Sunday Telegraph - Business Section

[gpers]

Did any body notice the article on the front page of the Sunday Telegraph's business section:

 

http://www.telegraph.co.uk/money/main.jhtm...13/cnhbos13.xml

 

which mentions the island

[Gladys]

Ooh, a struggling airline based in the Isle of Man. Which one could that be?

[Major Chip Hazzard]

Is this end to yet another island airline? Or a hike in air fares? Higher and higher house prices and travel makes the rock seem less attractive by the day.

 

And the big question is, has the guy give money to any other struggling Manx businesses and does the bank want it's money back?

[Lost Login]

Remember it says based and not operating from. They do not have to be the same and some large cut price airlines have or did have IOM subsidiaries.

 

I have no idea whom they mean and do not want to guess or make assumptions as defamatory comments can be costly. Having seen how some of these threads go previously please everybody bear that in mind just in case anybody is thinking of using this post to throw unfounded acusations around based on heresay or problems thay have had with an airline in the past.

 

 

Ooh, a struggling airline based in the Isle of Man. Which one could that be?

[GD4ELI]

Is this end to yet another island airline? Or a hike in air fares? Higher and higher house prices and travel makes the rock seem less attractive by the day.

 

And the big question is, has the guy give money to any other struggling Manx businesses and does the bank want it's money back?

Airfares are very inexpensive if you book in advance, beats the train and boat any day. Looking at the cost of the fare (price minus airport charges) it's about as expensive to fly from London to Ronaldsway as it is to take a taxi from the airport to Ramsey.

[Albert Tatlock]

This story is really about bad debts and greedy bankers who will be the downfall of all of us. Bad debts are estimated to be in the region of 20% for UK banks at the moment, which means they won't get £20 for every £100 they lend. Even some of the banks are now starting to realise the extent of the problem.

 

Banks are lending too much money (30 times actual deposits in many cases). Given that the bulk of the money banks lend was created out of thin air in the first place, it is money that they can afford to lose. It just means that their profits are a few billion pounds less each year than they would otherwise have been. 97% of the money in the British supply chain is bank generated, which means the bulk of it is not real - which is the 'smoke and mirrors economy' I keep referring to.

 

Too much cheap money in the system is a major factor of inflation, and too much inflation causes higher interest rates - the cost of which businesses pass on to their customers, further fuelling inflation and interest rate rises. Because of all this banking deregulation - it is the banks, by generating unreal money, that control the economy and not the government. We have seen massive house price inflation, because where else is there to invest all this unreal money at the moment?

 

Both Margaret Thatcher and Tony Blair have allowed this to continue. But when interest rates climb to critical values, people start losing jobs and can't pay their mortgage or loans, house prices go into free fall - and the next thing is a recession. IMO we are still in a boom and bust cycle, but now it is controlled by the banks and the length of the cycle is not restricted to the term of office of particular governments anymore. The present system is based on legalised counterfeiting, not legitimate free-enterprise.

 

Directors of limited companies are in a position where they are protected from bad debts and can just simply go bust every now and again and reform as "Phoenix _______". For individuals who borrow, however, this difficulty with debt is not so easily dismissed. Banks do not allow individual borrowers to walk away from their commitments without difficulty, and homes are repossessed; businesses go bankrupt; court judgements are imposed; debt-collectors are set onto people; sleepless nights become common; marriages break-down etc. etc. How many banks went bust in the last couple of recessions? - banks make money regardless of whether interest rates are high or low - but when interest rates are high it is joe public that invariably gets all the pain.

[Max Power]

If a 'certain airline' were in trouble, in addition to the borrowing issues highlighted by Albert Tatlock, our government's 'open skies' policy, whilst certainly inviting competition, has too many airline businesses fighting for too few customers. This leads to an obvious loss of revenue for re-investment.

 

Like many businesses on the island there needs to be some level of protection to ensure that an adequate and cost effective service is maintained. That is not to say that there should not be some level of competition, just some control over the number of businesses allowed to operate and where they fly to?

[Lonan3]

I had to buy the Sunday Telegraph for the 'Horrible Histories' CD that my daughter wanted - but, actually read it?

