain on a market even one where people are starving, there is a risk of wiping out the farmers who struggle to make profitable harvest. Wipe out the farmers and it sets an up even worse food situation next year.

We are waist high in political bs and interference in every market. Side effects from all that are just normal now I guess.
Its definitely restrictive to split the banks but since we are already paying some of their bills and it is subsidised its the least worst solution
Companies employ and are owned by people so I would call it freedom along with the effects of those actions on the population.

We all prefer the welfare and bailout perspective but its more freedom to let all risks go to a company and also go broke. So long as they honestly report accounts each year.
When they go broke, the assets pass to safer companies, its a naturally better system to benefit the most sensible bank or company

When government bails out a bad company, they are denying the benefit to their competitors of having those customers and market share.
It would be like the Olympics race they help one guy because he wasn't feeling well, it isnt fair but thats why its a competitive race and a good sport to watch

a lack of available info about the real finances of banks.

I see that as related to journalism and freedom of speech which is an important regulator on the sidelines also

grey_gym_sock

the main way to improve info about banks' finances should be changing the accounting rules to prevent them hiding info, especially in off-balance-sheet vehicles. i say "changing", but actually i mean making banks' accounts show a true and fair picture of their finances - which is what accounts are supposed to do.

you seem to be agreeing with the idea - now shared by (the leaderships of) the main 3 political parties - that there is a big weight of justification for any proposal to depart from free markets. frankly, this is nonsense. completely free markets have never been tried, in any country, ever. nor do they make sense. a mixture of free markets, regulation, and socialism has worked pretty well.

sabretoothtigger

to prevent them hiding info, especially in off-balance-sheet vehicles.

If its capitalist based accounting, it should be marked to market price. Theres no better way of discovering the true price then reflecting what people will buy it for of their own free will.

Instead we've done the opposite. We or at least the people who represent us arent interested in open accounts or reflecting realistic future turnover

completely free markets have never been tried, in any country, ever.

Even in Soviet Russia they had free markets though patchy they couldnt stop the obvious advantage. It seems that is just the natural order of things, its not my opinion except I think thats how it will end however its setup to be biased otherwise

grey_gym_sock

sabretoothtigger wrote: »

If its capitalist based accounting, it should be marked to market price. Theres no better way of discovering the true price then reflecting what people will buy it for of their own free will.

that doesn't always work, because there's no real market in many complex derivative products. marking to market price in effect lets the bank's traders make up the price.

with off-balance sheet vehicles, the reality is that the supposedly separate entity is part of the main bank, so all its assets and liabilities should be included in the main bank's accounts.

Even in Soviet Russia they had free markets though patchy they couldnt stop the obvious advantage.

yes, pretty much everywhere has a mixture of free markets and not. i wouldn't try anything different.

i was objecting to the idea that there is some kind of presumption that we should eliminate all the things that aren't free markets.

sabretoothtigger

If theres no real market, no available buyers. Its extremely dangerous to hold those assets except as fully paid for and accepting long term to redemption holding.
If sub prime is that dangerous, they must keep more capital thats the regulation that free markets came to.
Government wants to say otherwise while speaking of new laws to stop banks getting out of control, but they are the ones allowing it. To say capitalism failed is so off track

If they pretend otherwise its false accounting, if the market is harsh then its usually with good reason, to try and make it nicer unfortunately causes more problems.

Marking to market is what JPM is in trouble with, that bank as a whole is probably fine and its very apparent they did something wrong because it was a public market.
The market is larger then one set of traders unless they own everything which usually requires they pay for everything in total not leverage or as a trade but a long term holding.

The problem with FED and others is they dont pay in full, its all done on good will, leverage and the presumption that it will balance in the long term. Marking to market just puts a gauge into that of some realism, if you let them set all their own prices it becomes absolute failure instead of gradual.
The vehicle idea is just an extension of that, what Lehman did was also to set a fixed price not a market value. Until the vehicle collapses, they can pretend it has that value set, or with Lehmans they balanced accounts with value that was not available to them

The relevance to Santander might be that they do split up their assets. Often floating off each countrys banks to be largely publicly owned. RBS model was a giant central system all internally accounted for

i was objecting to the idea that there is some kind of presumption that we should eliminate all the things that aren't free markets.

I would presume a closed system is more apt to be unreliable. Anything that is self confirming, its just too tempting to write yourself a cheque for a million and borrow against that value.
If its important then it should be public and freely available and adjustable by anyone in the market.

We have rates fixed by government, currency and bonds all stacked against each other, it is like a house of cards like they say and it seems very reasonable it will be unreliable and liable to abrupt changes