Banks or Government

Despite the banks getting a lot of things wrong I think the Government is being unreasonable to expect the banks to support businesses or home owners in the present climate.

I would recommend that the Government either lends money directly or offers an insurance scheme. The Government can outsource the administration of the lending to banks if they are not able to do it themselves. The Government could set certain rules, for example, if a mortgagee loses their job the government could lend the net pay less increased benefits. This loan would be paid directly by the government to the bank. It wouldn't be so simple for businesses, of course.

This is a lot better than giving conflicting messages to banks.

Reply to
PeterSaxton
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The banks are owned by shareholders. It is up to them how the bank is run.

We shouldn't forget that the main losses have been taken by the shareholders through the fall in share value. It's a business and to be honest I don't have a whole lot of sympathy for them. They appointed the directors who put in place the risky schemes.

When the banks give a loan or mortgage they make a judgement of risk. Currently, and not surprisingly, you won't get a mortgage for more than 75%. Why should they if they expect asset prices to fall further? I think we (the government) are mad to indemnify lenders!

Reply to
Fred

Bitstring , from the wonderful person Fred said

The trouble is that =every saver= is a lender ... that's where your money goes/went!

Reply to
GSV Three Minds in a Can

You seem to agree with me except for your last sentence. So what should the Government do to stop houses being repossessed and businesses going bust?

Reply to
PeterSaxton

You seem to agree with me except for your last sentence. So what should the Government do to stop houses being repossessed and businesses going bust?

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Interest rates are at their lowest. People still need to live in houses so demand will still generally be there. People who can't pay their current mortgage now, still won't be able to in a year or two's time.

There is nothing the government can do, all making credit easier will do is exacerbate things later. We're in the bust part of the boom an bust cycle and have to live with it. Spending your way out of recession doesn't work. Just look at Japan. The government borrowing there is something out of this world!

I can't see why, if a businesses would otherwise fail now without a cash injections, why it won't just fail at a later date with one, and take more money down with it. Even sound businesses will refrain to make any investment with the overall market uncertainty, even if money was available.

Reply to
Fred

I hope that I'm getting that money back.

The problem is that I'm going to have to pay a lot more tax on my income in the future instead.

tim

Reply to
tim.....

You seem to agree with me except for your last sentence. So what should the Government do to stop houses being repossessed and businesses going bust?

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For the former I think that HMG should just "own" the house and let the (old) owners stay in situ on a market rent. If they have lost their job then HB will pay this, but if they're turned out they're going to be on HB anyway, whilst their house idly "rots", so what's the difference (in cost)?

For the latter, I think that you are right

tim

Reply to
tim.....

You have been reading the news? You do know how much money we've frittered away on them? And Gordon's told them he'll do whatever it takes so they can continue asking for money until the end of the world.

Reply to
mogga

Nothing. Those people and businesses malinvested in the bubble and the bubble is now over. We need to free them up for the new businesses which will create profits without the mass borrowing and speculation it took to create profits during the bubble.

If we prop them up, it will merely throw away money, and make the depression last longer.

FoFP

Reply to
M Holmes

This would seem to be a good pragmatic approach although it would set the average daily mail reader foaming at the mouth.

Reply to
Mark

Sorry. The money that's lost is lost.

Hanging the criminal doesn't make it come back.

tim

Reply to
tim.....

Indeed, but throwing away more through bailouts and guarantees is stupidity piled on stupidity.

Letting businesses which can't make a profit go bankrupt isn't hanging anyone. It frees up the people and resources of that business for a more profitable one. perhaps Branson or Warren Buffet might care to take on profitable divisions in bankrupt banks. We will after all still need some banking services. However, letting the same stupid bastards who lost trillions lose yet more is reckless beyond perdition.

As for the folks making cars that nobody wants to buy, why, apart from saving the bacon of Labour MP's, would we want to waste money on that? Do we want some gigantic art installation where we watch hundreds of millions of shiny new cars slowly rust?

Denial is no doubt reassuring, but the liquidationists have the right of it if we want to get out of this faster and with more of our wealth intact.

FoFP

Reply to
M Holmes

But that's new money that is lost.

If the Banks just "went bankrupt" HMG would have to immediately pay (assuming it keeps its promise) everyone who saved with that bank, their savings back.

