Bank bailouts and banker bashing

Wonder how well the Queen understands these matters?

How many central and reserve banks around the world come under crown jurisdiction?

for the love of god JHJ, not now, it was getting interesting. 🙄

But @kimbers you cannot send someone to jail for making bad business decisions and a lot of what you’ve posted here occurred in the US. The list below we could well see some criminal prosecutions and potential jail time.

Yes you can, when the consequences of those bad decisions have serious real world consequences.

Imagine a company constructing a large bridge. The bridge falls down, people get hurt and investors money is lost.

The CEO comes out and says “Yep we made a bad decision. We really should have designed it a bit better, and maybe not used that second rate concrete. Anyway, we won’t do it again and cheers for underwriting our losses so we can carry on”. Aye no bother better luck next time.

The banking levy has delivered £700m to the nation?
Good! Let’s get some more out of the greedy bastards.

Just like yourself then, in restricting your definition of ‘profit’ to a tiny spectrum ie the cost of funding the bailout, ignoring all the other huge costs also associated with the crash (caused by the banking sector).

I was just pointing out an obvious flaw in the analysis. Looking at the cost to economy is really difficult. Whilst the unwinding of the overleverage has had a huge cost, in the years before there was credit fuelled economic growth that was taken for granted and banked. Separating this out from the economy as a whole can be attempted, but I fear consensus in any analysis will never be achieved.

The banking levy has delivered £700m to the nation?

Great, shame the cost of the recession, in lost GDP, was more than £400 Billion!

http://www.cipd.co.uk/binaries/counting-the-cost-of-the-jobs-recession_2012.pdf

Looking at the cost to economy is really difficult.

Agreed, but he wasn’t even trying, just looking at the P&L on the bailout is the most myopic analysis possible.

Whilst the unwinding of the overleverage has had a huge cost, in the years before there was credit fuelled economic growth that was taken for granted and banked

Also true, GDP was artificially high before hand. However if you consider the OP’s argument and take it to it’s logical conclusion, we should be encouraging more booms and busts from the financial sector as they are obviously such a profitable endeavour!

We should have handled it like Iceland (the country did). Let some banks fail, prosecute and jail bakers for fraud …
Strangely, it leads to a more bouyant economy – with more responsible bankers

jambalaya – Member

@P-Jay our econonmy is unbalanced but let’s not destroy banks/financial services before we’ve built up the rest eh ?

Who said anything about destroy? Left to their own devices human weakness / greed would have ensured the self-destruction of investment banking long ago.

The UK, interested as ever only in economic plans that offer less pain now, or at least before the next election – conspire to maintain the status quo – we’ve wasted the opportunity to rebalance our economy that we had during the banking crisis – we could have let the free market economic mechanism which created such massive financial power houses “self regulate” them in to oblivion – but it seemed like too much to bear – so we took on another generate of debt to save them, now they’re back on their feet we’re going to let them carry on as before – their has been some lip service about regulation, but it won’t stick – the more we try to regulate them, the more they’ll say they’re leaving – I say, set correct legalisation to at least try to save them from themselves and if they go, let them go – yes it will hurt if one of the big 4 leave the UK, but the pain won’t last long – a year, maybe two – but it will devalue our currently and allow other industries to get a foothold – call me a bleeding heart lefty – but I’d rather help create 100 new jobs paying £30k a year rather than 10 paying £300k or 1 paying £3m.

Is the Iceland economy the same as the UK one (specifically the impact of letting banks fail)? If not, that’s a pretty pointless comparison.

jail bakers

What kind of sick animal are you?

Iceland had no choice, a bailout of their banking sector could simply not have been funded by a population of 300,000 odd, i.e similar size to Coventry

The banking levy has delivered £700m to the nation?
Good! Let’s get some more out of the greedy bastards.

That’s the per anum cost to HSBC only, the total raised is much more (I think Stan Chart pays $300m/£200m). The point I was making is that by increasing it you run the risk of collecting a lot less as HSBC relocate.

@jive – that fractional reserve banking thing is total bollix, just like the positivemoney idea which simply would not work

@mefty – it does seem that I missed a post from you, let me take a look

@footflaps the recession was happening whether we bailed the banks out or not and my view is that without it the recession would have been far worse. So trying to include the loss of GDP etc into the cost of the bailout makes no sense at all which is why I am making no reference to it. A lot the pre-crises GDP was false, it was based upon excessive debt so losing it was inevitable IMO.

