Carney guarantees low rates on breakfast tele

HAMISH_MCTAVISH

thor wrote: »

by design? how so?

Eh?

Positive inflation is targeted by central banks the world over.

wotsthat

CLAPTON wrote: »

what exactly is the difference between bailing out the bank and bailing out the depositors as the only significant liabilities the bank has are depositors.

Bailing out the bank ensures the survival of the bank. At the point the bank went bust the government could have instead compensated depositors without having to nationalise the bank. Shareholders could have been left in absolutely no doubt that they'd been wiped out.

It happens all the time in real life. Lose your job - the taxpayer will compensate, suffer a criminal injury - the taxpayer will compensate and so on. Can't quite see why it's so bizarre to question why the taxpayer had to take ownership of a bank just to ensure depositors didn't lose out.

CLAPTON

wotsthat wrote: »

Bailing out the bank ensures the survival of the bank. At the point the bank went bust the government could have instead compensated depositors without having to nationalise the bank. Shareholders could have been left in absolutely no doubt that they'd been wiped out.

It happens all the time in real life. Lose your job - the taxpayer will compensate, suffer a criminal injury - the taxpayer will compensate and so on. Can't quite see why it's so bizarre to question why the taxpayer had to take ownership of a bank just to ensure depositors didn't lose out.

Obviously the 'bank' will 'survive' in part anyway i.e. the mortgage book will continue for 25 years.


Given that the sole cost of a bank failing is compensating the depositors
then are you sure it is cheaper to close the bank and compensating the depositors upfront
rather than putting a little money in and preventing the depositors causing a run on the bank?

as it happens the banks haven't done too badly

of course shareholders in B&B and Northern Rock were wiped out and those of Lloyds and RBS lost over 90% of their equity

Loughton_Monkey

CLAPTON wrote: »

Given that the sole cost of a bank failing is compensating the depositors......

Is it that simple?

My understanding is, for three of the main bank operating componenents, the situation was:

(a) The mortgage book was looking pretty sick. Large 100%+ loans, self-cert, coupled with the impending crash in house values created quite large technical losses [albeit losses that would not necessarily materialise provided that the majority still paid their very low interest mortgages].

(b) The ever-increasing 'casino' in the back rooms was largely wiped out with their 'dodgy derivatives' dealing.

(c) Investors were a quite profitable operation, and no real problem, other than in certain quarters, queues of people were wanting the cash back in their wallets, which they couldn't get because their £50K had been lent out to a burger flipper (see (a) above) to buy a house at a price 30% higher than it was worth, on a salary of 25% of what the bank was told it was....

Whatever, I tend to agree with the assertion that the remedy, in future, should be more along the lines of:

(a) Compensate the depositors, in full, up to the £85K limit.
(b) Sell the entire mortgage book to the highest viable bidder.
(c) Tell the shareholders to sell their shares on the open market if such a market exists.

Oh....

and...

(d) Put the Directors in Jail. But only after a full and fair trial in front of a Jury consisting of shareholders, and rich depositors with >£85K in the bank.

HAMISH_MCTAVISH

Loughton_Monkey wrote: »

Is it that simple?.

As any small business knows, a liquidity crisis will cause a solvency crisis if not corrected rapidly.

When the entire global financial system shuts down overnight, liquidity problems in otherwise perfectly viable institutions are inevitable.

CLAPTON

Loughton_Monkey wrote: »

Is it that simple?

My understanding is, for three of the main bank operating componenents, the situation was:

(a) The mortgage book was looking pretty sick. Large 100%+ loans, self-cert, coupled with the impending crash in house values created quite large technical losses [albeit losses that would not necessarily materialise provided that the majority still paid their very low interest mortgages].

(b) The ever-increasing 'casino' in the back rooms was largely wiped out with their 'dodgy derivatives' dealing.

(c) Investors were a quite profitable operation, and no real problem, other than in certain quarters, queues of people were wanting the cash back in their wallets, which they couldn't get because their £50K had been lent out to a burger flipper (see (a) above) to buy a house at a price 30% higher than it was worth, on a salary of 25% of what the bank was told it was....

Whatever, I tend to agree with the assertion that the remedy, in future, should be more along the lines of:

(a) Compensate the depositors, in full, up to the £85K limit.
(b) Sell the entire mortgage book to the highest viable bidder.
(c) Tell the shareholders to sell their shares on the open market if such a market exists.

Oh....

and...

