[Closed] Bank bailouts and banker bashing

Aaah, I see my suggestion that the system is flawed isn't only falling on deaf ears.

Four Horsemen, watch it...

@gofaster - been offline so only just catching up on the thread. I'll post up a reply later, perhaps I should have been more diplomatic in my post but I do disagree strongly. @jive's positivemoney.org is actually even more non-nonsensical than the fractional reserve / money out of thin air argument, it quite simply would not work. Four Horsemen is 100 mins long, me watching it just isn't going to happen.

Fair enough Jamby, since you're an expert in the field, can you explain to us:

a) If fractional reserve banking is not the system we're under, what is?

and

b) What in your views are the major flaws with positive money's proposals?

OK - Knowledge speaks and wisdom listens and all that....

When you have a minute or whatever explain why this is not true.

Stat from 4 Horsemen - 97% of money is debt.

Why not watch the part on Banking, which is only 1/4 of the program?

@jive not sure what label you want to give banks but money isn't created by banks, they are founded with equity investment (real money) and then attracting deposits and borrowing if necessary before lending those funds. It's all real money. One of the fundamental flaws of the positive money model is something banks do which is maturity transformation. Depositors like to and able to get their money back straight away whereas companies and mortgage holders want to have loans for longer periods. Quite simply under positive money there would not be sufficient depositors willing to lend for 5 (corporate loans) or 25 (mortgages) years. It just wouldn't work.

@gofaster, so I watched 40 mins. To be honest I couldn't see a coherent argument aside from a series of pot shots at favourite targets. The "poor" today are far wealthier than they have ever been and generally supported by generous welfare payments, even in the U.S., than they where 100 years ago. This notion that somehow their money has enriched the rich is nonsense. Likewise that somehow banks have become wealthy at the expense of the non-bank sector. Just look at technology, staggering wealth both personal and corporate has been created by new businesses which didn't exist 50 years ago. On the bailout, it's been hugely profitable. Banks where lent money to keep the, afloat and they've repaid it with interest. In the UK the figure is a profit of £14bn. Bonuses, there are many much better paid businesses than banking even in the UK and U.S. And of course in countries like France and Germany banking is relatively poorly paid but they still had a crises, they still have a capitalist economy. In the UK bonuses contribute £8bn pa in taxes, that's a big and important contribution to the state. At the end of the section there was a graphic attempting to show that banking had an undue influence on US politics but all it showed was that banks where I the minority amongst funding contributors.

The 97% of money is debt claim - frankly no idea where that comes from or how it was calculated. Seems rubbish to me. Even in Greece deposits in banks where €140bn which is half of the entire debt of the country which everyone acknowledges is huge.

No doubt there was too much debt in 2007, no doubt banks played their part in that. However these various theories which suggest the whole system is somehow a conspiracy or fundamentally flawed is wrong. Capitalism has delivered huge improvement to in the quality of life and has become the dominant system as it works. Not faultlessly but it works.

In the UK the figure is a profit of £14bn.

Still repeating this rubbish, it seems I was ahead of my time. [url= http://www.ft.com/cms/s/0/90a4e68e-105e-11e5-ad5a-00144feabdc0.html#axzz3dGfHbIPs ]FT[/url]

I appreciate your considered reply.

@mefty in the UK and the U.S the governments/states have made huge profits from the bailouts never mind the differential in outcome between bailout and no bailout. The UK asset protection scheme alone made circa £5bn with banks paying large premiums and the government not having to pay out a penny. All the liquidity loans have been profitable and nine have defaulted. The only blot was that RBS was rescued at too high an equity price but the overall calculation is hugely positive.

@gofaster thanks I understand we can disagree, there are senior economists in the film who I disagree with although I think it's been cut together quite cutely as many of those interviewed are not actually making the point the film maker is trying to.

It is true that excessive detect and borrowing has been a focus of the regulatory changes post the crises, we all recognise that needed to be curbed

Jambon a minute!!

[url= http://www.independent.co.uk/news/world/politics/number-of-global-billionaires-has-doubled-since-the-financial-crisis-9826345.html ]Number of global billionaires has doubled since the financial crisis[/url]

According to Oxfam, the world’s rich are getting richer, leaving hundreds of millions of people facing a life “trapped in poverty” as global “inequality spirals out of control”.

The report found that the number of billionaires in the world has more than doubled to 1,646 since the financial crisis of 2009, and Oxfam says is evidence that the benefits of a return to economic growth are “not being shared with the vast majority”.

The influential report is supported by Bank of England chief economist Andrew Haldane and Nobel Prize-winning economist Joseph Stiglitz. It notes that since 2009 one million women have died in childcare due to lack of basic health care, and that 57m children are currently missing out on any form of education.

