Scummy State Bank Brings Good Business Down - Still support bank bailout?

in 2007. It seems to

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You put your finger on the core of banking. Borrowing short and lending longish. It's what makes the economy work. Provided the withdrawals are not for cash under the bed there is no problem since the cash required remains in the banking system somewhere. A single bank can usually borrow from others and also from the central bank if short itself. It's not like individuals lending.

Neb

If its such a successful business why can it only survive on a loan that can legally be called in at any time ?

All businesses survive on loans - and so does the government. I know it's hard for people to grasp this, because we were all of ouro generation, brought up to believe that borrowing money is bad, but nothing would ever start, develop or grow without initial and ongoing investment. Businesses borrow - they pay interest, when the good times come and the account goes into the black, banks use that money to develop their business. You have to spend money to make money and that is how those who were not taught never to borrow money have got where they are, while we still sit around in teeny weeny houses worrying how we are going to pay subsistence bills. (and yet nobody bats an eyelid at borrowing £100k to buy a house - because that kind of borrowing is 'acceptable'! I just learned all this too late in my life.

I don't know - the Shropshire post article explains that their OD facility has been reduced and reduced further prior to now. It's hard to see how any company can conduct its usual level of business on those terms - they would have to have induced a contraction in their business which they would have had to foresee (and most of what has happened lately has been apparently unforseeable by anybody...) and they would have had to have done it some time ago surely.

just for information...a common way of building business is to sell shares to investors... recommended read...neville shute...'slide rule'

regards

but but but......the clown is the present ceo of the bank and he keeps claiming he's into 'rescuing' businesses and 'saving' jobs

Aye...but people will generally only invest in a sapling, not in a seed!

Thank you

That's just slime for the BBC to read out as 'news'.

The signs will be in the accounts. If there has been a trickle of assets from Construction to plc over the last few months, then we'll know for sure. You don't usually need to delve that deeply, though. If that has happened, the administrators and subsequently the receivers, will wrap up the case in double quick time. They don't hang around if there's nothing to syphon out of a company.

And that's the area where we are unable to go isn't it.

RBS could and would do.

It's all very well to throw out figures like £40m worth of orders. and a couple of million owed here and there but a £40m order is not £40m profit. How many suppliers are waiting for their money? Shares which are unsaleable make for poor collateral.

I think it fairly safe to say that banks lend out money to make money and not out of altruism or public spiritedness. When the prospect of making money fades then that money has to be called back in.

I find the idea that once banks become publicly capitalised, then it becomes more appropriate to run them non commercially. The only chance that the taxpayer has of getting his money back is to run them prudently in fact more prudently, apparently, than in recent years they have been run.

'Mel Rowing' wrote this:

Which must surely be Brown's big dilemma, which shows up the duplicity of his public mantras.

These are new times, and banks that would have willingly lent money 12 months ago, are now saying No. They have been instructed to re-assess the risk numbers - and quite rightly so.

However, in spite of their spokesman saying on BBC 5 Live today that this would put 600 men on the dole - why should it? If they do not complete future orders, then someone else will. The work has not gone away, and workers will be required to do it.

An overdraft isn't a loan to invest in new machinery, plant or research. It is short time loan used to help negative cashflow. The company in question is spending more than it earns and has no cash saved to cover the difference.

A share is a loan - an undated security with variable coupon!

Companies often buy back their shares from the holders.

Further if enough share holders get together, they can call in their investment by liquidating the company or yielding to a take over bid by another company. At an individual level, it's easier however, to sell the hares.

An interesting extract from the report in today's Telegraph:

An RBS spokesman said: ?We have worked with the Wrekin Group to help them resolve their financial difficulties. "We have given very careful consideration to their situation and regrettably concluded that the business was unsustainable due to the extent of creditor pressure. We take no decision like this lightly.?

That puts a completely different complexion on the matter.

As a general rule when a company goes under administration, everything that can be done has been done. It's just a matter of sifting the debris for anything salvageable. Had RBS really let down a good company, somebody else (like the parent company for instance?) would have lifted them back up.

For them it would appear as thought it were over no matter what RBS did.

I know that...

Yes - which is why so many big businesses use them isn't it?

The assertion is that this is a short-term cashflow problem, so how can you know that they are spending more than they are earning?

You seem to have taken a vague comment (excuse) by RBS as gospel - Wrekin asked Mandelson to intervene months ago because they could foresee a problem with RBS cutting their OD facility down, and he has done nothing to help. The government crows on about spending taxpayer's money to keep businesses afloat and also for public projects in order to stimulate the economy. FYI Wrekin was the company contracted by our council (they do a lot of public works) to rebuild half the town - work started just before Christmas, so they have removed all the pavements and dug up the land - now the site has been abandoned. It seems that RBS would not even take into account that the company had valuable local government contracts. I wonder how much council tax will have to go up next year to cover the cost of obtaining a new contractor to finish the job? Or will we just have to live with a half demolished market square? RBS better have an effing good excuse for what they have done, but I doubt we will ever get to hear the details.

Maria is 100% right. The economy devleoped because of credit obtained by borrowing short and lending long and the possibility of gearing your investment. A remarkable innovation. But the long has often had strings attached in that it can be called in at any time. Other countries have sustained business better.

However most businesses are not successful so Maria need to chide herself for not taking risk.

I know an IT specialist who borrowed. Twenty years later he works on his own. It's safer and he the skill to charge a lot.