£11 Million Of Our Money To Ksf Depositors?!

[Sebrof]

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.

 

I don't disagree with any of what you say, other than feeling that it probably would not have been feasible to retain substantial funds here without the news getting out - which would have prompted a run.

 

As you say, prevention is better than cure. When it comes to banking, there actually isn't a cure. Asset prices collapse, loans go bad, and you have to mortgage your children's future to get the whole thing going again.

 

S

[Slim]

No I'm saying that you obviously had the self restraint to ignore what your bank was advising you to do. However, other people told the same story likely thought 'ok I'll go with it because my bank obviously thinks its a sensible thing to do'.

 

When you go into a car show room, the salesman will think that buying the most expensive car there is the sensible thing to do. When you go into a pub, the landlord would like you to swill as much of his expensive booze as possible. It's up to you to consume appropriately. What's the difference with credit? Why should we be blameless in consuming that and not mcdonalds?

[Slim]

Well this is the crux of the matter - when bankers stopped being bankers and became sellers of credit that is what happens they become no better than car salesmen. To me the banks still shoulder a large degree of the responsibility because they should never have been transformed into sellers, they should be banking advisers and debt managers. Surely historically that is what the role of a bank was? But big bonuses at the top just created a sales pyramid scheme for debt.

 

I don't get 'when bankers stopped being bankers'. Banking is receiving and lending money. The word bank comes from money lenders setting up stalls on long tables. It's their job to sell credit, governments and central banks improved their ability to sell credit by making it cheap post 9/11.

[Sebrof]

Well this is the crux of the matter - when bankers stopped being bankers and became sellers of credit that is what happens they become no better than car salesmen. To me the banks still shoulder a large degree of the responsibility because they should never have been transformed into sellers, they should be banking advisers and debt managers. Surely historically that is what the role of a bank was? But big bonuses at the top just created a sales pyramid scheme for debt.

 

I don't get 'when bankers stopped being bankers'. Banking is receiving and lending money. The word bank comes from money lenders setting up stalls on long tables. It's their job to sell credit, governments and central banks improved their ability to sell credit by making it cheap post 9/11.

 

 

How old are you, Slim? I don't mean that rudely, but it seems that you don't recall the days when banks were much more conservatively run. Many of those who do, and suddenly found boring old Mainwaring saying: "Go on, you can afford it", would have thought: "Well, if he says so, who am I to argue?"

 

There really has been a huge change, and it happened quite quickly. This is what fundamentally caused the problem, not the availability of cheap money. We just weren't used to bankers being spivs, because in the old days, they were pillars of rectitude.

 

S

[manshimajin]

How old are you, Slim? I don't mean that rudely, but it seems that you don't recall the days when banks were much more conservatively run. Many of those who do, and suddenly found boring old Mainwaring saying: "Go on, you can afford it", would have thought: "Well, if he says so, who am I to argue?"

 

There really has been a huge change, and it happened quite quickly. This is what fundamentally caused the problem, not the availability of cheap money. We just weren't used to bankers being spivs, because in the old days, they were pillars of rectitude.

Some of this I trace to when banks began to see themselves as 'broad based financial services' groups and started to try to get involved with things that they had no idea about - but had lot's of customers they could cross-sell to. So they started on insurance, progressed to pensions, moved onto being investment advisors and even trying (for exorbitant fees) to do probate. I recall being pestered on many occasions when I went into a bank in the 90s by spotty staff who had been sent out to sell unit trusts or Argentinian Railway Bonds to people in the lengthening queues (they had cut back on counter staff by then). Greed made them forget about 'sticking to their knitting'.

 

I remember my 'Captain Mainwaring' calling me into the Branch when I was about 24 - I had asked for a cheque guarantee card for (I think £20) and was give the third degree before he would hand it over complete with a 'use this wisely young man' lecture'. Ah those were the days when banks did banking and knew you.

[La_Dolce_Vita]

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.

 

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.

 

Oh yeah, I can see that the government bail-outs are not what the bank would want. Though in effect, the massive failure of the banks leads to the government (which handles taxpayers money) taking on the problem.

 

No we are not operating in a free market. We have a very dodgy system where because of the inevitability of the failing of free market economics you have a government that exists largely to smooth out damage done by their failures. But this is achieved by using taxpayers as a source of funds.

 

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.

 

I don't see how this is an improvement. Does it not amount to same thing except that the would not take the control it would if it bailed out the bank directly?

 

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.

 

But it doesn't sound as if you take into account the financial position of those who in the majority take such loans.

 

In any case, why should someone who has nothing to do with this bank be involved? This is the most important point when evaluating whether the public should cough up. Even if a large number of people are to blame, which I don't believe they are, this does not mean all taxpayers are too.