[url= http://www.theguardian.com/business/2015/apr/26/recession-rich-britains-wealthiest-double-net-worth-since-crisis ]Recession rich: Britain's wealthiest double net worth since crisis[/url]

Britain’s billionaires have seen their net worth more than double since the recession, with the richest 1,000 families now controlling a total of £547bn.

While average UK incomes have yet to recover from the worst economic crisis since the Great Depression, with thousands still flocking to food banks, the financial elite have emerged not only with their fortunes intact, but holding a larger than ever slice of the cake.

Explain please

Total income per Rothschild 14.3 including asset protection etc , total funding cost according to OBR (hidden in note 5) 17 bn = (2.7) billion. Stop digging, there ain't no gold at the bottom of that hole.

Yes but not too frequently - only big conviction trades and no ST stuff.

(It was a full time job quite a few years ago! )

I had a feeling that was the case. Something about your writing in economics/finance/political threads gave it away 😉

Seems mefty might be onto something...

[url= http://blogs.channel4.com/factcheck/factcheck-profit-bank-bailouts/21010 ]FactCheck: will we make a profit from the bank bailouts?[/url]

So the Treasury has been paying out interest to investors on the gilts for about seven years now. How much has this cost?

The Rothschild report doesn’t tell us. The only reference is in a brief footnote: “Stated before the cost of funding the interventions.”

Of course, if we include that loss of £17bn in the final balance sheet, it more than cancels out the £14bn surplus ministers are keen to talk about, and means the taxpayer has suffered a net loss overall.

Rothschild eh... Handy that the heir to the Rothschild Empire is a mate of the Chancellor, George Osborne (and the guy who got Tony Blair the Prime Minister gig, [url= http://www.independent.co.uk/news/uk/politics/the-corfu-controversy-how-the-world-really-works-973817.html ]Peter Mandelson[/url])

[img] [/img]

[img] [/img]

Wrong branch of the Rothschild family, his dad sold his stake in the bank following a family dispute. BTW the Oxfam report is pretty shoddy it classes highly paid recent grad in the US as living in poverty because of the extent of their student debt.

Hey ho, was a good excuse to crack out some photos, maybe this will help clear things up:

[url= http://www.businessinsider.com/meet-the-remaining-heirs-of-the-legendary-rothschild-dynasty-2012-2?op=1&IR=T ]Meet the remaining heirs of the Legendary Rothschild Dynasty[/url]

Stop digging, there ain't no gold at the bottom of that hole.

Can't see where they are getting that £17bn cost number from, will dig some more.

Asset Protection Scheme was profitable to the tune of £5bn - zero cost
All loans are profitable and the bulk of the support was loans (eg special liquidity scheme made £2bn profit net of costs)
Equity investments in RBS £46bn and Lloyds £20bn need to be funded but at 2% (very rough gilt rate) that's about £5bn cost or if funded short term half that amount.

The US did a better job not least as they didn't bash the banks with extra taxes (levy) as that just kills the stock price which isn't smart if you (the government) own large amounts. For example;

Profit on stakes in Citi / Bank of America / Bear Sterns $12bn
Profit on AIG bail out $23bn ($5bn equity profit, $17bn profit on loans)

@jive the super rich are indeed getting richer faster than the less well off in the developed world but the fact is that the "poor" (in Western terms rather globally) are much better off than they where 25, 50 , 100 years ago. It's a very clear long term trend - the less well off are getting richer. The developing world is growing rapidly in terms of wealth (China India etc) and in many cases in terms of population. India has grown from 400m people to 1.25bn in 50 years, most of those 700m extra people are very poor. If you want to paint a picture of wealth inequality it's not hard - throw in a Zuckerberg or three and a 1bn newly born very poor people in the developing world and there you have it. Does that really tell you anything ?

It tell us that austerity is a mechanism whereby wealth is channeled from the masses to the few...

@mefty here is a piece from Channel 4 news [url= http://blogs.channel4.com/factcheck/factcheck-profit-bank-bailouts/21010 ]Fact Check[/url]

As I said all loans will be profitable, more interest collected than paid on any government debt funding. The question is what about the RBS and Lloyds stakes. From a table in the C4 piece

[img] [/img]

RBS investment £45.8bn value £35.7bn (note the 4.5bn in fees from RBS I have excluded as that's the profit from the asset protection scheme) plus £1.7bn in other income - so a loss of £8.4bn. If we assume that £45.8bn is funded at 2% that's another £5.5bn in costs.

I still get no where near the £17bn in costs being quoted by some.

