Banking: FAIL

Apparently a second lender, Bradford & Bingley, are to be nationalisedBanking FAIL

What fun.  What can we learn from this second fiasco?  Lending with few checks to verify identity or income is a high risk form of lending.  High risk lending has more chance of failure than lending only what you are likely to get back.  The returns may be lower and the shareholders and executives might get smaller bonuses but the company has less of a chance to FAIL when things go wrong.

It’s OK though.  The banking insurance scheme will bail out B & B and our taxes will shore up the bank for the next five years until (if?) the other banks can repay the loans to take over B & B.  We don’t live in a vacuum and this money has to come from somewhere.  Do you think that it is more likely that the money will come from customers and tax payers or from wealthy executives?

That raises a question for me.  What would happen if, rather than bail out these lenders, the government allowed capitalism to take it’s course and the businesses to fail?  How much would we suffer as a result compared to shoring up the failing industry?  I’m asking because I don’t know.

I wonder how many people are feeling this today?

Mortgage

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23 Comments

Filed under Motivational Posters, Shitbiscuits

23 responses to “Banking: FAIL

  1. I’m sure that the only reason the government are doing this, is to keep their influence with specific voter demographics.

    The capitalist in me would love to see the government keep out of it and to see what happens. On paper B&B seems a viable business, it is just its tumbling share price that has seemingly done irreparable damage.

  2. I agree with Perp, but I doubt how long can any government keep this up.

  3. Who remembers this advertising Jingle?
    Sing-a-long now:
    “A secure home for your money, with Bradford and Bingley”

  4. Perp, it went down to about 7% of it’s former value (that’s probably out of date information now). Only on paper though. It’s not as if 93% of the buildings and other assets were knocked down and destroyed.

    Vi, I read that the US government are giving $700 billion to shore up their banking industry. That equates to something like $5700 for each American citizen.

    cha0tic, ha ha. I wonder if YouTube has a version…..

  5. I’m against nationalisation and bail outs. I do think that if we didn’t it could get very worse, but why should failure to manage business correctly and failure to manage the economy correctly be rewarded with more taxpayers money? Let them fall. It’s sad and it’s bad but we had the benefits of the boom we just have to suck it up and make the best of it.

    Sometimes medicine tastes gross, but we still take it. Why does modern society think you can avoid anything that makes you uncomfortable, anything that may be hard to bear is supposed to somehow not happen. I think we’ve got to sit it out the hard way.

  6. Pete, many in the congress agree to your views, I guess.
    Congress voted down the proposal, ha!!!

  7. Hi Pete, I feel that it could get worse but I don’t know why or how. To my mind the City seems to run on wishful thinking and a false perception of wealth and stability. As soon as something goes wrong the whole system just collapses. Traders took a risk and it backfired. Letting them fail surely isolates the problem. Why throw good tax payers money after bad investements?

    I feel that there is a reason why it may be a good idea but I don’t know what it is.

    Vi, I saw that too. America certainly has an opinion on the matter.

  8. Hover – spot on with “good money after bad”. I also don’t understand quite how the city works as all of this wealth seems purely theoretical, the amount of actual wealth in the world has to be the same as it was last week etc, it seems our whole economy focusses on these few greedy sods being confident. Bizarre.

  9. I am, it must be said, feeling horridly smug that I sold up and moved to rented two years ago. I just hope that the money I banked is still worth something – but it is in my account with Nationwide.

    But all those people who voted for demutualisation of their building societies, they must also take their share of the blame.

    It’s also surprising that the largest capitalist economy in the world is really a communist one with all those failing banks in the US being taken in to public ownership. I wonder what Castro thinks about it… 🙂

  10. I think the problem started when Mr Bradford passed away leaving half the fortune to his young mistress, and then Mr Bingley kidnapped and killed the young mistress and underwent gender-realignment surgery, followed by extensive cosmetic surgery … to end up looking nothing like the young mistress; Ms Bingley then blew the rest on recreational drugs to get over the constant wave of depression (s)he found herself under knowing it would only be a matter of time before this nefarious scheme would be found out…

  11. I am feeling the same..i don’t see the money coming from areas that actually could afford to cut back..I see it costing the same people who the fall out would affect. I am so not for bailing these companies out. I can’t imagine that one would be worse than the other…but then I really don’t know either. But at least it would be something I choose and not something the government choose for me. They have way too much power over my money! 🙂

  12. Pete, interesting take on it. I suppose that the total amount of wealth in real terms must be the same. That means that the markets must either have been artificially boosted to appear wealthier or the money has been moved elsewhere.

