Be Excellent To Each Other

£0 profit/c.0% net rate of return is rather different from "£32-34 billion profit" or "it equates to a 4.5% rate of return", that's the point.

As for your point about "it will cost the taxpayer nothing" I couldn't disagree more; even if as you (and I) have said about taking these predictions at face value, I would argue that the terrible damage to the economy, loss of business confidence, loss of credit lines to business and all the rest have caused *immense* cost to the taxpayer, even if the bailout itself ends up being cost neutral after 15-20 years. But that is an entirely separate argument/discussion. What I'm talking about here is a misunderstanding of the most elementary, fundamental level imaginable, even for someone like me who, as I've said, knows feck all.

Indeed, though it is important to remember that it would fall into the category of "Fucking hell, we lucked out there, let us NEVER do that again" rather than it all being fine and a reason to cut back on financial regulation.

You do yourself a disservice mate.

True.



Cost neutral is a better way of phrasing what I was trying to say

Whether the cost of doing nothing and letting it fail would have been greater than the cost of propping it up, is something we will never know, but my guess is that it would have been much worse if NR had gone to the wall. Who knows really and can say for sure either way? Nobody, so lets have a good argue about it

OK, I'll start then:

Trooper, upon due consideration of the Banking Crisis in general terms, and the specific examples of NR and Bradford and Bingley, I am of the view that you smell. Of wee.

Take THAT!

*basks in glory of Teh Awesome internet warrioring skillz*

Don't worry, i'm not going to flounce out or anything

Meh. Well, it's not as though I claim to be anything other than ridiculous. So that's alright then.

In other banking news, I note the ECB flooding a trillion Euros in 1% loans to banks, as a proxy for bankrupt states (it cannot legally lend direct to governments). So, that'll be more kicking the can down the road without solving any of the inherent, systemic, catastrophic flaws of either the current parlous situation or indeed of the Euro itself. It'll all end in tears.

Not sure whether I posted David McWilliams' Punk Economics video on here. Part 1 is on YouTube (can't access it from work) and it is very good.

Wow, I didn't realise the ECB loans had a rate that low.

Plan for this afternoon:
1.) Take a £50 billion ECB loan at 1%
2.) Put it into my savings account, currently earning about 2.5%
3.) Live like a king!

It does nicely put off the impending disaster by three years, by which time half the politicians will be out of power and able to blame the new incumbents.

Thanks Pliss, that was truly excellent! Here it is:

http://www.davidmcwilliams.ie/2012/01/30/punk-economics

I broadly agree with much of that, believe it or not, even the Keynesian element to a very broad extent. I've come to believe, looking at the empirical evidence of the US economy (as compared to EU states in the grip of austerity), that ever-tightening austerity simply does not achieve the desired effect. (Yup, so I was fundamentally wrong).

However, I don't think you can just spend on anything; the proverbial paying people to dig, then to fill holes in the ground (or for Greek hairdressers to retire at 45 on a massive State pension). It still matters what you spend public money on; this still has to be targeted and intelligent. Plus, none of this takes anything away from the fundamental fact that the Euro, as a concept, is fundamentally and demonstrably fatally flawed, not least because its disparate member states by definition lack any control over their currency exchange rates, interest rates, money supply etc. - the very levers of macroeconomics. They are like cars without accelerator, brakes or steering.

Of course, the trouble with writing off many billions or trillions of unrepayable debt on the part of bankrupted EU States is that the pensions and savings of many millions of EU citizens - especially in Germany - will be wiped out. However, that is what has to happen, and will eventually happen.

None of this takes anything away from the fact that many member states (including UK under Labour) have been spending vastly too much borrowed public money in good times, though, and nor do I buy into the supposed fiscal union ideal of the US (though it's better than the EU, obv.). Just look at Detroit or New Orleans; whole swathes of the US are now a near dead loss.

Agreed mate. Actually, the impending disaster will be 1tr. Euros worse than it is even now... which is nice.