As for the rich getting richer, many wealthy people lost a lot of money ion the crises. Madoff alone cost the wealthy $50bn. Many people where ruined totally. Those wealthy people in business, especially oil and gas and technology have done very well as those businesses where largely unaffected, Apple shares have gone from $28 to $128. Also as many previously wealthly people where forced to sell assets at low prices and those assets where bought by others who have since done very well as a result, you can see that in prime London property

So jambalaya, what you are saying is the financial problems the UK suffered was part of a worldwide financial crisis largely caused by the US banking sector, and thanks to Gordon Browns incisive leadership at a difficult time his decisions has delivered a profit to the nation.

Hooray for Gordon and the Labour party.

ps. The final loss to madoff was under 20 billion, and was an illegal ponzi scheme.

@footflaps the recession was happening whether we bailed the banks out or not and my view is that without it the recession would have been far worse. So trying to include the loss of GDP etc into the cost of the bailout makes no sense at all which is why I am making no reference to it. A lot the pre-crises GDP was false, it was based upon excessive debt so losing it was inevitable IMO.

So what you’re saying is as long as we absolve the banks for any responsibility on their original crime and ignore all the subsequent damage that caused (to the tune of trillions worldwide), the fact we made a small profit on the ‘fines’ means that we should stop bashing them and be very thankful that they plunged us into the deepest and longest recession in modern times.

Certainly an interesting point of view.

Going back to your original question:

So when is enough enough ?

When they’ve paid back, with interest, all the subsequent loss in GDP (IMHO).

IMO the recession was long over-due, the US sub-prime scam crash was merely the straw that broke the back – recession is a normal part of any economic cycle and shouldn’t be feared, in the same way a bush fire is hugely destructive – it’s needed for new growth.

When the UK, and the rest of the Western World to a lessor extent move too much in the favour of Finance and Services and too far away from production and manufacturing we tried to stop the growth / recession cycle – but it didn’t work, it just made the recession bigger and nastier.

Where was I saying we should absolve the banks of responsibility ? They’ve been fined billions, had billions in taxes imposed on them, shrunk employment by 100,000s, pay inc bonuses is down substantially and new regulations make banks much safer (and make it harder for them to lend btw).

We need to look at the collective failure of governments in regulating banking and to individuals in lying on mortgage applications as well as bankers making irresponsible loans.

Our well run banks did pretty well, HSBC, Barclays, Standard Chartered and Lloyds who where only crippled by the acquisition of the failed HBOS.

Hooray for Gordon and the Labour party.

ps. The final loss to madoff was under 20 billion, and was an illegal ponzi scheme.
In some respects yes, “hooray”. With the exception of Merkel the incumbent governments left or right got the blame for the crises, Bush in the US, Blair/Brown in the UK, Sarkozy in France. The solutions where pretty universal, Mark Carney got hired as governor of the BoE for the great job he did in managing the crises in Canada.

Madoff, yes I could believe the final total was $30bn not $50bn. The fact it was a ponzi scheme and one which had been repeatedly reported to the US regulators as such demonstrates my point that it was a failure of regulation which allowed the crises.

recession is a normal part of any economic cycle and shouldn’t be feared

Not so much fun when you’re the bush getting burned. Easy to say when you’re not affected.

@P-Jay broadly I agree with you. We exported all our manufacturing to Asia reducing those costs dramatically whilst charging the same price with the difference made up in retail staff costs and business rates. It seems only a matter of time before we buy stuff direct from China at 30-50% of the cost and don’t bother with the High St at all.

The financial crises was severe as the boom had been excessive

Madoff, yes I could believe the final total was $30bn not $50bn. The fact it was a ponzi scheme and one which had been repeatedly reported to the US regulators as such demonstrates my point that it was a failure of regulation which allowed the crises.

The final figure was 18 billion 🙄

If it proves anything it is that the wealthiest and most powerful people in society, the ones we are meant to laud and favour in the hope of some imaginary trickle down, are in fact a bunch of greedy morons with no more financial nounse than the average man in the street. The masters of the universe are just a bunch of self serving retards and the quicker we dethrone them the better.

The financial crises was severe as the boom had been excessive

I doubt that. Complex systems normally over correct, so the crash is always worse than the boom preceding it. I’m sure someone has written a paper on this somewhere. Even if it was exactly 1:1 the psychological toll is much worse (by a factor of 2), as many studies show that the loss of £1 is equivalent to the gain of £2 in terms of perceived gain/loss.

