Banks stealing our savings

jamesd

evenasus wrote: »

I'd like someone to tell me how 'I' and others of my generation (born in the 40's) contributed towards the financial mess the country is in.

You may well have contributed to the rise in house prices if you bought during the time of an increase in them after interest rates dropped. That's one of the things that has transferred wealth from the following generations to the boomer generation - those not owning homes paying higher prices that are being paid to the older ones. If you sell a home to a youngster, you'll be taking a transfer of money from the inflated house prices to yourself from their generation. This part of the transfer is piecemeal as each property transaction happens.

The economist seemed to be simply observing the way the money has flowed between generations and correctly observed that it's been going in the direction of youngsters towards boomers. Then he expressed his opinion that that makes him consider that to be a greedy generation.

Divide and rule is an odd suggestion, though. Tax and rule is more like it - older people tend to vote more than younger people, so can do the old fashioned democratic game of taxing other people to pay for benefits for themselves. Given the relative sizes of the generations it's quite hard for the youngsters to fight this, there aren't enough of them.

So it takes recognition from the older ones that what's being asked of the younger ones is not fair.

For example, what do you think of the flat rate state pension plan?

Did you know that it's a cut to the state pensions of even low earners that'll mean that after a life in the new system they have to accumulate something like £80,000 in a pension pot to get to what the current system would pay a person under the current system? That's in part to pay for the increased pension payouts to those not entitled to £144, while those entitled to more, keep the extra. It's a cut the benefits for the kids and grandkids to pay for us move. Lots of politicians telling us that we'll be better off (I'm one who probably will be) but none telling us that it's the kids and grandkids who're going to be getting their pensions cut to pay for it.

jamesd

talexuser wrote: »

Ok, but that is the fault of politicians who do not plan for the national long term good, but only selfishly for the next election, kicking cans down the road until panic measures are necessary.

Yes, I agree that quite a lot of it was insufficient forward planning. We should have had things like state pension age increasing sooner, adjustments to public sector pension to account for longer life expectancies sooner and more action to limit the house price bubble, say.

Things like that flat rate state pension plan are another lets buy votes at the next election deal, trying to get women to vote more for them because women (and me, probably) will be the main gainers. Along with public sector workers and the self employed.

There was already a plan to get there, but that wouldn't have done it by the next election - it was scheduled to take ten to twenty years, not enough time to get many votes.

talexuser wrote: »

Frankly I don't believe taxpayers are getting anywhere near their money back from the bailouts when you take the whole economic activity slump into account.

That's an interesting one. From the bailouts themselves I expect they will, unless politicians try to buy votes with big low cost share giveaways.

For the whole event, probably not. But we're all victims of that, and didn't really cause it because the root cause for that is over in the US.

gadgetmind

Masomnia wrote: »

Banking is an inherently risky business, depositors should shoulder some of that risk.

Perhaps, but there is such a thing as debt hierarchy.

If a bank has a capital shortfall then -

1) First Tier 1 capital gets wiped out. Sorry shareholders, you have nothing, ditto non-cummulative preference shares, retained earnings, etc.
2) Then it's Tier 2's time, starting with Upper Tier 2, so bad news for subordinated and undated debt.
3) Still short of money? Well, now it's the turn of Lower Tier 2, so that's the "big boys" wiped out, the guys who buy in 100k lots at low yields because they are safer.
4) After that, it's depositors, but governments in Europe must guarantee the first £85k.

The travesty in Cyprus was that there were initial proposals to turn this on its head by giving *guaranteed* deposits a haircut while leaving not just T2 but some T1 more or less intact.

In the end, the right thing was done. T1 and T2 were given a haircut they will never forget, depositors below £85k were protected, and those above took a hit.

Capital hierarchies are there for a reason, so that everyone understands risk versus reward. Both Ireland and Cyprus tried to abuse this at times (and Ireland got away with it but it came back to haunt them) but for the most part they were made to play the game by the rules.

Ark_Welder

gadgetmind wrote: »

The travesty in ...

...Cyprus.

gadgetmind

Ark_Welder wrote: »

...Cyprus.

Thanks, it's late, long day, now fixed.

I even have a relative who lives there and my fingers still got it wrong!

Glen_Clark

gadgetmind wrote: »

Perhaps, but there is such a thing as debt hierarchy.

If a bank has a capital shortfall then -

1) First Tier 1 capital gets wiped out. Sorry shareholders, you have nothing, ditto non-cummulative preference shares, retained earnings, etc.
2) Then it's Tier 2's time, starting with Upper Tier 2, so bad news for subordinated and undated debt.
3) Still short of money? Well, now it's the turn of Lower Tier 2, so that's the "big boys" wiped out, the guys who buy in 100k lots at low yields because they are safer.
4) After that, it's depositors, but governments in Europe must guarantee the first £85k.

The travesty in Greece was that there were initial proposals to turn this on its head by giving *guaranteed* deposits a haircut while leaving not just T2 but some T1 more or less intact.

In the end, the right thing was done. T1 and T2 were given a haircut they will never forget, depositors below £85k were protected, and those above took a hit.

Capital hierarchies are there for a reason, so that everyone understands risk versus reward. Both Ireland and Greece tried to abuse this at times (and Ireland got away with it but it came back to haunt them) but for the most part they were made to play the game by the rules.

unless its a favoured British or Icelandic Bank then they all get bailed out with British taxpayers and savers money. Bonuses all round Chaps.

gadgetmind

Glen_Clark wrote: »

unless its a favoured British or Icelandic Bank then they all get bailed out with British taxpayers and savers money. Bonuses all round Chaps.

The capital injections into UK banks were certainly not ideal, but they were mostly done as new ordinary equity issues, so there is a decent chance of HMG coming out fairly well.

Certainly better than letting the whole lot fall in a messy heap as has happened in the past.

http://en.wikipedia.org/wiki/Great_Depression

jamesd

Part of the reason why we had a run on Northern Rock, and other banks that we didn't find out about until later, was that there was a 10% loss for depositors above a fairly small amount under the old FSCS rules.

Either you protect depositors or you see a run on a bank. Do a daft haircut like the older Cyprus proposal and you get a run on your whole country instead. Or on a chunk of your currency if it's a shared one.

evenasus

jamesd wrote: »

You may well have contributed to the rise in house prices if you bought during the time of an increase in them after interest rates dropped. That's one of the things that has transferred wealth from the following generations to the boomer generation

Our first house was purchased in Yorkshire in the mid 60's at a cost of £3200.
We've sold and bought twice since then and are now in the south east. Our house value now being around £425,000.

We haven't profited - actually seen/handled any money when selling and buying.
The only people who will actually benefit from the sale of my house, would be my children/grandchildren - when I die.
I don't look on my house as an investment - it's just my home.

We've paid off our children's mortgages, so have actually helped the following generation.

jamesd wrote: »

For example, what do you think of the flat rate state pension plan?

I receive a reduced state pension, as I should. This being because I chose to stop working at the age of 56.
So the flat rate pension that is being talked about, I will not receive. I'll still receive a reduced pension.

It does seem unfair though, that when moving the goal posts/introducing this new flat rate, that someone who has worked 35 years, as I have, will receive a reduced pension. When someone who has worked just a few years, or not ever worked at all, will receive the higher flat rate pension.

JoeCrystal

evenasus wrote: »

When someone who has worked just a few years, or not ever worked at all, will receive the higher flat rate pension.

Sure, as long you contribute toward NI for at least ten years. The planned policy is that if you pay less than ten years, you would not be getting it at all. Quite fair really.

EDIT: Come to think of it, people on benefit still get credited with NI so... You are right as well.

Cheers,
Joe