Banks bailout

Frank the tank

Rather than chuck untold billions at the banks (who are more than a little to blame for the shit we're in) why not give it to the people. Before today Gordy had loaned the banks £20,000/tax payer. If he'd given that 20K to me I'd have given the bank so much to pay off my mortgage and I'm sure that I'd save some and spend some. I think if every tax payer got 20k It'd do the economy no end of good.

TheStone

If they give the money to the people then they're more likely to save or pay down debt than spend. If this is money the govt have and would spend on something else or tax cuts, then it's deflationary. If it's borrowed from the future (govt debt), then it's likely to be inflation neutral. If it's newly created (printing money or their new favourite tern - quantitive easing), then it's neural now, but highly inflationary later.

The banks in the UK are highly leveraged. Upto 50:1, so for every £1 they own, they've created £50 of debt (money). If the bank loses £1, then it has to lend upto £50 less, which is the credit crunch and causes deflation, depression etc. The initial bailout was simply to save the banks from insolvency. If they all closed then lending would contract at a massive level.

This new bailout is to try to recapitalise the banks, so they can lend more. If they give Northern Crock 50bn, then in theory they can create 2.5tr new debt (in practise lot less as the demand and velocity of money has disappeared)

Personally, I strongly lay the blame on the govts (in particular the UK and US) who not only turned a blind eye to the increased leverage of the banks, but actively deregulated and encouraged the expansion. It was a massive inflation of the money supply, but by measuring inflation as a basket full of cheap Chinese imports and European labour and ignoring house prices, they could keep the cost of debt and relative wages low. This eventually caused such a debt bubble that people could no longer service or pay off the debt they created. Defaults, bank losses, deleveraging of debt.... repeat ....repeat

The solution will not be nice. I can't see any other outcome than a huge drop in standard of living. If you think of 'money' as a future claim on labour, we personally and as a country have to do a lot of work to pay of our debts. We've all borrowed from future to fund today and now pay the consequence.

The govt borrowing more or god forbid printing money will make things much worse. They're looking for a quick political fix rather than thinking of the future. Borrowing will mean big tax rises once the recovery starts, printing money to hyper inflation once the velocity of money increases (both very bad). We need to find a level where wages to asset prices make sense, then the market will sort itself out. Unfortunately house prices will continue to fall and many companies will go bust, but they will be replaced and there will eventually be good times again.

... I could go on....

1footedninja

http://video.google.com/videoplay?docid ... 7695921912

Gives insight into what is going on around us at this present moment in time. Also gives insight into an alternative way of thinking/action. Looks at the monetary concept through the American dollar but model can be applied to any currency/monatary system.

teagar

TheStone wrote:

If they give the money to the people then they're more likely to save or pay down debt than spend. If this is money the govt have and would spend on something else or tax cuts, then it's deflationary. If it's borrowed from the future (govt debt), then it's likely to be inflation neutral. If it's newly created (printing money or their new favourite tern - quantitive easing), then it's neural now, but highly inflationary later.

The banks in the UK are highly leveraged. Upto 50:1, so for every £1 they own, they've created £50 of debt (money). If the bank loses £1, then it has to lend upto £50 less, which is the credit crunch and causes deflation, depression etc. The initial bailout was simply to save the banks from insolvency. If they all closed then lending would contract at a massive level.

This new bailout is to try to recapitalise the banks, so they can lend more. If they give Northern Crock 50bn, then in theory they can create 2.5tr new debt (in practise lot less as the demand and velocity of money has disappeared)

Personally, I strongly lay the blame on the govts (in particular the UK and US) who not only turned a blind eye to the increased leverage of the banks, but actively deregulated and encouraged the expansion. It was a massive inflation of the money supply, but by measuring inflation as a basket full of cheap Chinese imports and European labour and ignoring house prices, they could keep the cost of debt and relative wages low. This eventually caused such a debt bubble that people could no longer service or pay off the debt they created. Defaults, bank losses, deleveraging of debt.... repeat ....repeat

The solution will not be nice. I can't see any other outcome than a huge drop in standard of living. If you think of 'money' as a future claim on labour, we personally and as a country have to do a lot of work to pay of our debts. We've all borrowed from future to fund today and now pay the consequence.