The Channel 4 piece suggests the profit might be only £9bn not £14bn but in any case far more than the £20bn to £50bn potential loss Labour spoke of in 2009. Had the Tories sold RBS off as soon as they came into office they would have made a profit on it. I know as I was an RBS shareholder at the time and following the shares quite closely.

It tell us that austerity is a mechanism whereby wealth is channeled from the masses to the few...

From the same Channel 4 piece (the link to which I supplied in the post with the photos)

Of course, if we include that loss of £17bn in the final balance sheet, it more than cancels out the £14bn surplus ministers are keen to talk about, and means the taxpayer has suffered a net loss overall.

From the same Channel 4 piece

Also from the Channel 4 piece which jambalaya seems to think makes his point :

It seems fair to conclude that the government isn’t quite telling us the whole story here.

The cost of the borrowing that financed the bank bailouts appears to wipe out the gains being publicised today and leave the taxpayer in the red.

@jive the £17bn is an estimate and no one is really sure what it includes and whether its really relevant to this calculation. As I posted I can find £5-£7bn of costs in funding the RBS and Lloyds equity stakes. Everything else was loans or guaranty fees and loans are profitable and the guarantees where not called upon.

I don't dispute there are some questions to be answered here. I'd also say we (Labour and the Tories) did not do as good a job managing the bailout as did the US who've made much more money. They've been more pragmatic and avoided the same level of bashing/taxation of banks and thus their equity stakes where worth much more and they where able to exit at a profit more quickly. Those profits are much more than any tax revenue they could have made in the same period.

Who are loans profitable for?

The state, ie all of us.

Can you explain how profits are for all of us, yet the rich have got considerably richer?

yet the rich have got considerably richer?

A lot of that is paper bollocks though - if you had ten acres of potential development land that you bought in 2005 for, say a million quid, then it would have been quite possible for you to have halved your personal wealth in 2008, (value 500k) doubled it again by 2012, (back to a million) quadrupled it by 2015 (2m) and very possibly half it again by next year (1m again). Reports of people's 'Wealth' are all rubbish.

Two separate things. The super rich don't really care that much about the banking system, their money isn't in banks it's in other assets/businesses. The value of those assets have generally increased since the crises, hence they are richer. Even a super rich person who's "cash" is in a private bank it will be invested in equities or debt of companies - both sectors fairly healthy, European equities are up nearly 20% YoY. If the bank fails it makes little difference. Certainly many in the upper middle tier lost a lot of money and where ruined (eh Lehman, Bear Sterns or Merrill Lynch employees with millions in shares, Madoff investors etc) but we don't hear so much about them.

Most of the super rich in the UK aren't British, they chose to live here whilst their wealth is/was generated elsewhere.

The £17 billion comes from the OBR which is also the ultimate source for the table you post above. There are two main differences between this and the original analysis you posted by Rothschilds. First it includes the results under the FSCS, which are irrelevant to the profit side as it is estimated to wash its face before funding, but does involve £20.9 billion of funding. The second difference and swing factor is Rothschild's valuation of UKAR at £6.9 compared to 0 for the OBR. So that's the figures you posted.

If we stick to your original post to compare apples to apples, the £17 billion figure is probably overstated because it presumably includes funding the FscF of £20 billion as it is the same report. So we have an overstatement of borrowing of £21 on £134. Therefore the interest cost attributable to the Rothschild analysis can be estimated to be £17 x (134-21)/134 = 14.3 so essentially wipes out the profit you claimed.

The next question is how reasonable is that. Well we have £107.6 of funding, some of which has been repaid, so lets assume an average life of 5 year (2008 to 2013), £14/5= £2.8 which implies an average rate of 2.6%. If you look at the path of 10 year bond rates from 2009 (when they were close to 4%) onwards that smells about right.

So the conclusion is that the analysis that you originally posted claiming it led to a profit does no such thing, no matter how much you witter on about it.

Reports of people's 'Wealth' are all rubbish.

Given conflicting reports which are manipulated to support whatever view someone wants to portray, is the world of finance in general 'rubbish' in your view, or does it have a massive impact on peoples lives locally, nationally and globally?

mefty thanks for that, I'll keep digging into this. We only needed to borrow £66bn for the Lloyds/RBS equity investments. Bradford and Bingley and Northern Rock it got for free (I believe). The rest is loans/guarantees which are profitable, the government lends out at a higher rate than it's cost.

But the tables you have posted include interest received, not net interest, so you have to include the funding on the £40 billion. It is really not very complicated.

EDIT: You would make it easier for yourself if you actually looked at what you post. The Rothschilds analysis clearly shows funding required of over £100 billion.

