thesultanofsheight Posted February 1, 2009 Share Posted February 1, 2009 What you have now said makes more sense, except the last part where you claim the DCS might have been a factor in persuading bigger depositors to invest here. You must think they are pretty stupid. What I said is that many believed what our government and the banking industry told them about safety, security, and stability through the IOM. Whether that makes them stupid is not my call - if you think that's stupidty then fair enough. Personally if I read loads of stuff on official websites telling me about how safe the Island is, how well regulated it is, and how we are so confident in our banking industry that we have a compensation scheme exactly the same as the UKs to cover smaller deposits I might just believe it and make a deposit slightly bigger than I was originally planning to do. Human nature is to trust in many of these situations particularly is the source of the information looks authoratitive. For this reason I believe we have to pay out because of the message we have put out over the years that we are trustworthy and secure. Link to comment Share on other sites More sharing options...
Sebrof Posted February 1, 2009 Share Posted February 1, 2009 Personally if I read loads of stuff on official websites telling me about how safe the Island is, how well regulated it is, and how we are so confident in our banking industry that we have a compensation scheme exactly the same as the UKs to cover smaller deposits I might just believe it and make a deposit slightly bigger than I was originally planning to do. Human nature is to trust in many of these situations particularly is the source of the information looks authoratitive. For this reason I believe we have to pay out because of the message we have put out over the years that we are trustworthy and secure. In fairness to IOMG, the present disaster is not of their making, and is much bigger in scale than almost anybody foresaw. The big problem is that once you become aware that there is a problem, it is very difficult to do much about it without causing panic - as NR demonstrated. If the IOMG was aware in the months before the KSF fiasco that there was going to be trouble, I am not sure what they could have done about it. And I do agree that the IOMG does have to stand by the DCS, if it can. But what will happen if another bank goes bust I hate to think. I just hope people use their heads and work out that, like Iceland and Ireland, the IOM just isn't big enough to be able to afford to guarantee deposits in every bank. S Link to comment Share on other sites More sharing options...
La_Dolce_Vita Posted February 1, 2009 Share Posted February 1, 2009 Because the economy relies on banks. When a bank fails, it's not the bankers who lose out, it's the people they owe money to, and the people who would have borrowed from them. You allow the banks to fail, and your economy is buggered. You bail em out, the economy limps on and you may get your investment back one day. The government could actually do quite well out of these bailouts in the long term, they've got some very cheap banking stock. Oh yes, I recognise the importance of the banks. But it is the absolute injustice and farce of the situation. I say this because we live in a system where we are supposed to accept that those who own and run businesses are free to take risks and make decisions as those businesses are their property and their responsibility. When they mess up, the travesty of the situation is that people lose their jobs. And they have done. Therefore, people who have absolutely no say in the system bear the costs. But the compound this, the government gets involved and rather than leaving responsibility with the capitalists for their mistakes, they shift it over to the people. It is anti-capitalist. It has socialised the responsibility when there is no socialised control over the running of the economy. It is nothing more than theft, nothing more. It's acceptability only stems from the fact that the cost of letting a bank fall will be terrible, but this doesn't justify bailing it out. Maintaining this status quo only seems in my eyes to be maintaining a system prone to failure and one where the buck stops with the taxpayer. As Slim suggested, the problem was in large part caused by ordinary working people who took out loans they couldn't afford to fuel their spending frenzy and force up house prices. Had they been less greedy and self-deluding we would be in much better shape now. Bankers can't force people to borrow, you know. It takes two to tango. Incidentally, I place much more blame on the lenders and regulators, who should have known better. But the general public is not blameless. Yes I understand that the working class has taken these loans. They make a decision to take them. But so what? Working class people are mainly paid badly, are subject to financial instability because of the nature of their employment, and are subject to the effects of commercialism. But to go back to what I was saying. If the bank has lent too much, then that is the capitalists problem. They made the decisions on what they will sell and who they will give it to. And if we lived in a society that stuck to capitalist principles it would be 'tough shit'. The banks made the mistakes and it is left on its own. Link to comment Share on other sites More sharing options...