The thing that confuses me is that credit agencies seem immune. They’re directly culpable for the industry-wide fraud of repackaging and reselling debt- they made the entire bullshit-trading industry possible, and were responsible for the intentional rating-laundering and overvaluing/overrating of CDOs etc.

And yet when the entire thing turned out to be about taking nightmares, rebranding them as dreams and selling them for a fortune, their response wasn’t to tighten standards, but to threaten countries with reduced credit scores. And governments fell in line, and scrambled to retain their precious ratings, despite them having shown themselves to be fundamentally incompetent at credit rating countries- Greece were still A-rated by Fitch and by Moodys until 2009 frinstance.

These companies continued to profit through the financial crisis- had their most profitable decade ever, according to some reports. And now they’re defending themselves in court in the states by pleading the 1st amendment- “We have the right to free speech! It’s our god given right to tell investors that this sub-prime mortgage is in fact an asset worth a fortune even though we know it’s a liability”

Court cases and threats of regulation rumble on but frankly the rational response is to hang them from lamp-posts.

I’ve always owed them more than I have had on deposit. this is true for almost all working people, it’s generally only pensioners who deposit more then they borrow.

If you work in finance, of course you know that this isn’t how it works. Banks don’t borrow money from lots of little old ladies, then lend it out again. They lend it first, creating the money out of thin air, on the assumption that they’ll get it back with interest.

It’s the “getting it back with interest” bit that generates all the profits – and all the risks too.

Where does it stop? It hasn’t even started.

The tricky part of this is that has HBOS and RBS been allowed to fail many small and medium sized businesses would have failed as their overdrafts would have been withdrawn immediately. Its generally seen now that it cost the US much more to let Lehman fail than to have rescued it.

see, that’s where folk are getting the “gambling with other peoples’ money and no risk of failure” thing from

Madoff, yes I could believe the final total was $30bn not $50bn. The fact it was a ponzi scheme and one which had been repeatedly reported to the US regulators as such demonstrates my point that it was a failure of regulation which allowed the crises.

You can’t just blame fraud (and IMO criminal negligence on the part of global investment banks at the most optimistic interpretation) on lack of regulation – they still had to act like **** to make it all happen

The thing that confuses me is that credit agencies seem immune. They’re directly culpable for the industry-wide fraud of repackaging and reselling debt- they made the entire bullshit-trading industry possible, and were responsible for the intentional rating-laundering and overvaluing/overrating of CDOs etc.
…
frankly the rational response is to hang them from lamp-posts.

Absolutely agree – to have that much influence and apparently zero culpability is laughable

Anyone taking bets on RBS returning a profit the year after being sold off.

Iceland appears to have got it right sending their bankers to jail[/url]

I’d imagine there’s quite a simple way to place one…

Earlier reply got lost, I’m sure you’re all gutted 🙂

When they’ve paid back, with interest, all the subsequent loss in GDP (IMHO).

Who is they ? HSBC, Barclays, Stan Chart didn’t fail – should they pay for the idiocy of Northern Rock, HBOS, RBS, Alliance and Leicester, Bradford and Bingley ?

Also banks may take the view that if they get the credit financially for the 100 years of growth in GDP they might be willing to pay back for the more recent losses.

If you work in finance, of course you know that this isn’t how it works. Banks don’t borrow money from lots of little old ladies, then lend it out again. They lend it first, creating the money out of thin air, on the assumption that they’ll get it back with interest.

@Ben this really isn’t true, there are many banks whose ratio of deposits to assets/loans is close to 100% or even above. When you start a bank the capital comes from investors as real money, then you start lending that out. Banks without retail depositors (commercial and investment banks) of course borrow more but they also take large corporate deposits. This notion that money in the banking system is just created out of thin air is nonsense.

@Northwind if you hang the bankers from lamposts who made a bad loan who is going to lend you or your company money ? I don’t have accurate figures to hand but the percentage of bad UK mortgages was less than 5%, so 95% of the time the bankers got it right. Aside from RBS who made a disastrous acquisition of ABN Amro complete with it’s large US business (with exposure to sub-prime) the majority of failed UK banks where ex Building Societies from the regions who had poorly diversified businesses and weak lending criteria. So we should be hanging people in Newcastle, Halifax, Bingley and Leicestershire who didn’t check applications properly ?

jambalaya – Member

@Northwind if you hang the bankers from lamposts who made a bad loan who is going to lend you or your company money ?

