Hooray

[T.I.N.G.]

Appears we (the british gov)own Lloyds bank now. Half the high street banks are owned by the people, (for the people?)

[bluemonday]

So lloydstsb-offshore is now ultimately under the control ( theoretically ) of the UK government.

 

Interesting quotes from http://news.bbc.co.uk/2/hi/business/7929957.stm

 

 

BBC business correspondent Joe Lynam said: "[The government] is absolutely imposing its writ on the banks that it now controls.

 

"It is saying we will impose political decision-making on a bank, rather than just commercial or financial decision-making.

 

"Basically they're going to install their people on the board of Lloyds banking group

 

"This is the last throw of the dice before full nationalisation of Lloyds and RBS; in economic terms the government will control approaching 80%, in real voting terms, 65%, which means they can impose their will on the bank and they are already starting to do so."

[manshimajin]

I wonder if all of this is trying to cure the symptoms not the disease?

 

The real disease are the bad debts. The conventional banker/economist approach being adopted is to pump money in to prop up bank capital - the consequence of the symptom of bad debts being a need to increase capital adequacy. As we have seen most of this money cannot be released in the form of loans to stimulate the economy precisely because the bad debts are still there and no bank believes the bad debt position of its competitors.

 

Now the bankers want additional risk to be taken by taxpayers in the form of purchasing their bad debts and/or setting up a 'toxic bank'. Quite possibly they will also need additional cash injections. They also want their lending to be insured. None of this resolves the problem with bad debts which continue to exist under this scenario.

 

I wonder if a 'lateral thinking' approach would be better. Instead of injecting cash into the banks to prop up their balance sheets why not use the same money to directly eliminate bad debts subject to the money used for doing this be immediately paid into the bank through the normal banking channels? This would both get rid of the bad debt and reduce the capital adequacy requirement. In consequence the bank would be able to hand money back to the government, the dilution of shareholders holdings would lessen, banks would be better positioned to lend instead of hoarding it to protect adequacy. Most importantly it would be a return to more normal banking processes and could be a big boost to commercial and cosumer confidence.

 

IMO there is little to choose (except for the outcomes) between having to finance banks via the back door to shore up the bad lending they have done and using the same money to get rid of the bad debts up front. The former is a conventional way of doing things. The latter is a lateral approach and restores the client and bank position.

 

The bankers, and their chums in Governments around the world, have got us into a mess and there is no clean and tidy resolution - but it IMO its better to fix the problem if you are splashing money around rather than using it to fix the symptoms - particularly when fixing the symptoms has not introduced liquidity into markets.

 

I'll wait for the criticism and torpedoes - or the call to Stockholm to collect the Nobel Prize for Economics

[Slim]

Isn't that's what's already been happening with toxic asset swaps?

[manshimajin]

Isn't that's what's already been happening with toxic asset swaps?

No. The banks are passing on the bad debts to the taxpayer but they are remaining as bad debts. So the taxpayers are taking on the banks' risks but the system overall remains clogged by them. My idea was to eliminate the bad debts, or a large portion of them, so as to get rid of the problem not to move it around. It would mean paying off bad debts rather than paying capital into banks - you have to weigh up whether it is better to keep the economy in the doldrums (and worse) or to do something totally different that gets things moving. Staying in the doldrums is itself costing a fortune so why not pay off the bad debts instead?

 

The other thing I wondered at the time was that when the UK government reduced VAT temporarily with a big fanfare wouldn't they have been better keeping it unchanged and giving people spending vouchers for the amount the Government said it was foregoing in VAT (about £400 per family). The vouchers could then have been made valid for say 3 months only and would have had to be spent in retail outlets. They could have been rather like the ration cards I remember as a child - small denominations to avoid someone trying to get change for £400 by buying £5 of goods. If they had done that it would have acted as a stimulus to retail activity whereas the VAT reduction seems to have been a big flop. I...f they wanted to grandparents could have passed them onto sons and daughters

 

Government leaders and Public Servants don't seem to be able to think outside the box and ask 'what is the real problem we are trying to fix here?'

 

It is interesting that the German motor trade has had the best February EVER due to the scrappage bonus the German Government introduced. These sorts of schemes need to be attractive but have a finite duration to make people act.

[Sebrof]

Isn't that's what's already been happening with toxic asset swaps?

No. The banks are passing on the bad debts to the taxpayer but they are remaining as bad debts. So the taxpayers are taking on the banks' risks but the system overall remains clogged by them. My idea was to eliminate the bad debts, or a large portion of them, so as to get rid of the problem not to move it around. It would mean paying off bad debts rather than paying capital into banks - you have to weigh up whether it is better to keep the economy in the doldrums (and worse) or to do something totally different that gets things moving. Staying in the doldrums is itself costing a fortune so why not pay off the bad debts instead?

 

The other thing I wondered at the time was that when the UK government reduced VAT temporarily with a big fanfare wouldn't they have been better keeping it unchanged and giving people spending vouchers for the amount the Government said it was foregoing in VAT (about £400 per family). The vouchers could then have been made valid for say 3 months only and would have had to be spent in retail outlets. They could have been rather like the ration cards I remember as a child - small denominations to avoid someone trying to get change for £400 by buying £5 of goods. If they had done that it would have acted as a stimulus to retail activity whereas the VAT reduction seems to have been a big flop. I...f they wanted to grandparents could have passed them onto sons and daughters

 

Government leaders and Public Servants don't seem to be able to think outside the box and ask 'what is the real problem we are trying to fix here?'