P.K. Posted February 1, 2009 Share Posted February 1, 2009 As Slim suggested, the problem was in large part caused by ordinary working people who took out loans they couldn't afford to fuel their spending frenzy and force up house prices. Had they been less greedy and self-deluding we would be in much better shape now. Bankers can't force people to borrow, you know. It takes two to tango. Incidentally, I place much more blame on the lenders and regulators, who should have known better. But the general public is not blameless. I disagree that the problem was in large part caused by folks taking out loans they couldn't afford. If you go to someone who lives by moving dosh around not only are you not going to bother asking them where the money is coming from (because at he end of the day you really don't care) but if they think your security is sufficient for the loan then you are going to trust their judgement. After all, they're the ones in the know and if they get it wrong they are just as bollocksed as you are - apart from the obscene bonus they've already swagged away that is (hopefully somewhere offshore like Iceland). Face it, people are always going to need loans like morgages so you can hardly say it's their fault. It falls apart because it's so layered. Mrs Goggs (pensioner) puts £1000 in her local bank. On the strength of that head office loan £800 of it to spotty Kevin Chav to buy a Corsa from a mate's mum who needs it because hubby has left her and he has the driving licence. She puts it in the local bank to help pay for her son's brief for his upcoming court case. On the strength of that the local bank loan £600 of it to Waynetta Chav for her upcoming holiday to Shagaluf. The travel agent books her holiday and abortion clinic and banks the £600. On the strength of that Bank 18-30 loans £400 of it to spotty Hoodie Chav so he can buy a massive plasma screen to watch his pirated porn dvd's in his bedroom. So the original £1000 from that nice Mrs Goggs (pensioner) is now the backstop for £1800 of dodgy loans. And it's just business as usual... Link to comment Share on other sites More sharing options...
thesultanofsheight Posted February 1, 2009 Share Posted February 1, 2009 I just hope people use their heads and work out that, like Iceland and Ireland, the IOM just isn't big enough to be able to afford to guarantee deposits in every bank. Or the UK. I know its in the Dail Wail but the following by John Redwood was interesting: http://www.dailymail.co.uk/news/article-11...bigger-are.html The UKs banking industry also dwarves the UK econony so their promises are effectively worthless too. RBS alone has £2 trillion of liabilities, and there is no was even the UK government can underwrite that if it goes wrong. Link to comment Share on other sites More sharing options...
Pragmatopian Posted February 1, 2009 Share Posted February 1, 2009 It falls apart because it's so layered. Mrs Goggs (pensioner) puts £1000 in her local bank. On the strength of that head office loan £800 of it to spotty Kevin Chav to buy a Corsa from a mate's mum who needs it because hubby has left her and he has the driving licence. She puts it in the local bank to help pay for her son's brief for his upcoming court case. On the strength of that the local bank loan £600 of it to Waynetta Chav for her upcoming holiday to Shagaluf. The travel agent books her holiday and abortion clinic and banks the £600. On the strength of that Bank 18-30 loans £400 of it to spotty Hoodie Chav so he can buy a massive plasma screen to watch his pirated porn dvd's in his bedroom. So the original £1000 from that nice Mrs Goggs (pensioner) is now the backstop for £1800 of dodgy loans. And it's just business as usual... Straight from the Daily Mail bumper book of examples. All that's missing is an illegal immigrant borrowing some money to pay for bombs. Link to comment Share on other sites More sharing options...