Whatever the outcome, it's a grubby business- playing with fire, playing with other people's quality of life. I wish it had never happened.

More regulation please.

Jambalaya - seeing as you're doing a good job of putting your point across and kindly bothering to explain things as you see them... What about Iceland? I understand they did things differently there. Thoughts?

BTW @ernie I posted that piece as its another analysis and yes of course it raises questions and ponders whether the bailout was profitable overall. I contend it was and it certainly should have been, the US has made many tens of billions in profits. We definitely got into RBS at the wrong price but even then we could have done a better job of managing our way out.

Thinking it through, most human activity these days is controlled by money.

Say for example war... who finances it and who profits?

How much of a factor is financial gain in motivating war?

jambalaya - Member

BTW @ernie ........ponders whether the bailout was profitable overall.

Which also ponders the question why 12 hours ago you were posting this :

jambalaya - Member

@mefty in the UK and the U.S the governments/states have made huge profits from the bailouts

Posted 12 hours ago # Report-Post

More regulation please.

Iceland. My 2 cents is they had no choice, their banks where too big for the country to save so it wasn't an option for them. They did the best they could in the circumstances and where helped out by various neighbours/IMF. As its a small country this was feasible. I just read up that the UK has got back 85% of the money it gave UK savers in Icelandic banks after they failed. I suspect most of the money deposited by UK local authorities (£500m odd) was lost. My local council in Guildford idiotically had £10m with Icelandic banks. Their failure was well flagged in advance, I cannot imagine why this money was not withdrawn. I did make that point to them in writing, never got a reply !

You had a similar situation in Cyprus where banks failed and depositors were charged a haircut, initially this was going to include many locals but in the end I think they charged mainly foreigners, mostly Russians I understand after widespread protests from locals. Again they could do this due to the nature of their banking system which was dominated by foreign money.

Our economy is overweight banking/financial services so letting such an important part of the economy fail would not have been an option and would have been out of step with the US, Germany, France etc which would have been difficult to do politically. There was certainly co-ordination between central banks on the rescues/bailouts.

@ernie we are having a discussion, I believe the UK bailout was indeed profitable. Osbourne stated it was to the tune of £14bn and this is being challenged including the in the piece I posted. What is clear is that there is not a lot of clarity in the numbers, certainly not yet.

You had a similar situation in Cyprus where banks failed and depositors were charged a haircut, initially this was going to include many locals but in the end I think they charged mainly foreigners, mostly Russians I understand after widespread protests from locals.

The problem there was that the whole banking system, as well as being saddled with the problems everyone else was encountering, was basically just a front for a huge money-laundering operation favoured by Russian Gangsters.

Of course we wouldn't have any problems with that kind of thing with our nice, respectable banking industry, would we?

*cough*

HSBC

*cough*

Mexican drug cartels

*cough*

What is clear is that there is not a lot of clarity in the numbers, certainly not yet.

Sorry you didn't make it clear that there is a lack of clarity when you said 12 hours ago that the UK government had, quote, [i]"made huge profits from the bailouts"[/i]

Co-incidently Cyprus bank account haircuts just came up in the Guardian feed on Greece. Anyone with more than euro 100,000 in the bank lost 60% of that amount 😯

@ernie that was my view then, I see it's challenged here and elsewhere and we will get to the bottom of this. I still believe profits will be over £10bn. We actually won't know until all the RBS shares are sold, everyone is making guesses as to future asset sale prices but we do know the schemes which have come to an end have delivered £7bn in profits. The runoff bad bank mortgage books from Bradford and Bingley and Northern Rock will be around for years but are profitable (another obvious reason to keep the housing market firm as we the tax payer have exposure). There are potential buyers circling but the govt thinks the prices are too low.

everyone is making guesses

Fair enough. You didn't make it clear that you were only guessing when you said that the UK government had, quote, [i]"made huge profits from the bailouts"[/i]

🙂

An educated guess though 😀 based on the US experience and my understanding of the bailouts. I'm still struggling to see how the numbers like £17bn have been calculated.

For the avoidance of doubt I could be wrong on this ! I'm not giving up yet though.

everyone is making guesses

Nope it is simply a balance sheet analysis, valuing at current market value.

Nope it is simply a balance sheet analysis, valuing at current market value.

FYI I am not sure why you'd borrow money to invest in RBS/Lloyds using long term gilt rates of 4% when you are pretty damn sure that rates are going to be low for a long time.

For the avoidance of doubt I could be wrong on this ! I'm not giving up yet though.

a) you almost certainly are wrong and
b) why on earth are you so keen to prove that the worst recession since the 30s is somehow a good thing, unless you work in PR for a bank?