If you read an entire post about credit agencies then respond as if it was about bankers, who is going to pay it any attention?

Who is they ? HSBC, Barclays, Stan Chart didn’t fail – should they pay for the idiocy of Northern Rock, HBOS, RBS, Alliance and Leicester, Bradford and Bingley ?

The only reason the banks didn’t fail is that their respective governments pumped billions into emergency liquidity funding as bank inter lending had effectively dried up. Had governments not drastically intervened, and interrupted market forces, a much larger number of financial institutions would have folded.

The only reason the banks didn’t fail is that their respective governments pumped billions into emergency liquidity funding as bank inter lending had effectively dried up. Had governments not drastically intervened, and interrupted market forces, a much larger number of financial institutions would have folded.

Whilst a pedantic point, it is an important differentiation, the Bank of England provided the liquidity support, as you would expect a central bank to do, and the income it earned is not included in the original analysis.

EDIT: How I am pretty sure HSBC and Standard Chartered could have ridden out the crisis without these – Barclays would have gone though.

and the income it earned is not included in the original analysis.

Neither is the $trillions in loss of GDP worldwide over the following 6 years….

The root cause of the crash was sadly political correctness and the assertion ‘just because they are poor and have never exhibited an ability to repay debt’ it’s no reason not to loan them money. Blame Bill Clintons economic ‘miracle’ that was what created the debt that got rapidly repackaged and sold around the world.

Corporate America to blame, as per usual, everything else tumbled domino effect as positive perception of risk ran out.

Very good movie illustrating a Bank baling out was Margin Call.

The rest, the redundant Nasa scientists retrained to create money making algorithms no one understood, the lack of regulation and above everything our greed and desire for something for nothing did the rest. You cannot blame anyone other than the political correct brigade for what followed and will follow again once this next property bubble bursts.

We cannot help ourselves, until there is a total change of our ‘capitalist’ system it will go on and on, tell me how did Cuba fare through the crash did anything much change for them? I haven’t been out there lately.

@Northwind 🙂 brain overload on my behalf ! The credit agencies just publish their opinion, the disclaimers where always a mile long. Its tough to hang someone for being bad at their job.

@footflaps banks stopped lending to each other and started putting their money with the central bank who in turn lent it out to the other banks. The central banks where in large part re-cycling money given to them.

@mefty – I would agree Barclays would have been pretty close, its UK deposit base wasn’t large enough to support it’s global and investment banking business. Plus by buying Lehman they got access to the Fed which was a smart move at the time.

mefty – Member
The only reason the banks didn’t fail is that their respective governments pumped billions into emergency liquidity funding as bank inter lending had effectively dried up. Had governments not drastically intervened, and interrupted market forces, a much larger number of financial institutions would have folded.
Whilst a pedantic point, it is an important differentiation, the Bank of England provided the liquidity support, as you would expect a central bank to do, and the income it earned is not included in the original analysis.

EDIT: How I am pretty sure HSBC and Standard Chartered could have ridden out the crisis without these – Barclays would have gone though.

And do you know what ‘they’ did with the first tranche of the billions of Q.E.?

Invested it in Brazil.

Neither is the $trillions in loss of GDP worldwide over the following 6 years….

Yes and how much of that trillions was created by excessive debt, my answer is almost all of it. That’s why governments where happy for the game to continue and turned a blind eye to the risks, they where playing the short term game of getting re-elected.

my answer is almost all of it.

Well all your answers seem to be based around the premise that the banks can do no wrong and should be absolved of all blame, so unless you can point me towards a more reputable work on the subject, I’ll just assume you’re talking nonsense.

@footflaps banks stopped lending to each other and started putting their money with the central bank who in turn lent it out to the other banks. The central banks where in large part re-cycling money given to them.

Given that central banks can create as much money as they want at any time eg QE, they weren’t reliant on the banks for the money at all.

The credit agencies were paid by the banks to rate the CDOs they were creating so no doubt they were very objective in their analysis.

Plus by buying Lehman they got access to the Fed which was a smart move at the time.

They already had access to the Fed through their US business, I am not sure they took over Lehman’s licence they just acquired assets.

And do you know what ‘they’ did with the first tranche of the billions of Q.E.?

QE is another matter.