Let the banks fail...

DiggerUK

...they will buck you in the end.

It makes no difference if the government tries to save banks or not. When the market says it's time to be 'just the right size to fail', then they will fail....nothing anybody can do to stop it happening.

Trying to end this nightmare, the government will juggle ever more QE balls in the air, hoping for a miraculous return to growing GDP and manufacturing output, which is nowhere to be seen.
Debasing currencies has always produced the same dire consequences throughout history.....maybe this time it will be different, don't forget, we are now approaching the sixth christmas that it was all going to be over by!
..._

wymondham

ILW wrote: »

Even if it will take thousands of other businesses and millions of jobs with it?

Yes, otherwise nothing moves on and nobody learns anything....

It's dangerous to have a business (which happens to be a bank) that cant fail. If it indeed can't fail then it MUST be owned by the state surely?

ILW

wymondham wrote: »

Yes, otherwise nothing moves on and nobody learns anything....

It's dangerous to have a business (which happens to be a bank) that cant fail. If it indeed can't fail then it MUST be owned by the state surely?

So , for example nobody gets their wages?

I think there is an argument for personal liability for anyone at board level in certain industries though.

sabretoothtigger

I can't imagine the devestation that would have been wrought to UK industry if the banks were allowed to fail

I can, very little in comparison to 300bn of QE and numerous other costs we have now.

Bankruptcy would not mean all assets are zero, the useful parts of a company would continue. I think people imagine a building falling down and nothing thereafter.
The company loses control of allocation of credit vs debt and others take on that business. Put simply, Halifax and others had competition in the marketplace and others are happy to take up profitable business

Lehmans stills exists, both as part of Barclay operations including their employees and also a separate trading firm selling off assets



It would have been cheaper for Gov to direct finance a stop gap and/or allow competitors to take up the slack. Not every bank would go to zero so far as I know, either way it would have been alot quicker

kabayiri

Isn't it weird how we can't sort this out with banks.

Imagine if a private operator of a Nuclear power station goes bust. We are happy to let them go bust. We know that they will still maintain safety and power in the interim period after. We don't assume people will just walk out leaving a live Nuclear reactor ready to melt down!

Clearly, nuclear and other power sources are important to us.

So why can't we come up with something for banking? Put the financial risk on the private institution but act in the public interest immediately during and after the crisis.

The likely truth is the crisis caught the authorities with their trousers down. Banks were within hours of running out of funds. Bail out was one of a diminishing list of options available to the government. It should never have got to that stage really, and is an indictment on poor disaster recovery systems.

Wookster

kabayiri wrote: »

Isn't it weird how we can't sort this out with banks.

This is really because the banks have custody of the payments & clearing system. If there was a proper separation between retail, investment (and possibly commercial) banking then it is possible to let the riskier bits go bust.

Yes, the whole crisis caught the ruling numpties with their heads in the sand. Why? Because they thought they had abolished boom & bust. Little did they see the massive building up of credit in the financial system.

2010

kabayiri wrote: »

The likely truth is the crisis caught the authorities with their trousers down. Banks were within hours of running out of funds. Bail out was one of a diminishing list of options available to the government.

It was the government that didn`t regulate the banks more tightly and were ultimately to blame.

Whilst G.Brown was racking in and wasting all the tax revenue, the banks gambled recklessly because the controls weren`t in place to stop them.

No more boom and bust was Brown`s mantra.

sabretoothtigger

Its not down to some guy in civil service to make sure a business is profitable, a risk is reasonable, to rubberstamp authority for todays trade.
Government cant somehow right the wrongs of the world anymore then a parent can stop a kid cutting their knees
That is such a flawed system, the government has people making mistakes just like humans do everywhere, they arent all knowing saints or better in any way

Its less not more that would work, this is like a dog chasing its tail. If we manage to succeed in more regulation it will be painful


All we should want is competition, a fair game. Then a bad bank fails, the rest of them bid on the good parts and the trash gets thrown away. Failure is total normal.
That is all we need, we dont need 11 referees on the pitch getting in the way

gambled recklessly

Risk is inevitable, the only way to slow them down is to make them pay for risk. If you regulate it via government, it costs less because its split between 60m people

This is really because the banks have custody of the payments & clearing system.

Even in the worse case they'd have had a week or so of bank holidays. It could have continued eventually without the bad players, surely this is a wargame type test they should prepare for

wymondham

sounds like its a mess really..... we have apparently vital financial systems that are in private hands... crazy..

CLAPTON

kabayiri wrote: »

Isn't it weird how we can't sort this out with banks.

Imagine if a private operator of a Nuclear power station goes bust. We are happy to let them go bust. We know that they will still maintain safety and power in the interim period after. We don't assume people will just walk out leaving a live Nuclear reactor ready to melt down!

Clearly, nuclear and other power sources are important to us.

So why can't we come up with something for banking? Put the financial risk on the private institution but act in the public interest immediately during and after the crisis.

The likely truth is the crisis caught the authorities with their trousers down. Banks were within hours of running out of funds. Bail out was one of a diminishing list of options available to the government. It should never have got to that stage really, and is an indictment on poor disaster recovery systems.

As it happens, we know exactly what happens if a nuclear power station goes bankrupt as British Energy, which owned and ran our nuclear power stations did indeed go bankrupt.


What happened is that the shareholder's financial interest became worthless... they were financially wiped out; creditors took a hit (although I don't have any figues) but of course nuclear power continued with new owners who bought the assets.
In fact like the majority of 'normal' companies.

So why is this different from a bank?

The main difference is that a bank has people's and companies savings ...
Everyone seems to want to avoid this key issue; things like ATMs, clearing systems will survive a bank failing but what to do about savings?

Iceland solved the problem because most of the savings in Icelands banks were in other countries (e.g. the UK) so compensating their own people/companies (Icelandic ) savings was not prohibatively expensive.


Lets address the real problems of what distinguishes banks from normal businesses.