    As I understand it the markets have been raised up by securitising on bad loans. Say 95% of loans are paid back normally it is “safe” to borrow against 95% of the loan book even though the money doesn’t actually exist. The problem exists when those loans are not repaid, say they are worth only 90% because of bad lending and you’ve borrow 95% against those loans. There’s no way to repay that debt but the market looks 5% higher (billions really). The whole mess is compounded by borrowing against the loans secured against a bad debt.

    Now shoring up the markets, in my view at least, seems like trying to keep the artificially raised value up when there is nothing to support it. However allowing them to fail means that the money is actually lost and the value of the market is reduced as less money is available to spend and invest.

    There are probably a lot of things that I’ve ignored in my amateurish assessment but that’s my understanding of it. I feel that the banks should be allowed to fail so that the markets can return to a realistic level rather than be propped up by unsound investments.

    Brennig, um I’m not feeling smug. I found out today that my house is now worth £20k less than I paid for it. Not that it matters as I’m not selling up and I’m not looking for a loan. It’s more like having that financial safety net taken away.

    I’m sure Communist America would be a delightful sight for Castro. Not such good news for Texas though.

    Wakeupscared, I did wonder where the young Ms Bradford came from. I’d assumed she was their adopted child and that Mr B and Mr B were about to out themselves publicly.

    Darla, the problem I have is ignorance of the reasons to shore up the markets. I read about the rescue plans and how they’re really needed but nobody says why and I have only a vague idea of the reasons. That and no-one has asked me if I’m happy to fork over my taxes to keep rich banks going.

    I suspect that no-one has any real idea of why they need the money put back into the market but big business is telling them it’s needed and no-one wants to look stupid by asking why. At least the Governor of the Bank of England seems to be stable in his policies and not rushing about like a headless chicken.

  13. Hover- I have the same questions as you…I find it even more questionable that both England and US have the same exact issue. Do you think they will ever tell us the truth? I kind of lost all faith in government..the rich really do get richer, and I did the things that some of the big business people have done in the US I would be in jail…but heres a novel idea…lets just bail them out and make the working class pay for it! 😯

  14. I don’t know what will happen now that the 700 billion dollar bail out package was passed by the US Congress. I can suggest what could have happened if it had not.

    Prior to 1929 the financial markets in the US were unregulated. Then we had the stock market crashed over three days in October 1929. The Gov’t still did nothing and this inaction likely lead to, certainly contributed to, the Great Depression of the 193O’s , unemployment rates soared to over 25%.

    Legislation was passed to curb speculation, such as the Glass-Steagall Act of 1933. These have now all been repealed, Glass-Steagall in 1999, to de-regulate the business environment. It does not appear that de-regulation has worked too well

    Far too many Americans owe too much money for this bail out to, by it’s self, solve the problem. This bail out does at least reduce the risk of 25% unemployment rates.

    There will very likely still be a world wide recession. This recession however is unlikely to develop into a depression, unless everybody pretends that the problem is now fixed.

    The Gov’t doesn’t need to tell business how to operate, it had better make sure however that our bank deposits are safe.

  15. The interesting thing is that the US economy doesn’t have 700 billion to pay for the bailout (sorry, rescue package) – and the reality is that the true bottom line will be substantially greater than that anyway.

    I’m not standing in a glasshouse throwing stones because I’m not sure that the UK really has the amount the government is pledging either. I really wonder how far away we are from seeing the bankruptcy of a major economy or several.

  16. Playing Devil’s advocate for a moment….

    I wonder why it is that when major financial institutions look like losing their homes the Government takes $700 billion from the taxpayer to help them stay ‘afloat and keep their house in order but when 20 million have ither lost or in danger of losing thteir homes the Government did not take the same amount from financial profit making agencies to keep their customers keep their heads above water and keep their homes intact?