Sebrof Posted February 1, 2009 Share Posted February 1, 2009 As Slim suggested, the problem was in large part caused by ordinary working people who took out loans they couldn't afford to fuel their spending frenzy and force up house prices. Had they been less greedy and self-deluding we would be in much better shape now. Bankers can't force people to borrow, you know. It takes two to tango. Incidentally, I place much more blame on the lenders and regulators, who should have known better. But the general public is not blameless. I disagree that the problem was in large part caused by folks taking out loans they couldn't afford. If you go to someone who lives by moving dosh around not only are you not going to bother asking them where the money is coming from (because at he end of the day you really don't care) but if they think your security is sufficient for the loan then you are going to trust their judgement. After all, they're the ones in the know and if they get it wrong they are just as bollocksed as you are - apart from the obscene bonus they've already swagged away that is (hopefully somewhere offshore like Iceland). Face it, people are always going to need loans like morgages so you can hardly say it's their fault. I was replying to LDV's comment that the workers were blameless, and pointing out that in fact they too played a part. But as I said, I place MUCH more blame on the bankers/regulators. It falls apart because it's so layered. Mrs Goggs (pensioner) puts £1000 in her local bank. On the strength of that head office loan £800 of it to spotty Kevin Chav to buy a Corsa from a mate's mum who needs it because hubby has left her and he has the driving licence. She puts it in the local bank to help pay for her son's brief for his upcoming court case. On the strength of that the local bank loan £600 of it to Waynetta Chav for her upcoming holiday to Shagaluf. The travel agent books her holiday and abortion clinic and banks the £600. On the strength of that Bank 18-30 loans £400 of it to spotty Hoodie Chav so he can buy a massive plasma screen to watch his pirated porn dvd's in his bedroom. That's a more colourful description of the banking industry than you will find in most text-books, but perhaps not wholly inaccurate. However, it doesn't absolve bankers of the criticism that they were too lax in their lending, and that somewhere over the past twenty-odd years (remember the "greed is good" decade and Gordon Gecko?) bankers changed from being boring but careful Captain Mainwaring types into "masters of the universe" lacking caution, competence, and ethics. S Link to comment Share on other sites More sharing options...
Slim Posted February 1, 2009 Share Posted February 1, 2009 Oh yes, I recognise the importance of the banks. But it is the absolute injustice and farce of the situation. I say this because we live in a system where we are supposed to accept that those who own and run businesses are free to take risks and make decisions as those businesses are their property and their responsibility. I agree with you. The taxpayer bailouts are bad enough, but we'll hopefully get that dosh back in the cases of the banks who don't go under. The levies are far worse though, you're taking money from healthy banks to cover failed banks, and that absolutely sucks. I fully understand that the healthy banks are benefiting from the scheme, but it still seems fundamentally wrong to me. The banks should, in my opinion, all pay in advance into the fund before it's needed, then at least the failed bank will have contributed as well. Maintaining this status quo only seems in my eyes to be maintaining a system prone to failure and one where the buck stops with the taxpayer. Hold on there though, the bail outs are supporting what you're saying, the banks are being nationalised and aren't being let away without cost. It's not like the government are offering unconditional bail outs, there's several large banks like Barclays who've gone to great lengths to not accept the bail outs because of the controlling influence it gives the governments. But to go back to what I was saying. If the bank has lent too much, then that is the capitalists problem. They made the decisions on what they will sell and who they will give it to. And if we lived in a society that stuck to capitalist principles it would be 'tough shit'. The banks made the mistakes and it is left on its own. We're not operating in a free market though, it's not as idealistic as you make out. Those banks operated under restrictions and mechanisms enforced through government legislation and national banks. Many think the root of the problem is government influence in the first place, forcing cheap credit to kick start the worlds economies after 9/11, so why should the banks be solely to blame? It's not their problem alone. Link to comment Share on other sites More sharing options...
manshimajin Posted February 1, 2009 Share Posted February 1, 2009 On the discussion of why bail out the banks? As long as banks continue to have huge bad and doubtful debts their Capital Adequacy requirements will keep soaking up taxpayer capital like a sponge soaks up water - and precious little will make it through to the lending/financing operations. The banks' priority continues to be to restore their balance sheets and capital. It is not to finance economic activity. One lateral idea that has been put forward in Ireland by some economists is that it might be better to bail out the borrowers rather than the banks. That way it does some general public good and gets money back into the banks through the front door rather than the back door. Problem is of course that the loans to private individuals and small businesses are dwarfed by the lending to developers. Sebrof you commented If the IOMG was aware in the months before the KSF fiasco that there was going to be trouble, I am not sure what they could have done about it. If they were aware that a problem was looming I would hope that they would have put the regulator on notice to monitor the situation daily, taken the Directors of KSF into a meeting and given them the gypsies' warning, had discussions with the UK and Icelandic authorities and monitored cash flows in an out of KSF - I am not sure if they could have blocked outflows - but they surely would have checked this out. Link to comment Share on other sites More sharing options...