Keeping the Bank alive means that the e.g. 100 billion pounds of money on deposit, is backed by the 100 billion pounds of lending that the bank has made, some of which will go bad.

The bail out represents the amount that's gone/going bad.

I would be mighty pissed off if they came up with a scheme that took my money just so that they can avoid paying whatshisname's pension. Yes, I am going to have to pay a share of that pension anyway, but funding it through a rise in taxes seems much fairer than funding it by confiscating savings from the people who did no wrong, whilst letting the reckless borrowers off scott free, IMHO.

The problem isn't about profit, it's about liabilities and assets. The numbers are too large for HMG to handle if the Bank is wound up.

Where are these resources coming from after you have paid out the "savings guarentee"?

I agree that we should dispose of the personnel, but much of that has happened

This is irrelevant to the discussion on Banks

tim

Reply to
tim.....

I can't see why raising taxes is any fairer. It's still "taking money from people who did no wrong."

Reply to
Mark

You seem to be thinking there is some kind of perfect market in operation. I'm all for a free market coupled with regulation and sensible government intervention but when banks suddenly withdraw credit from businesses because of the recession and many people are thrown out of their homes because they lose their jobs we should accept that this isn't simple free market economics that is providing choice for the consumer with a seamless transfer of resources to products and services that people want or need.

Reply to
PeterSaxton

True, but since there's a deposit limit of 50,000 Pounds insured, that isn't the total of all deposits. There'd be some value in selling the assets of banks. What bankruptcy would get the British economy out from under is covering all the foreign bondholders, which is what makes the banking debt worth 2,4 times our GDP and puts us in danger of being Iceland II. It'd also obviously reduce the shareholder value to damn near zero.

Instead of taxpayers shovelling out money to help those who invested in the bonds of deadbeat banks, those holding CDS's on them would have to pay out instead. I dunno about you, but that seems a lot fairer to me. They wrote insurance on bank bonds whereas the taxpayers did not.

It's *already* gne bad. It just hasn't been admitted yet.

So let those who insured it pick up the tab and let bad businesses go out of business before they lose yet more money. If it was steelmakers, they'd be out of business tomorrow.

If you have less than 50 grand on deposit, you're insured. if you have more than that, you're stupid.

Not what I'm proposing.

It's what we're doing now that let's reckless borrowers away with it. If we let the free market determine interest rates, they'd be considerably higher because there's a lot of demand for scarce cash. That'd help depositors and it'd help good banks rebuild their books. It's artificially holding rates near zero as part of the bailout that punishes depositors and helps the reckless borrowers who brought us to this.

Keep HMG out of it apart from compensating insured depositors.

Warren Buffet and Richard Branson are still prett rich and we'll still need banks. Perhaps they, or people like them will do it for the profit it would make them.

The Japanese tried all this with 19 zombie banks 20 years ago when a very similar credit bubble burst there. 5 survive (barely) despite 20 years of bailouts and the economy has beeen in deflation for most of that. Meanwhile house prices fell (slowly) 50% to 90% from peak and they're not only still in the mire, they're now following us into our mire.

Want that to happen here for 20 years? We could get it over with in 4 or

5 if we just accepted a good hard and fast liquidation of deadbeat banks and companies. Think of it like taking off a plaster: all the pain will happen anyway, so it's a matter of how long you want it to last.

FoFP

Reply to
M Holmes

No. I don't. You may be new here, but I've been posting here about the imperfection of the credit bubble in quite copious detail for ten years and more.

They didn't suddenly withdraw it, they no longer had the cash to make these loans partly because they'd lost vast amounts of money and partly because the nature of a credit bubble is the making of stupid loans. Once the bubble bursts and psychology changes, people will no longer make dumb loans and throw good money after bad. The withdrawal of credit isn't teh problem. The credit bubble is the problem. Thee withdrawal of credit is part of the cure.

Those homes, businesses and jobs depended on the bubble to make them prfitable investments. After the bubble, they're not and have to go the way of buggy whips after the invention of the motor car. We *cannot* sustain the bubble and we cannot reanimate it. If we keep these malinvestments on, we don't free up the reources or people for profitable use and we continue to leak wealth from our economy.