The govt borrowing more or god forbid printing money will make things much worse. They're looking for a quick political fix rather than thinking of the future. Borrowing will mean big tax rises once the recovery starts, printing money to hyper inflation once the velocity of money increases (both very bad). We need to find a level where wages to asset prices make sense, then the market will sort itself out. Unfortunately house prices will continue to fall and many companies will go bust, but they will be replaced and there will eventually be good times again.

... I could go on....

I don't think leverage was the problem - that was what caused the '29 crash and the markets are quite well regulated against leverage nowadays.

The problem lies in securities - buying other people's loans effectively.

Without the whole lengthy explanation, the banks (and lots of other ludicrously clever people) felt securities reduced the risk of lending, but it turns out merely passed it on and even hid some of the risk, leading to many banks taking on far far too much risk than they could handle. The leveraging just compounded the problem, but certainly was not the root problem!

synchronicity

The latest news is that Australian workers are each getting up to $1000 in Rudd's latest stimulus package. Too bad I'm not working there now...

Captain Fagor

TheStone wrote:

... I could go on....

Please do - it's more enlightening than any of the claptrap you hear on the TV....

tlw1

what has happened in simple terms is the banks have stopped pricing risk correctly

Frank the tank

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

Gavin Gilbert

Frank the tank wrote:

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

It sticks in my craw when Saloon Bar Politicians who know nothing about how global finance works start sounding off in public :roll:

Frank the tank

Oooooooohhh!! I being a tax payer whose tax has been used to bailout greedy financial institutions am entitled to my opinion (be it informed or not) :x

This being a public forum means I can within reason come on and say whatever I wish, even if it gets up your nose, My owd. :roll:

In fact that makes it even better.

nasahapley

Gavin Gilbert wrote:

Frank the tank wrote:

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

It sticks in my craw when Saloon Bar Politicians who know nothing about how global finance works start sounding off in public :roll:

Yes Gavin, rather than being so bold as to venture an opinion on what's being done with their money, the proles should limit their involvement in high finance to sticking their hand in their pocket whenever the clever bankers manage to p**s the latest bailout up the wall. It sticks in my craw how some city boys still think they're financial geniuses because they reckon they know how global finance works when they laid all the groundwork for an almighty crash and then spectacularly failed to see it coming.

top_bhoy

Gavin Gilbert wrote:

Frank the tank wrote:

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

It sticks in my craw when Saloon Bar Politicians who know nothing about how global finance works start sounding off in public :roll:

I agree with you...what bar do you drink in? :twisted:

TheBoyBilly

Top_Bhoy wrote:

Gavin Gilbert wrote:

Frank the tank wrote:

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

It sticks in my craw when Saloon Bar Politicians who know nothing about how global finance works start sounding off in public :roll:

I agree with you...what bar do you drink in? :twisted:

"No rewards for failure, says Brown" - funny that, I thought failure was now called "deferred success" in Lefty La-La Land :x

Gavin Gilbert

TheBoyBilly wrote:

Top_Bhoy wrote:

Gavin Gilbert wrote:

Frank the tank wrote:

Sticks in ya craw when HBOS (bailed out by taxpayers) are paying staff a total of £1BILLION in bonuses. :evil: :twisted: :!:

It sticks in my craw when Saloon Bar Politicians who know nothing about how global finance works start sounding off in public :roll:

I agree with you...what bar do you drink in? :twisted:

"No rewards for failure, says Brown" - funny that, I thought failure was now called "deferred success" in Lefty La-La Land :x

And you read it in the Daily Mail, so it must be true.

So glad you're back Fatters, we missed your witty and insightful contributions

TheBoyBilly

Never been away Gav, never been away. Found another bird yet? I must have missed your latest blog :oops: - mind you Valentine's Day this weekend might find you someone er, special :P .

Gavin Gilbert

TheBoyBilly wrote:

Never been away Gav, never been away. Found another bird yet? I must have missed your latest blog :oops: - mind you Valentine's Day this weekend might find you someone er, special :P .

Yes, and she's rather lovely 8)

how about you? have you lost weight yet?

TheBoyBilly

Gavin Gilbert wrote:

TheBoyBilly wrote:

Never been away Gav, never been away. Found another bird yet? I must have missed your latest blog :oops: - mind you Valentine's Day this weekend might find you someone er, special :P .

Yes, and she's rather lovely 8)

how about you? have you lost weight yet?

That's very nice of you to take an interest Gav. Yes I have, and life is good, very good.