Sebrof Posted February 1, 2009 Share Posted February 1, 2009 If the IOMG was aware in the months before the KSF fiasco that there was going to be trouble, I am not sure what they could have done about it. If they were aware that a problem was looming I would hope that they would have put the regulator on notice to monitor the situation daily, taken the Directors of KSF into a meeting and given them the gypsies' warning, had discussions with the UK and Icelandic authorities and monitored cash flows in an out of KSF - I am not sure if they could have blocked outflows - but they surely would have checked this out. I go along with that, but would it have been enough? If they couldn't block the outflows then it would have been to no purpose. The outflows are vital. The money people deposit here has to go off the island to obtain a return. It can't just sit here gathering dust. S Link to comment Share on other sites More sharing options...
Slim Posted February 1, 2009 Share Posted February 1, 2009 I'd have to disagree with you there. The banks are largely responsible for this mess IMHO and its only really a lack of government regulation to reign them in where perhaps the [uK] government is at fault. I left banking in the mid to late 90s when the whole modus operandi of the banks became pushing cheap credit to idiots. It was obvious then that it was all going to go horribly wrong, and I'm amazed that this crunch didn't happen sooner. Where did the cheap credit come from Boredom? It came from central banks, via governments. This is a big and complicated problem, and there's a lot of reasons why it happened the way it does and banks share part of the blame. But they're not solely responsible. I don't buy the argument that people are blameless for taking on too much debt. These people are adults, they can make their own minds up. Link to comment Share on other sites More sharing options...
manshimajin Posted February 1, 2009 Share Posted February 1, 2009 The outflows are vital. The money people deposit here has to go off the island to obtain a return. It can't just sit here gathering dust. In extremis which is better - allowing money to go offshore to obtain a return or protecting deposits and depositors? S if you were in Government and you had strong signals that there was going to be trouble what would you do? I'd be checking out what my legal capacity was to protect the depositors and be looking at what the law says about Directors responsibilities and liabilities (whilst letting them know I was doing that). And I would be liaising with the UK Government and Treasury to agree a course of action between us - hopefully avoiding the kind of knee jerk reaction that happened post closure with KSF. Ultimately the capacity to prevent funds outflow would be the big issue of course - but a joint position with HMG would be helpful if the company was a subsidiary or partner of a UK institution. I might even pass a law to allow the regulator powers to control outflows - if such powers did not already exist. Prevention is better than cure - as we are finding out. Of course what I do not know was whether the IOMG had any inkling of what was about to happen. Judged on their performance apparently not. Link to comment Share on other sites More sharing options...
pongo Posted February 1, 2009 Share Posted February 1, 2009 Where did the cheap credit come from Boredom? It came from central banks, via governments How so? Link to comment Share on other sites More sharing options...
Slim Posted February 1, 2009 Share Posted February 1, 2009 To a point but where do you stop? In the last few years though people have lost their heads to a degree. I have a very good salary and for years I've never been able to understand why everyone seems to live in a nicer house than me or drive a better car, or have better holidays. Me I'm a realist and I left banking because the way they targeted staff for basically getting people into more debt totally disgusted me. It used to be that banks encouraged fiscal prudence whereas in the last few years its been about selling crap to meet targets. I have a friend who spend 10 years paying off his mortgage to the point his house was unencumbered. He went to his bank for financial advice and they said 'Why don't you borrow £300k against your property and grab a few buy to lets?. Me I couldn't and wouldn't offer that advice because I believe I have a degree of integrity and self respect left but that is what people have been told. If you hear it often enough you believe it. Same, I was offered double what I eventually took as a mortgage, and I've no debts other than that. Aren't you agreeing with me, that people are responsible for controlling their own finances? Link to comment Share on other sites More sharing options...
Slim Posted February 1, 2009 Share Posted February 1, 2009 How so? By acting like they are now, dropping base rates and encouraging spending to try to get out of a recession. Link to comment Share on other sites More sharing options...
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