Is Banking Really 'free' as they claim?

rb10

cepheus wrote: »

If CUs and savings institutions without speculative investment arms dominated the high street, there would be no need to provide expensive government protection to the big banks at all.

By 'savings institutions without speculative investment arms', I assume you mean 'building societies'?

antrobus

cepheus wrote: »

...If CUs and savings institutions without speculative investment arms dominated the high street, there would be no need to provide expensive government protection to the big banks at all.

Recent experience suggests otherwise. Northern Rock plc, Bradford and Bingley, Dunfermlime Building Society, none of them had a "speculative investment arm". Come to think of it, the London Scottish Bank didn't have one either. In fact the various financial difficulties experienced by many UK credit institutions circa 2007 had nothing to do with any problems encountered with speculative investment arms and everything to do with boring old lending that turned sour.

Which, funnily enough, is very likely exactly the same thing that caused the demise of all those credit unions. That's the general problem with credit institutions; it's easy enough to lend the money in the first place, but getting it back can sometimes be a problem.

rb10

antrobus wrote: »

Recent experience suggests otherwise. Northern Rock plc, Bradford and Bingley, Dunfermlime Building Society, none of them had a "speculative investment arm". Come to think of it, the London Scottish Bank didn't have one either.

The difference being that where Government support was required here, it was in very small doses - the real cost to the taxpayer came through Lloyds & RBS.

mgdavid

cepheus wrote: »

s Banking Really 'free' as they claim?

like the NHS it is free at the point of delivery (or can be for consumer accounts; business accounts are another matter.....)

cepheus

antrobus wrote: »

Recent experience suggests otherwise. Northern Rock plc,

I've only checked the first of these

Under the chairmanship of Matt Ridley Northern Rock had a business plan which involved borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding, and then re-selling these mortgages on international capital markets, a process known as securitisation.

in what sense would you say this wasn't financial speculation?

what % credit unions of these have gone into administration, relative to the banks?

cepheus

mgdavid wrote: »

like the NHS it is free at the point of delivery (or can be for consumer accounts; business accounts are another matter.....)

if the NHS acted like a bank they would charge for being late for an appointment, sell useless health insurance, and refuse treatment to the chronic and terminally ill.

Masomnia

And to be fair, it's the rich who pay for the NHS whilst the poor get it for free; banking is the other way round!

antrobus

... Under the chairmanship of Matt Ridley Northern Rock had a business plan which involved borrowing heavily in the UK and international money markets, extending mortgages to customers based on this funding, and then re-selling these mortgages on international capital markets, a process known as securitisation

Borrowing money from one set of people and lending the proceeds to another completly different set of people is exactly what all banks (and all credit institutions for that matter) do. All banks 'borrow heavily' because that's what they're there for.

NR had a business plan that involved extending mortgages to customers, and then using an offshore based SPV (with the deliberately comic name of Granite) to fund that lending by issuing securitised bonds on the international capital markets. The Wikipedia explanation is a bit confused, as it seems to imply that they borrowed the money twice.

cepheus wrote: »

.....
in what sense would you say this wasn't financial speculation?

In the sense that it's bog standard lending and doesn't involve taking a punt on the future direction of the Nikkei 225.

cepheus wrote: »

.....
what % credit unions of these have gone into administration, relative to the banks?

From the FSCS link provided earlier it would seem that, since 2001, one building society and six banks have gone into administration (and three of those were Icelandic), whilst sixty-six credit unions have gone down. According to the ABCUL there are currently around 400 credit unions in GB; according to the FSA it looks like there are around 150 banks 'incorporated in the UK'.

That would suggest that there is a 14% chance of a credit union going down compared to a 4% chance of bank going bust. Not sure that it matters though.

cepheus

I think you are misleading people as usually Antrobus, securitization isn't box standard lending it's certainly one of the problems which led to the crisis. When will people learn, you seem to be in a state of Denial.

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation (CMOs), to various investors. The principal and interest on the debt, underlying the security, is paid back to the various investors regularly. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS).
Critics have suggested that the complexity inherent in securitization can limit investors' ability to monitor risk, and that competitive securitization markets with multiple securitizers may be particularly prone to sharp declines in underwriting standards. Private, competitive mortgage securitization is believed to have played an important role in the U.S. subprime mortgage crisis.[1]

Michael Simkovic, Competition and Crisis in Mortgage Securitization

cepheus

Masomnia wrote: »

And to be fair, it's the rich who pay for the NHS whilst the poor get it for free; banking is the other way round!

This is not true of the super rich in proportionate terms since they can afford to pay accountants to help them avoid tax.

The extent of tax avoidance by Britain's super-rich has been revealed with the release of Treasury figures showing that almost a thousand UK taxpayers earning more than £1m a year have a tax rate of less than 30% of their income.In an effort to get back on the political front foot over the budget, including its plans to impose a cap on tax reliefs, the Treasury also revealed that of the 200 taxpayers earning more than £10m a year, 12 are paying less than 10% in tax

http://www.guardian.co.uk/society/2012/apr/15/treasury-reveals-super-rich-tax-rates

We must also bear in mind that certain investments and inheritance is often the source of much of their wealth and this can be taxed at a lower rate than income. Zero rate in an ISA or up to certain limits. The poor pay VAT, but businesses claim it back, so there is another loophole.

Then there is the illegal stuff!