And there's the rub! Surely Keynesian deficit spending during recessions is largely dependent on running a surplus during the good years, lowering the debt, possibly building up a bit of a war chest, all ready to chuck cash about on railway bridges and new aircraft carriers and refurbishing hospitals and erecting giant gold statues of Dimrill cupping a horse's chin. We, and especially people like Greece, did not do that part of it.

Absolutely mate, I agree with you totally. This, together with the failed regulation of the banking sector, was Labour's biggest economic gaffe (hardly surprising really, given the fact that Brown actually believed that he alone had put an end to the Economic Cycle - the buffoon).

However, I have come to realise that the fundamental need to spend public money at the onset of a deep recession isn't changed by what whatever incompetence went on before it, or how little 'we' may have saved for that rainy day. Two wrongs don't make a right.

If it is necessary to stimulate the ailing economy, caught in a recession, in order to break an ever deepening debt, reducing tax take, increasing unemployment/welfare spend and above all, reducing private sector engine activity vicious circle, then we must do so, regardless. (I say 'regardless', but of course it matters greatly what we spend that money on. Railway bridges, enterprise loans to stimulate new company startups, tax breaks for foreign investment, new schools etc., all good. Pissing money away on pretend public sector jobs, inflating public sector salaries, white elephants like the Olympics and Trident submarines, less so).

The terrifying realisation for me in all of this is that, on some level at least, Ed Balls might actually be right. Believe you me, that was a toughie for me to acknowledge, even to myself, but I have always been, above all, a believer in ever evolving policies and revised thought process, informed through empirical evidence, as opposed to style political fundamentalism.

ONE OF US, ONE OF US!

(come on, you knew I had to pop back for that!)

There's actually some positive noises for Detroit - the government bailout of the car industry there seems to be doing quite well, and Detroit itself is beginning to attract the hipsters and artists that'll start the gentrification of the inner city (there's good and bad points about that, speaking as somebody who normally lives in an American city that's going through that right now, but you can't deny that it helps the city economically).

As I've said elsewhere, I used to be a total Euro fanatic, but these days, the currency is a cross that Europe is bearing for France and Germany. It's unworkable without the sort of changes that would turn Europe into the USE. And nobody is going to spring for that. Drachma for all!

Also, hope you're all well. Trying (in vain) to cut down on arguing online, but you know, it's like an addiction

Meh. Greetings Peter; you've got me there. At this rate, in another 10 years we'll be the same person.

Hope you're well mate.


Cavey

It seems to me that the banking elite is making a real play for total societal domination in Europe at the moment, what was in the past achieved with soldiers and bombs, is now achieved through crushing financial repression and 'austerity measures'. Greece is no longer a democratic nation in the true sense of the word, it'll be interesting to see if there's some sort of attempt to derail/postpone the upcoming elections, as the political parties that have signed up to what is effectively a hostile EU invasion are sure to be wiped out at the polls.

Quite frankly I find the whole thing pretty depressing, and closer to home I note that three major UK banks are due to increase their variable lending mortgage rates, despite the base rate staying unchanged at 0.5%, an action which will inevitably lead to a wave of home repossessions and crushed families. (Apparently the LIBOR rate has increased of late, which increases the rates banks have to pay for money on the international markets, obviously the trillions that are being pumped in by central banks (i.e. taxpayers) just isn't enough......)

The banks will not be content until they own absolutely everything and by extension everyone, and they will stop at nothing to get it - that is the nature of capitalism gone rabid, and that is what we have now. (For all its many, many faults, the last Labour government did at least possess some sense of a vague moral core, the Tories will hang an entire country out to dry if it satisfies the wishes of their rich elite.)

Blimey, this thread is pulling everyone in <waves at AE>

<pulls de-lurking grumpy face>

LIBOR is interesting at the moment due to everyone being investigated for rigging it!

I totally read that as David Walliams' Punk Economics video

Yay! my mortgages have gone up, even though base rate has stayed the same.

Cunts.

So can someone explain this to me then please:

http://www.telegraph.co.uk/finance/pers ... -suit.html



Isn't the whole point of someone going to a bank to get a mortgage as follows?