[thebees]

Albert - Genius post. I ponder the fake economy often.

[Chinahand]

Albert - Genius post. I ponder the fake economy often.

 

There are very serious issues about bad debt provisions and the growth of credit, but I think Albert Tatlock is latching onto entirely the wrong point talking about loans to deposit ratios - there are very complex issues between flows and stocks of money in reserve requirements and to say "97% of the money in the British supply chain is bank generated, which means the bulk of it is not real - which is the 'smoke and mirrors economy' I keep referring to" is to miss the point and exaggerate the issue.

 

In the economy as a whole 3% of average deposits are needed by the depositor each year - the rest aren't needed and can be lent out. There is a chance this figure is incorrect and should be say 4%, but to claim 97% of the money supply is not real is just not true.

 

Another way to think about it - say you've got £2000 in your account - each month you get your money in, and spend all of it - ie your account remains resonably constant, sometimes you spend a bit more, sometime a bit less. Even though you are spending 100% of your salary each month your average deposit is reasonably constant - the banks lend this money on to someone else - that's good - it provides you interest and helps another person. The bank reserves £60 quid (on average) to cover the times you draw down. Please note this is a tiny account so the flows in and out look like they could easily swamp £60 quid, but for companies etc the average balance is alot higher and the variation a lot lower. I think what shocks people is the flow figure - spending 100% of your salary, and not the stock figure - your meagre bank account actually stays reasonably constant - cos you've spent all your salary, and your savings aren't worth raiding so they sit there reasonably untouched!! It is the stability of your account that creates finance, not the instability of you always spending all your salary!

 

When Albert Tatlock says this is smoke and mirrors is just plain misunderstanding the issue - the bank lends out 97% from this acount - and so creates another (slightly smaller) bank account - which the bank then lends 97% out - creating another slightly smaller bank account - which the bank lends 97% out etc etc etc until it is multiplied in the economy 30 fold.

 

Its not smoke and mirrors or a fake economy - its the banks being able to take advantage of the fact that average balances are reasonably constant even though people churn huge amounts of money through them. These are ecometric issues and confusing the flows - spending 100% of your salary - with the stability of the average account is where Albert's gone wrong - quite definitely this is NOT money "created out of thin air in the first place" nor can the banks "afford to lose" it. - its yours the bank have just lent it on.

 

That said controling lending and bad debts is important - the late 80s early 90s were a bad time when the last debt bubble got out of hand. We aren't in that situation YET - but it is important, for banks to monitor it - guess what they are!

 

I thought this report by the Telegraph was interesting - the increases in Bad Loans are serious - BUT look at them in proportion to profits. The emphasis on this issue NOW, when banks are making money hand over fist, and Bad Debts are not significant percentages, shows the change in climate from the 90s.

 

I do worry about both company and personal bankrupcies - very serious issues for all involved, but to use this to say 97% of the economy isn't real is to miss the point - not so much smoke and mirrors as baiting and switching onto another entirely different issue.

 

Edited: added a bit more explanation!!! God I do go on!

Edited again to maybe correct things after Grumble's query.

[Grumble]

Fascinating stuff Chinahand, that I've never really understood.

 

But in this account where £2k a month is going in and being 100% spent, there's only that amount available to 'loan' on nominal Day One (payday). By day 30 there's fresh air - so where's the two grand to lend. Or even cover the £60 daily drawdown?

 

Sorry for being a simpleton, but I know bugger all about finance and actually find this interesting.

[Chinahand]

Grumble - no I'm assuming the balance is £2000 on average - to extend it a little lets say you have a credit card and pay the bill off on the same day as your pay packet - you've £2000 savings - put your bills on your credit card and pay off the credit card with 100% of your salary. In that case your account wouldn't alter one bit over the month. Its innovations like that which have allowed reserve requirements to decrease over the decades - when everything was cash or cheques the system was very slow and the flow figures affected the average more - technology, and credit innovations, have changed things alot.

 

Make sense?

[Albert Tatlock]

Albert - Genius post. I ponder the fake economy often.