    Why does the money go directly to the Banks and not to the people whose money it is really so they can put it back into the economy by clearing the bad debts that lead to this disaster in the first place?? 🙂 maybe because the little people don’t pay enough in campaign donations or lobbying techniques perhaps??

    <B

  17. Another q:

    Why did the first package for $700 billion get rejected in the lower house (mostly because of the party of the President whose plan it was) but then get passed after the total amount remained the same but $150 billion was set aside for the Government guaranteeing people’s investments in cash in banks only for those people who had between $100,000 and $250,000 ( and more) in cash in those banks? Do people who have over the previously guranateed $100, 000 bank balances determine if government policy of the republican party is passed would you say?

    just what proportion of US society is that – exactly?

    Who do governments Truly care about in the economy?

    Are we happy about that?

    OK 4 more questions actually 🙂

    <B

  18. Crikey lwbut, don’t you have any answers?

    I still think it’s funny that the largest capitalist government in the world is becoming the owner of a nationalised banking system.

    Not funny ha ha though. It’s not a laughing matter.

  19. As I understand it the Gov’t is going to buy the bad debts, mortgages, that financial institutions now hold. The idea is to slow down the record number of bankruptcies and fore-closures now occurring. The main target is supposed to be the Americans who have overextended themselves on their mortgages.

    “Why did the first package for $700 billion get rejected in the lower house”

    A lot of representatives, mostly Republicans but some Democrats as well, voted no, mostly because the mail, and e-mail, they received from the public was about 10 to 1 against the bail out. After over 300 pages of special projects were added (surprise) it passed.

    The idea behind FDIC, Gov’t, insurance of bank deposits is to encourage people to not withdraw their funds in a panic. I don’t know how many people have at least $250,000 in bank deposits, but the old limit of $100,000 was clearly not enough.

    “Who do governments Truly care about in the economy?” Prior to 1929 the Gov’t didn’t “care”, then we had the Depression of the 1930’s and the public demanded more controls be put in place. Of course over time these controls were repealed and that contributed to the crisis we see today.

    Are we happy about that?” What the public decides to do with it’s money is what determines the health of the economy. Too much borrowing by the public, and business, is the primary reason for this crisis. The alternative is cycles of boom and bust, like the 1930’s Depression. I am not happy but I like the alternative even worse.

  20. i never said i didn’t have my own answers! 🙂

    i was playing Devil’s Advocate and wondering what other’s thought first 😉

    my answers are unlikely to be well received by the banking/financial sector – we obey different masters 🙂

    And clearly – i’m not the one in charge.(so my answers are at best of limited ‘appeal’ here). Does anyone still believe GW is – or that he has a clue about what to do? 🙂

    <B

  21. Just a personal observation here: All good businesses make provision for ‘bad debt’ – that the provisions major financial institutions/systems have allowed to become common acceptable prractice, (such as collateralised debt obligations or CDO’s) combined with simple human greed and the increasing economic incentives to produce ever larger profits ‘for the shareholders’ (what a fairy story that is) of the larger corporations and institutions, at the expense of those who cannot compete and so ‘fail’ are indicative of the real problem here which is basically, that it is very hard to make a slik purse out of a sow’s ear or you can’t make something out of nothing and expect it not to collapse in a heap from time to time.

    Especially when you have to rely upon the human factor(s) in the equation.

    If we don’t learn from ‘nature’ and place limits on our own masive uncollateralised ego’s and instead operate on solid foundations within our own need for the mutual benefit of all fairly, rather than want/greed unfairly, then we will continue to experience such necessary ‘corrections’ and even over-corrrections in the future.

    <B

  22. lwbut, that seems fair but how does applying a “correction” to the market, all $700 and £50 billion, make the market stable again? Isn’t it just keeping the market artificially inflated?

  23. Abso-positively – we are in large agreement on this it seems?

    As are the people with large sums of money invested in the world share markets this last week – Correction Delivered! 🙂

    You can stop now guys…. please?? 🙂

    <B

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