1) Person wants house
2) House costs £150,000, person doesn't have £150,000
3) Person goes to bank because bank has £150,000
4) Bank lends £150,000 to person to buy the house with
5) Person pays back the £150,000 with interest, person gets house, bank gets rich
6) Everyone's happy

So referring to the quotation above, that mortgage has already been made, the money has already been lent, how can the cost of that mortgage 'increase' when it was potentially made years ago? What's effectively happening is the bank is going back to the borrower and saying 'Yeah we know we lent you that money five years ago, but we've decided that we're not charging you enough, give us an extra £100 per month or we'll take the house off you, and we'll keep all the money you've paid us back so far as well.'

I understand that variable rates can go up as well as down, and also that it's possible to fix a rate too, but the rates at which mortgages are fixed are (a) Very high and (b) Usually attract an exorbitant 'arrangement fee' as well (certainly the HSBC were happy to gouge us for £1000 for the 'security' of fixing at 5.75% just over five years, which we've only just come off and have finally been able to go down to the SVR, just as they start talking about increasing the SVR even though the base rate remains unchanged).

In any other walk of life this would called extortion, or larceny, or base criminality - in the world of banking it's known as 'good business and maximising shareholder value'.

Come the revolution it's not governments I'd want to see against the wall, it's the fucking banks. (Although they're arguably one and the same thing.....)

The thing is, a mortgage is over a long period. Interest rates go up and down massively, they've been rock bottom for a couple of years but in the early 90s (?) they went to 14% briefly. So the bank varies the rate accordingly to protect themselves.

At least, that is the theory. As you have pointed out in practice, the banks have realised that they now have captive customers that they can charge what they like and if some collapse under the strain, the banks get the property and the balance left on the payment and screws the customer for the rest of their life credit history wise. (I believe in the US, the homeowner can hand the keys back and just walk away, which is not an option here.)

Sort of. The difference is that 3) becomes 'Person goes to bank because bank is able to lend them £150,000.

The bank doesn't necessarily have £150,000 lying around, they may well borrow it from another bank, which is where the LIBOR reference comes in. Or, they need to make an assessment of what's more valuable to them, lending you £150,000 or investing it somewhere else. So they make a determination on a regular basis of what rate will make your mortgage a worthwhile investment for them.

Now, because banks operate a standard variable rate, it means they've got one rate for all variable mortgages. New ones, and existing ones. Banks want to make sure that they're making money on that loan. They continually adjust that rate because that way they can guarantee that they're making money on it over the whole lifetime of the loan. Pegging it to the base rate doesn't necessarily do that, because the Bank's available investments aren't pegged to the base rate. Effectively, if the SVR was pegged at base rate +1%, for example, then right now the bank would be getting 1.5% off your mortgage, which is a pretty shit deal for them compared to what they could get elsewhere.

Note that there are, of course, ways to counter that. A tracker will always be pegged to the base rate. You pay an arrangement fee usually, but it's often worthwhile. I'm on a tracker, and it's saved me a fortune over the last 10 years compared to being on the SVR. Again, with a fix - it's a gamble. A poor deal over the last few years, but would have been a grand deal back in the 80s when interest rates went through the roof.

In summary, banks cover themselves so that no matter what the economy does, they are making money out of your mortgage. It's sound economics for them, but it's pretty shitty from the perspective of the mortgagee. Especially considering that you don't have the same ability to insulate yourself against major economic shifts without fixing, which requires you gambling on something that most folks aren't qualified to do.

Thanks for the post Craster, a chunk of it I'm already aware of as I've taken a reasonably keen interest in all of this since the 'banking crisis' started, but the extra detail is appreciated.

One thing I was already aware of, and which continues to amaze me ever since I learned of it, and which goes back to my previous post, is if the banks don't even have the money that they're 'lending' to us to start with, and are simply borrowing it off other banks, what the fuck are they adding to the process in the first place?

Seriously, why isn't there just a central government bank to care of this stuff, why do we have PRIVATE banks, run for commercial profit, effectively issuing the currency of nation states?

As you say yourself:



And yet somehow they still managed to fuck it all up and needed (and continue to need) bailing out by the taxpayers to the tune of hundreds of billions.

The whole thing stinks to high heaven.