(d) Put the Directors in Jail. But only after a full and fair trial in front of a Jury consisting of shareholders, and rich depositors with >£85K in the bank.

none of the reports into the UK banking supports what you say

maybe provide a serious reference?

e.g. no UK bank had a delinquent mortgage book.

but just to say the majority of accounts that have more than 85K in them are UK companies

in combination Lloyds, HBOS and RBS accounted for about 50% of UK company ac/s

you would be happy for 50% of UK companies to be bankrupt and cease trading?
lets say 10 million made redundant?

wotsthat

CLAPTON wrote: »

Given that the sole cost of a bank failing is compensating the depositors then are you sure it is cheaper to close the bank and compensating the depositors upfront
rather than putting a little money in and preventing the depositors causing a run on the bank?

as it happens the banks haven't done too badly

of course shareholders in B&B and Northern Rock were wiped out and those of Lloyds and RBS lost over 90% of their equity

I have no idea but clearly bailing out/ compensating savers in Northern Rock didn't have to involve taking ownership of a bank.

Shareholders were wiped out in Northern Rock but the government still had to spend millions in legal fees fighting claims that the bank had a value. Administrators being called in would have made this abundantly clear to the shareholders. A liquidation, albeit in the depths of the recession, would have led to a very quick price discovery. The banks haven't done too badly but 5 years after the NR bailout we still don't the cost of the bailout because we don't know the value of the assets.

The government were taking pragmatic decisions under pressure but it's hard to conceive that exactly the same approach would have been taken if Northern Rock had followed rather than preceded the RBS collapse.

CLAPTON

wotsthat wrote: »

I have no idea but clearly bailing out/ compensating savers in Northern Rock didn't have to involve taking ownership of a bank.

Shareholders were wiped out in Northern Rock but the government still had to spend millions in legal fees fighting claims that the bank had a value. Administrators being called in would have made this abundantly clear to the shareholders. A liquidation, albeit in the depths of the recession, would have led to a very quick price discovery. The banks haven't done too badly but 5 years after the NR bailout we still don't the cost of the bailout because we don't know the value of the assets.

The government were taking pragmatic decisions under pressure but it's hard to conceive that exactly the same approach would have been taken if Northern Rock had followed rather than preceded the RBS collapse.

I've no idea what you are talking about.

A liquidation of what exactly?
You would presumably have preferred a fire sale of the assets at massive discount to value, rather than a bigger return with a little uncertainty?

Frankly a few bob on legal fees is trivial in relation to the billions at stake.

wotsthat

CLAPTON wrote: »

I've no idea what you are talking about.

A liquidation of what exactly?
You would presumably have preferred a fire sale of the assets at massive discount to value, rather than a bigger return with a little uncertainty?

Frankly a few bob on legal fees is trivial in relation to the billions at stake.

That's a strawman really. At the time it wasn't a clear choice between massively discounting the assets or making a nice low risk return instead - that choice would be easy to make.

The risk they took in bailing out the bank as a method to protect depositors was that they also took on the risk that mortgage holders would cease paying their debts adding to the bailout cost.

As it turns out the horror of Northern Rock's lending practices has been much over-hyped but if 'bigger returns with lower uncertainty' were really obvious then the government would have offloaded the 'bad' bank already rather than continuing to hold £66bn of mortgages where a third of customers (194,000) are IO.

At some point the government is going to look as though decisions to own banks aren't to prevent a fire sale but are investment based or, worse, politically motivated.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10224930/Northern-Rock-bad-bank-repays-1.9bn-to-taxpayer.html

CLAPTON

wotsthat wrote: »

That's a strawman really. At the time it wasn't a clear choice between massively discounting the assets or making a nice low risk return instead - that choice would be easy to make.

The risk they took in bailing out the bank as a method to protect depositors was that they also took on the risk that mortgage holders would cease paying their debts adding to the bailout cost.

As it turns out the horror of Northern Rock's lending practices has been much over-hyped but if 'bigger returns with lower uncertainty' were really obvious then the government would have offloaded the 'bad' bank already rather than continuing to hold £66bn of mortgages where a third of customers (194,000) are IO.

At some point the government is going to look as though decisions to own banks aren't to prevent a fire sale but are investment based or, worse, politically motivated.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10224930/Northern-Rock-bad-bank-repays-1.9bn-to-taxpayer.html

The government could have let the bank go bankrupt and let the market decide its fate including the wiping out of depositors (well at least a major haircut). This would have been a no direct cost option for the government (although maybe political suicide and would have cause a massive run on all UK banks)

However once you factor in the cost of bailing out the depositors then the costs change.

And of course the politicians were concerned about the wider financial picture.

If they had let the bank go bankrupt but bailed out the depositors it would have cost the government massively more than nationalising the bank.

It seems that only just 3.5% of its mortgage customers are over 3 month behind. I'm not sure of the relevance of 1/3 being on interest only mortgages; was that part of their contract?
The assets of the bank have proved to be quite resilient.