 

There are very serious issues about bad debt provisions and the growth of credit, but I think Albert Tatlock is latching onto entirely the wrong point talking about loans to deposit ratios - there are very complex issues between flows and stocks of money in reserve requirements and to say "97% of the money in the British supply chain is bank generated, which means the bulk of it is not real - which is the 'smoke and mirrors economy' I keep referring to" is to miss the point and exaggerate the issue.

 

In the economy as a whole 3% of average deposits are needed by the depositor each year - the rest aren't needed and can be lent out. There is a chance this figure is incorrect and should be say 4%, but to claim 97% of the money supply is not real is just not true.

 

Another way to think about it - say you've got £2000 in your account - each month you get your money in, and spend all of it - ie your account remains resonably constant, sometimes you spend a bit more, sometime a bit less. Even though you are spending 100% of your salary each month your average deposit is reasonably constant - the banks lend this money on to someone else - that's good - it provides you interest and helps another person. The bank reserves £60 quid (on average) to cover the times you draw down. Please note this is a tiny account so the flows in and out look like they could easily swamp £60 quid, but for companies etc the average balance is alot higher and the variation a lot lower. I think what shocks people is the flow figure - spending 100% of your salary, and not the stock figure - your meagre bank account actually stays reasonably constant - cos you've spent it all!! It is the stability of your account that creates finance, not the instability of you always spending all your salary!

 

When Albert Tatlock says this is smoke and mirrors is just plain misunderstanding the issue - the bank lends out 97% from this acount - and so creates another (slightly smaller) bank account - which the bank then lends 97% out - creating another slightly smaller bank account - which the bank lends 97% out etc etc etc until it is multiplied in the economy 30 fold.

 

Its not smoke and mirrors or a fake economy - its the banks being able to take advantage of the fact that average balances are reasonably constant even though people churn huge amounts of money through them. These are ecometric issues and confusing the flows - spending 100% of your salary - with the stability of the average account is where Albert's gone wrong - quite definitely this is NOT money "created out of thin air in the first place" nor can the banks "afford to lose" it. - its yours the bank have just lent it on.

 

That said controling lending and bad debts is important - the late 80s early 90s were a bad time when the last debt bubble got out of hand. We aren't in that situation YET - but it is important, for banks to monitor it - guess what they are!

 

I thought this report by the Telegraph was interesting - the increases in Bad Loans are serious - BUT look at them in proportion to profits. The emphasis on this issue NOW, when banks are making money hand over fist, and Bad Debts are not significant percentages, shows the change in climate from the 90s.

 

I do worry about both company and personal bankrupcies - very serious issues for all involved, but to use this to say 97% of the economy isn't real is to miss the point - not so much smoke and mirrors as baiting and switching onto another entirely different issue.

 

Edited: added a bit more explanation!!! God I do go on!

I disagree entirely. Things might have worked that way in the past.

 

It would be interesting to see you explain HOW the level of UK personal debt now amounts to 104 per cent of UK GDP - based on what you have said above - without inventing money. The issuing of new money as credit, has driven the UK deeply into debt. Debts (public and private) now total several trillions of pounds.

 

edited - no it wouldn't.

[Chinahand]

Albert GDP is a value added figure - I own a company - I borrow and spend £1000 making a profitable item - I sell the end item for £1100 - my contribution to GDP £100 my debt £1000 - the ratio of Debt to GDP 1000% - relevence of this to what you are going on about - no idea.

[Karellen]

Still off topic, but a high proportion of bank provided debt (not sure how much) doesnt actually sit on the bank's balance sheet but is taken off balance sheet through debt securitisation issues, which put simply means that the banks bundle up lots of small loans and issue bonds to investors priced to reflect the underlying risk of credit default. So for example a bundle of first mortgage property loans would carry a lower risk than a bundle of unsecured credit card loans. Who are the investors buying these bonds - they are in the insurance and investment companies which manage our pension contributions.

 

This is where the next credit crunch will come from, and the first indications of it appeared a few weeks ago in America with signs of sub-prime mortgage default. For sub-prime mortgage read high risk second mortgages.