I've pretty much read/watched everything on this website and I can't see anything fundamentally wrong with it, what's your take on it?

http://www.positivemoney.org.uk/

While I don't think the current system works, I don't think full reserve banking is a viable alternative. My reasons:

1) Getting to that position would be an incredibly tortuous process. The BASEL III requirement is for a bank to have 8% Tier 1 capital, although that's admittedly risk-adjusted, so your effective ratio is higher if your investments are riskier. You'd need to find a way of recapitalising that bank up to 100%. That would mean an incredible level of shrinkage in the money supply and huge deflation. What deflation means, of course, is that the national debt which we're trying to inflate our way out of instead gets in real terms larger and larger. Also likely house price collapses which, while a good thing for first time buyers, means thousands locked in negative equity.

2) Any wide scale financial reform would have to be done on a global scale. Implementing full-reserve banking in the UK would be a disaster, because all the banks would just take advantage of still being regulated under fractional reserve banking elsewhere in the world. And anyone headquartered in the UK would ship overseas quick-time. They'd leave their UK operations here, of course, but the rest of their operation would be no longer subject to full-reserve requirements

3) You take the profit out of fractional reserve banking, you make the banks rely on making money directly out of charges to their customers. That means your mortgage rates go through the roof, free banking disappears overnight and you'll be paying for absolutely everything you do. Risks can no longer be offset against the diversity of massive investment operations, so suddenly small business loans disappear or the costs become prohibitive, and you'll struggle to get anything over a 70% mortgage, taking first-time buyers back out of the picture again.

Full reserve banking is absolutely safer. I'm not convinced it's better for the economy or the customer though. I'd much rather see proactive regulation of products by regulators that understand what the hell is going on. The very idea that banks get to invent their own investment vehicles as a giant shell game for the express purpose of befuddling the regulator is frankly embarrassing.

Again, thanks for the reply Craster.

Ultimately, isn't fractional reserve banking how we've managed to end up where we are? The multiplication of money (i.e. the creation of the money supply by private banks interested only in their own profit) has led money and its many 'investment vehicles' to be the 'engine of profit' in itself, when in actual fact money was only ever intended to be a token to represent the true value of real goods and services.

(And of course, over the last few hundred years, private banks have inflated and contracted the money supply to see fit, as it's suited their own interests.)

Don't get me wrong, I've nothing against companies and individuals getting rich, but that wealth should come off the back of the creation of something, something tangible and worthwhile.

When you've got hedge funds and the investment wings of high street banks betting against/for/whatever they can, be it food or oil or any other of the essentials of a modern society, something has gone very badly wrong.

And then the final kicker of course, when they get SO greedy and SO immoral that they threaten to bring the money system of the entire developed world down, who gets to pick up the tab in the final act? Every single one of us who has no control whatsoever how these wantonly destructive PLCs operate across the globe.

http://www.guardian.co.uk/commentisfree ... double-dip

George Osborne's growth policy is turning British cities into Detroit UK.

I was speaking to my dad a few nights ago, he says that the situation up his neck of the woods (North Manchester) is absolutely dire, far worse than the Thatcher destruction of the 80s even.

The problem I have with those sort of articles, is that it is all about biased blame.
I 100% agree that there is a need for smart growth and the current policies arent working, but that main point is drowned out by the bullshit of appointing blame for the recession and for a whole towns to be closing down squarely at the feet of the chancellor who has been in the job for 2 years.

The banks have too much power, and they know it. Nobody really knows what the true exposure is on the complex bonds and other stuff they created post crisis.
From what little I understand, a lot of it is selling fresh air, which somehow those greedy unregulated fuckers managed to make money from.

If we have currency failure then that is a huge impact and the banks know it. They can’t lose. They make money in the good times and the state prints them more money when they fuck up.

The population of the UK is recapitalising the banks, via .5% borrowing for them and no change in mortgage, loan and credit card rates for the rest of us.

What I take exception to is the fact that the banks are from a management perspective fucking idiots. In the good times they would lend money to anybody. Now is the complete opposite and they all of a sudden have strict criteria.

