Carney guarantees low rates on breakfast tele

wotsthat

CLAPTON wrote: »

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.

I'd agree with your analysis although substituting a few woulds with coulds and agreeing that they pragmatically chose what they thought was the least worst option. Once they'd decided to guarantee not a single depositor would lose a single penny then the game changed.

As far as the bad bank is concerned if it's so resilient then why aren't orderly queues being formed to buy it? The bailout was 5 years ago, the economy is picking up and there's no need to prevent a fire sale.

The relevance of the 1/3 on IO is that, whilst they may be happily paying every month, the mortgage book may have some inherent risks associated with it especially if rates rise. The risk is to the taxpayer - if I want to take on mortgage risk I'll buy some shares in a bank - I really don't need a government to do it for me.

CLAPTON

wotsthat wrote: »

I'd agree with your analysis although substituting a few woulds with coulds and agreeing that they pragmatically chose what they thought was the least worst option. Once they'd decided to guarantee not a single depositor would lose a single penny then the game changed.

As far as the bad bank is concerned if it's so resilient then why aren't orderly queues being formed to buy it? The bailout was 5 years ago, the economy is picking up and there's no need to prevent a fire sale.

The relevance of the 1/3 on IO is that, whilst they may be happily paying every month, the mortgage book may have some inherent risks associated with it especially if rates rise. The risk is to the taxpayer - if I want to take on mortgage risk I'll buy some shares in a bank - I really don't need a government to do it for me.

The balance sheet has been loaded with the cost of bailing out the depositors and so shows a massive loss.
There would of course be no problem in selling the mortgage book but maybe not at a price that the government would be happy with.

Your concern for risk seems odd.
Unless you believe that the government shouldn't bail out depositors, then the government is covering risk in the entire UK banking sector, so why the concern for some IO mortgages that appear to being repaid as per the T&Cs?

wotsthat

CLAPTON wrote: »

Unless you believe that the government shouldn't bail out depositors, then the government is covering risk in the entire UK banking sector, so why the concern for some IO mortgages that appear to being repaid as per the T&Cs?

The FSCS is now in place. However, who really expects any depositor to lose a penny if a UK bank goes bust - especially before the election.

TBH I don't think the government should be bailing out all depositors in all circumstances or covering all risk within the banking sector. Why should the taxpayer be guaranteeing risk free returns?

CLAPTON

wotsthat wrote: »

The FSCS is now in place. However, who really expects any depositor to lose a penny if a UK bank goes bust - especially before the election.

TBH I don't think the government should be bailing out all depositors in all circumstances or covering all risk within the banking sector. Why should the taxpayer be guaranteeing risk free returns?

Which deposits/depositors don't you think should be bailed out?

wotsthat

CLAPTON wrote: »

Which deposits/depositors don't you think should be bailed out?

The FSCS covers small firms, charities and individuals up to £85k - anyone with cash deposits over that amount should share in the risk management.

Why not start there?

FD's of companies should really be managing their own risk. It doesn't mean bailouts can never happen again but it shouldn't be an expectation but more of a hope if things go wrong.

The government have a difficult job. They need to minimise taxpayer risk whilst at the same time preventing irrational risk aversion by fearful companies and individuals. It really can't help that they have to consider the effects of policy on a banking system, of which, large chunks they own themselves.

So I don't know the answer to your question but assume you agree that it's foolish to guarantee (stated or otherwise) 100% of deposits in all circumstances.

CLAPTON

wotsthat wrote: »

The FSCS covers small firms, charities and individuals up to £85k - anyone with cash deposits over that amount should share in the risk management.

Why not start there?

FD's of companies should really be managing their own risk. It doesn't mean bailouts can never happen again but it shouldn't be an expectation but more of a hope if things go wrong.

The government have a difficult job. They need to minimise taxpayer risk whilst at the same time preventing irrational risk aversion by fearful companies and individuals. It really can't help that they have to consider the effects of policy on a banking system, of which, large chunks they own themselves.

So I don't know the answer to your question but assume you agree that it's foolish to guarantee (stated or otherwise) 100% of deposits in all circumstances.

Obviously not, but we need to guarantee most depositors in most circumstances.

It would seem to me that the government owning part of the banks adds a useful restraining effect on mad policies although I confess there's currently no evidence to support this.

stinktankcynic

So he can give forward guidance on interest rates, whilst the banks were charged with fixing libbor rates. We get a paltry interest rate of 0.5% plus a little more, but businesses can charge 2000% to desperate borrowers. Pensions for many workers are being reduced down to £144 estimate, a single tier pension, which leaves normal workers with a much lower state pension than they would have got before. We are all in this together, yet the MP's get a big rise, the rich pay less tax, down to 45%, the rest of us pay for this.

Thrugelmir

stinktankcynic wrote: »

the rest of us pay for this.

Many people were winners. The losers were those without children who spent their lives working hard subsidising everyone else.

CLAPTON

Thrugelmir wrote: »

Many people were winners. The losers were those without children who spent their lives working hard subsidising everyone else.

No, those people without children will be supported in their old age by all the children of we people who have spend most of our money bringing them up.

We sacrificed a huge amount of our earning to bring up children who have become doctors, nurses, engineers, scientists, transport workers, utility people, etc etc while the childless contributed peanuts.

let them be grateful we spent so much on their future (and don't resent it atall)