[Slim]

How old are you, Slim? I don't mean that rudely, but it seems that you don't recall the days when banks were much more conservatively run. Many of those who do, and suddenly found boring old Mainwaring saying: "Go on, you can afford it", would have thought: "Well, if he says so, who am I to argue?"

 

There really has been a huge change, and it happened quite quickly. This is what fundamentally caused the problem, not the availability of cheap money. We just weren't used to bankers being spivs, because in the old days, they were pillars of rectitude.

 

 

Specifically when? What were the interest rates then?

[manshimajin]

Having a commission based system of reward, the property market being the prime example, is bad for creating asset bubbles as you need to sell more of a particular service to benefit from more income. It leads to irresponsibility on behalf of those selling the services as the sale becomes more about lining their pocket and less about whether that service should be sold to a particular person and this is where the banks failed. In short if your paid on commission on a loan you don't care whether the loan defaults in two years time as that is another financial year and you'll have moved on to other customers then.

Boredom the other element to add to your evaluation is what I mentioned above. Banks diversified into broad based financial services groups - commission driven as you say. Mortgages are excellent for generating additional commission based earnings - life insurance, contents insurance, income protection insurance, consumer finance loans and probably some more.

 

So one mortgage can generate 4 or 5 income streams for the bank and a lot more commission for the salesman banker. And the more the value of property increases the higher the commission goes - right across the board and the higher the profit the bank makes. And the higher the bonuses for senior bankers salesmen.

 

So in turn the bank looks for further ways to raise more money to lend so that it can make more profit as it is now on the Magic Roundabout. Yes, securitisation - a new asset class to sell - and more money to lend - and more commission and bonuses to be paid.

 

And as a developer said on RTE this morning - the developers and banks have now become 'partners' (ie no longer a simple client relationship) - so the banks fund the developers to build more houses - so the banks, you guessed it, issue more mortgages, life insurance, contents insurance, income protection etc....

[bishbashbosh]

£11 million of Manx tax payers money... gone?!

 

I take it you'll be really angry then when the estimated £150m has to come out of government reserves to meet the compensation payments then? £11m is only going to be the first installment.

 

That's not how the UK and Isle of Man's schemes work - the industry pays.

 

http://www.manxradio.com/readNEwsItem.aspx?id=32228

 

I can't decide if this is right or wrong? Sure it's horrible what happened and it's a political nightmare. That said, the money never stayed in the Isle of Man and supported only how many jobs at KSF International?

 

£11 million of Manx tax payers money... gone?!

 

The Isle of Man gets rich by having all these banks on the island and taking money away from other countries' tax systems. Jobs for thousands of people who would be otherwise fishermen, farmers or unemployed (if it weren't for the island's finance system). It's about time the island took some responsibility and accepted they that have to foot the bill if one of the dodgy banks or companies goes under.

 

Taking money away from other country's tax systems? I think you need to look into the concept of gross interest and the EU Savings Tax Directive. I'm all for taking responsibility if we as an Island have done something wrong - sadly there's the UK Government and KSF in Iceland to consider!

[oldmanxfella]

£11 million of Manx tax payers money... gone?!

 

I take it you'll be really angry then when the estimated £150m has to come out of government reserves to meet the compensation payments then? £11m is only going to be the first installment.

 

That's not how the UK and Isle of Man's schemes work - the industry pays.

 

Not any more; the banks have quietly said that if they cough up for this one they'll be moving jurisdiction that's why the taxpayer is making good.

[pongo]

Not any more; the banks have quietly said that if they cough up for this one they'll be moving jurisdiction that's why the taxpayer is making good.

 

Is that a guess or the inside word?

[Slim]

That's not how the UK and Isle of Man's schemes work - the industry pays.

 

I thought so too, but the scheme was changed with the upgrade from 15 to 50k. Now there's a part in there which says the government can pay. You can read those amendments here:

 

http://www.gov.im/lib/docs/cso/compensatio...rsamendment.pdf

[oldmanxfella]

Not any more; the banks have quietly said that if they cough up for this one they'll be moving jurisdiction that's why the taxpayer is making good.

 

Is that a guess or the inside word?

 

Read the Examiner today and Slims post above. The old DCS was based on certain levels of levies already agreed with the banks, but the new scheme includes government involvement. If you read between the lines the banks will be paying no more than they would have been paying under the old scheme and paying it over many years, so its us funding the difference and putting the big cash in first. As changes to the DCS were put out for consultation (I think twice) in the years before KSF went pop and the banks consistently said they didn't see any reason to increase it but it was increased anyway the natural conclusion is that if it cost the banks a penny more than the old scheme the banks won't be paying for it and so with the new scheme the shortfall naturally falls to us.