There are loads of sensible potential home owners and small to medium business being denied loans by these idiots. This is where the government should step in and force these wankers to actuality do something to help the economy and housing market.

Amen to that, brother.

Oh those lovely banks!

http://www.guardian.co.uk/commentisfree ... iate-crime

http://www.guardian.co.uk/commentisfree ... intcmp=239

Tony Robinson sums things up succinctly.

I think you could make a pretty strong argument for a lot of bankers' behaviour as being genuinely psychopathic.

The problem is that whatever we might think of the individuals involved it's an industry which makes a lot of money for the country. Which is why any criticism is never really going to amount to much more than bluster, at least until the country finds a way to make an honest living.

Does it make a lot for the country though? The banks have entire divisions set up to do creative tax avoidance. Barclays paid £117m in corporation tax last year and Bob Diamond had the gall to claim things like their employees PAYE were part of their own tax responsibilities.

They took a calculated risk, it was either do this or line up with the others and have the government give you a bail out and tell you what to do. The 290 million is nothing; they will have saved many times this by being able to stay independent and avoiding paying tax. Not saying this is right, I think somebody should do some time for it.

Barclays are so out of touch it’s not true, my cousin works for them in the forgery (sorry investment) arm. In the building they have a lift that can only be used by Bob Diamond and people a couple of levels below him. They have a guy stand outside it all day. One day it broke down so the flunky commandeered another lift for 3 hours. During this time not one “big cheese” used the lift.

A friend who runs all the networking for a trading house was telling me nothing has changed; they have debt packages with a different letter or rating that they are trading all day. Its all business as usual with a little bit of pressure on bonus’s that lasts a couple of weeks before it all blows over.

What they really need to do is separate out the "casino" banking from the "ordinary" stuff. You know, like how it used to be. Then they can gamble with their own money, instead of having ordinary people / the Government as an unlimited overdraft facility.

Ultimately, they need to find a way to make losing £2bn in a single trade matter. Barings went down for £800m and that was a scandal. These guys lose a couple of billion and they shrug it off as a bad day.

Tales of graduate employment woe from the Gadurgan.

I did a completely worthless degree (Journalism) and realized halfway through that I was wasting my time. I've done a series of low-paying demeaning jobs. I got frustrated.

I wonder: perhaps this is normal, at least for the 'everyone has to get a degree no matter how pointless' culture that's been successfully cultivated in the UK? If so, it's an overly harsh way of telling people there's a real world out there.

I suppose on the one hand it's slightly different for people who know what they want to do as opposed to people who think they know (I asked a lot of people if they knew, when I was having my own mini-crisis back at the start of the year). But on the other, having their dream of being the best darn anti-racism commissioner the world's ever seen, straight out of university... seems ridiculously far fetched. Doesn't stop the universities piling it on. My own information pack from George Brown College in Toronto has "George Brown College - Gets you the job" as the slogan.

The Daily Mash reports on this too.

Now there's a complete change of career.

Yeah, I wondered about that too.



"Clutch in! No, the one on the left! Jesus Christ."

It's funny, I never considered that my mind might be more filthy than yours.

There are some bullshit courses out there, I do wonder if these will last as people have to pay quite a chunk of cash to get educated to degree level.

Never give the education a 2nd glance on CV’s I don’t have any and did ok.

Your poor missus.

Same here. I think we're through the looking glass

Its not just the banks

http://www.bbc.co.uk/news/world-us-canada-18673220

The pharma industry is highly regulated, yet it appears that greed for profit will still drive people to break the rules. A $3 Billion fine in this case.

In the US it’s a bit different whistle blowers get paid for their info, the company I worked for where fined $ 30 million for a similar thing last year, the 2 whistle blowers got a million each.

http://www.bbc.co.uk/news/business-18685040

Bobs off!

About time, this tosser was in charge of the trading arm that did all the lying.

Aye but why let the bastard resign? As Tony Robinson said on question time about the whole banking fiasco, in any other industry what has been done would be considered criminal. Now what has happened in Barclays has to be criminal, he should have been fired and charged, am getting so angry at the whole situation.

<stamps foor in impotant rage>

<Goes to nice french street cafe for another coffee to calm down>