No, it's a burst bubble. It happens every three generations or so. No amount of denial will change this and no amount of shifting debt around will reduce the amount of debt to be paid down or liquidated. We can't imporve on that. we can, through stupidity though, create yet more debt and more lost wealth in a futile attempt to bring back the bubble.

FoFP

Reply to
M Holmes

I broadly agree with what you are saying. However, if interest rates did rise significantly, then we would have potentially millions of people who could not pay their mortage, facing reposession, not just the "reckless borrowers" but ordinary families too.

Reply to
Mark

The thing is that it's possible that they too overindulged in debt during the credit bubble. Debt is a very treacherous friend.

I think of the bubble bursting as a kind of reset button for the economy. Humans are awfully prone to wishful thinking and the idea that instead of saving for something, they can safely have it now through borrowing. Sooner or later that thinking leads to credit bubbles, massive misallocation of capital, and crazy prices for those assets which credit is used to bid up (these seem rather random, varying from flower bulbs through canals to houses).

During the reset, those prices have to return to reality (usually 67% to

90% down) while other prices and wages fall less so during the deflatinary phase. The misallocation of capital also has to be cured through people and resources being freed from companies and projects which could only ever make sense while the vast amounts of credit are still flowing freely during the bubble.

Of course it means that those families and companies which overborrowed in the bubble and who did not trim their borrowing as the bust approached will go bankrupt. The flipside of that is that some families will then obtain reposessed houses at a price which won't require them going into hock for the rest of their lives (or that the restricted lending won't anyway let them if they are still so inclined).

That will leave them discretionary spending which will drive the new companies which will form to servive new economic growth. The great news is that after the deflationary phase, this will be slow, steady and non-inflationary growth where people will create wealth by working and saving and not through speculation.

So yes, there will be causalties, but without all this government interference, they will largely have chosen themselves by the risks they took. There will also be a great many who ultimately benefit by the reset in prices. That's pretty much the nature of any economy - if someone wins on the horses then others also lose, and we don't demand that the taxpayers pick up the tab for the losers.

We will get through this, although some bad stuff will happen in the meantime. The real choice is whether we get through it in five years or twenty. Right now the government is choosing the twenty route on our behalf, and is guaranteeing only that we'll have lost a great deal more money than otherwise by the time we get there.

That they can't fix it is perhaps not so obvious without seeing the history of the other great credit bubbles. That they don't know how to fix it is however quite obvious.

Look at Northern Rock:

  1. On the day there was a bank run, analysts were sure that the bank could have been closed, and all depositors given all their money back after the sale of assets (it was illiquid but not insolvent at that point). The government fluffed that chance.

  1. The government bailed out Northern Rock and required it to pay back the taxpayers all the money loaned.

  2. It then forgave 3 billion of loans.

  1. Lately, Northern Rock was doing fairly well at paying the rest back, then the government reversed course, poured more money in, and demanded it outlay loans at 90% in a market where house prices are falling by 16% per annum. It says it wants to prevent negative equity, but this guarantees it for those fool enough to fall for the government pimping of these dumb loans. The government also says it wants a return to tradional banking. Prior to the bubble that was 25% deposits at 3 times salary and you save with the lender for two years beforehand to show you can spare the necessary amount of cash each month to service the loan.

90% deposits don't exactly match up to that standard.

The government in short has scant idea what to do, and ultimately it will have been seen to have prolonged the depression and thrown a great deal of good money after bad. In fact they're so inept, I'm hoping that we need the IMF sooner rather than later so that grownups are in charge.

FoFP

Reply to
M Holmes

Because these events are so rare people do not believe they will happen.

The government should have ensured that there were limits on borrowing

- easier said than done but possible.

It's not sensible to just allow the economy to be messed up in such an extreme way.

When the government tries to help they do it in an incompetent way and cause problems for people who haven't done anything wrong, eg. savers.

I am in favour of the government trying to avoid the majority of businesses going bust. Even if the businesses don't borrow they have problems due to the lack of demand.

Your solution would result in most businesses going and bust and most homes being repossessed and then people with capital starting businesses again. This is a lot different than the efficient transfer of resources in a discrete way.

Reply to
PeterSaxton

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