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'How safe Is Santander UK? - What I really think' blog discussion
edited 21 May 2012 at 12:37PM in Martin's blogs & appearances & MoneySavingExpert in the news
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Last week Santander raised over £1,000,000,000 pounds by selling the right to receive the interest on some of its mortgages. That should see of Northern Rock type queues for a week or two.
Did any NR mortgagors get thrown out on the streets directly as a result of its collapse?
Interest rates just might go up a notch or two generally.
Firstly, the government doesn't give you your money back - there is a fund paid into by banks which is totally inadequate if there ever was a real problem. Deposit insurance was dreamed up to give people the illusion of safety. It's an enormous moral hazard - it removes bank safety/solvency from people's considerations when choosing a bank.
So... when this meagre fund is spent, where does the money come from? Simple... it is created out of thin air by the central bank to back-stop any potential bank run. There is no problem getting your money - our politicians have no moral courage whatsoever - they will direct the central bank (BofE in our case) to "print" whatever cash is needed. This is the raison d'etre of central banks.
Money used to be redeemable in gold and was fairly fixed in supply. This disciplined government spending. But even during gold-backed money, banks were alloed to operate a type of legal counterfeiting called fractional reserve banking. They are allowed to hold money on deposit and out on loan at the same time (illegal for any other business). At a reserve requirement of 10% this means that for every £100 you put in a bank, they can lend into existence £900 that comes back in as "deposits". This is the nature of bank safety. The money isn't there. At 10%, if a bank is what they called "fully loaned-up" and you remove £100, the bank is forced to contract its loan portfolio by a further £900. It's fractional reserve banking that is the cause of bank runs. Central banking was created to perpetuate this fraud rather than allow the free market to collapse it. There used to be limits to this system, again gold exerted some discipline. Nowadays that limit is self-imposed and in Britain there is no limit! The last figure I could find for bank capitalisation in Britain was 3.1% in the 90s before all these whacky financial products and derivatives were dreamed up and engaged in. I'd wager that 3.1% is way higher than it is today. But 3.1% means that for every £100 someone deposited, a fully loaned-up bank was allowed to create an additional £3000 of credit that became a bank deposit for someone else. As long as less than 3.1% of the money is extracted, the system can survive.
When people queued up at Northern Rock to get their money out, I scratched my head. They were acting as if money is still of reasonably fixed supply and redeemable in gold. But it's not! Our currency is totally elastic, irredeemable fiduciary media. It's a simple task to create electronic money out of thin air and if the people are still panicking, all the central bank/government need to do is to deliver some paper banknotes as fast as they can. Most of the time, this is enough to prevent wider contagion.
So, it sounds good this money printing doesn't it? Thank god we have fiat currency that is elastic in supply! WRONG! When money is created/printed, the supply is expanded and it loses value. So, in the event of a bank failing, the deposit insurance to pay out all the unlucky customers is taken from every other holder of the currency by a hidden tax called inflation. This is the worst form of tax, it is hidden, it is without representation, it taxes wages and savings, few people understand it, and it's easy to blame on things like high oil prices (lol - look at oil prices measured in other things of fixed supply and you'll see the price of oil has been flat for 60 years). And since all money is now debt and the money is lent into existence with interest, we add to our debt problems.
This is the shabby secret that no-one is talking about. Repeat the mantra of "your money is safe, your money is safe". Go back to sleep, pretend everything is ok, allow everyone else to take the hit. Pretend there is a huge pot of money sat there waiting to pay out unlucky depositors. The whole thing is a scam.
You'll get your money back - don't worry about that - politicians have no political capital, central banks were created for this very purpose - the credit system has expanded so much that as it collapses in on itself the central banks have no choice but to steal from everyone to bail out the banks, sorry... to bail out depositors... ahem.
Deposit insurance limits are discussed to make it seem like there are sensible limits but the limits are whatever is required to stop the fractional reserve system from contracting and people's deposits going up in smoke because they don't actually exist.
So, you'll always get your cash, but the question no-one talks about is, what will it buy? As long as you focus on price instead of value you are not safe?
The simple truth is that is today's world of fiat currency, fractional reserve banking, deposit insurance, legal tender laws and a currency experiement from 1971 that is failing before our very eyes, banks are NOT safe. I personally can't think of a more dangerous place to be than in cash or bonds. Remember... currency held in a bank isn't yours - you legally lent it to the bank and it is a liability of theirs. If do hold currency, you are going to be treated like cattle to be milked. The only way for them to perpetuate this system is to inflate the currency and tax/steal from an uneducated public. It's happened 1000s of times before and when they lose control, you get a currency collapse as has happened in many countries.
The worst thing is, at the first whiff of bank failure and deflation, an ignorant public will demand it. The recent elections in Europe prove that point.
It's time to learn about what money really is for your own safety and the future of you and yours and I'd like to help you - it's the most important thing I ever learned and I'm, tired of all this nonsense. We're just spinning our wheels and getting no traction. People need to know this information. If you want to learn about this is more detail, since I can't really go into it properly here, I've written a guide:
If you have time, start with this page, and click next...
If not, just read the fractional reserve banking section:
I may be a bit off topic, but some one mentioned in the thread earlier about the euro, I cant see it crashing as russia is also in isn't it? that would be huge.
"5. What about mortgages and credit card holders? If you owe debt to a bank that went completely bust, then you wouldn’t have to pay it back – so the worry here really isn’t pressing. Yet before you smile at the prospect, what actually happens in these scenarios is the bank’s loan book is sold on to someone else."
This is not true. In the case of Northern Rock for example which went bust, most of the loans were not sold to Virgin when the savings accounts were, they remain with the old company, now called Northern Rock Asset Management, and you have to continue making repayments on the loan as they fall due.
I think it's pretty impossible to predict if and when a currency will collapse - it comes down to lack of confidence in the holders of that currency and the lenders. In the absence of foreign lending and no earnings, they resort to monetising debt which causes a exponential loss of faith. Russia have a lot of resources so even if their trading partners crashed, they'd survive a collapse in the long run.
I tell you what I do know for sure. At the end of this debacle, IF the euro survives in its current form, it will buy a lot less. Not when measured in other currencies which are all racing to the bottom in misguided competitive devaluations. But when measured in real things, it will buy less... much, much less.
For what it's worth, Santander UK seems to be one of the most solid and successful banks in the UK. And for people running a business it offers the best interest rates. I spent half a day looking for the best rates and only the Cambridge BS got close to Santander if you can tolerate the inconvenience of banking by post.
Exactly... all the technical definitions notwithstanding, a business goes bust essentially when its liabilities outweigh its assets and income.
Some losses would be written off, but in the case where clear title can be proven (such as mortgages) they simply sell the loans to someone else for pennies on the pound and let them recoup the money.