 

It is interesting that the German motor trade has had the best February EVER due to the scrappage bonus the German Government introduced. These sorts of schemes need to be attractive but have a finite duration to make people act.

 

I agree with the principle, but think that in practice it would be very difficult to put a value on these bad debts. I suspect many of them are in the form of provisions, not crystallised debts. Furthermore, many involve American debtors, and I don't really like the idea of writing these off. At some time, those secured on property may actually become good. What happens then?

 

Switching the bad debts to the government has the same effect as writing them off, as far as the creditor bank is concerned. Its balance sheet is cleansed, and he can start being a banker again. More importantly, he can lend to other banks knowing their balance sheets reflect reality not optimism.

 

At the end of the day, I suspect that QE will cause significant inflation, and that will erode the value of the bad debts anyway, and cause an apparent recovery in house prices (though the real value will have fallen by 50%).

 

It's not that long ago that inflation (under M Thatcher) reached 26% pa. A couple of years of that would solve a lot of problems, at the expense of holders of cash and securities.

 

S

[bluemonday]

Lloyds boss to come clean on tax

 

Clicky

[Gladys]

This whole tax avoidance stuff is becoming bizarre in the extreme. Of course he had a particular tax status, he was a UK resident non-dom which attracted certain advantages over domiciles and despite certain changes in last year's UK budget, still does. But whose 'fault' was that? What was he to do? Say, "although I am a non-dom I would like to be taxed as though I was domiciled"? Would anyone else on here voluntarily increase their tax bill?

 

The UK resident non-dom tax rules were formulated to attract high net worths just like our own £100,000 tax cap. As such it has been quite successful, but now the very people that the UK wanted to attract are being villified as tax evaders.

 

It is all such a knee-jerk reaction without full information and a thinking through. It does worry me that with that kind of approach the IOM, and without a confident rebuff, is in for a bit of a beating, to say the least.

 

To Sebrof, writing off a debt is an accounting function and is intended to allow you to quantify the recoverable value of your debt book on a true and fair view. It does not forgive the debt. However, how vigilantly a company would pursue a debt once written off is arguable, but in theory it is still collectable.

[P.K.]

Pity the poor shareholders. At least they didn't lose everything I suppose.

[Sebrof]

To Sebrof, writing off a debt is an accounting function and is intended to allow you to quantify the recoverable value of your debt book on a true and fair view. It does not forgive the debt. However, how vigilantly a company would pursue a debt once written off is arguable, but in theory it is still collectable.

 

In practice, Gladys, you make full provision for a debt until such time as you give up on it. Then you write it off, and are unlikely to keep chasing it.

 

S

[Sebrof]

Pity the poor shareholders. At least they didn't lose everything I suppose.

 

Yet.

 

Just another thing to thank Gordon Brown for, though Victor was something of an optimist, I feel.

 

S

[Sebrof]

The UK resident non-dom tax rules were formulated to attract high net worths just like our own £100,000 tax cap. As such it has been quite successful, but now the very people that the UK wanted to attract are being villified as tax evaders.

 

In my view the whole thing is totally unjustifiable and morally reprehensible - and that goes for the IOM tax cap too.

 

That people earning millions should pay proportionally less tax than some of the poorest people in society is just plain wrong.

 

This was bound to cause embarassment eventually, and the sooner the whole sorry farce is scrapped the better.

 

S

[Gladys]

To Sebrof, writing off a debt is an accounting function and is intended to allow you to quantify the recoverable value of your debt book on a true and fair view. It does not forgive the debt. However, how vigilantly a company would pursue a debt once written off is arguable, but in theory it is still collectable.

 

In practice, Gladys, you make full provision for a debt until such time as you give up on it. Then you write it off, and are unlikely to keep chasing it.

 

S

In accounting parlance, if you provide for a debt it means you have written it off through your bad debt provisions. As I said above, this is an accounting function and does not mean that the debt is forgiven, just that you think the chances of collection are remote and the level of your assets, the debtors amount, is reduced in order to give a fair and true view of the financial position of the company.

 

You have to understand the basics of accounting: you have taken the benefit of the turnover in your P&L because the sale, or whatever, has been secured. But your debtors in your balance sheet reflect the fact that you have not actually collected the cash, so you show it as an asset in the debtors line. At the year end, you review your debtors book (not your turnover) to consider which debts are likely to be collected and which are not, and provide for the latter through your provisions for bad and doubtful debts which is written off through your P&L, as that was the route they came in. However, that doesn't mean they are uncollectable, just unlikely to be collected.

 

If the debt turns out to be collectable and is collected, then you just write the debt back through your P&L as it has already been reflected in your balance sheet.

 

The above is probably a bit simplistic as there are then various international accounting standards which deal with bad debts, but the fact remains that writing off is an accounting function which does not mean that the debt is forgiven, but is capable of being pursued and recovered.

[Gladys]

The UK resident non-dom tax rules were formulated to attract high net worths just like our own £100,000 tax cap. As such it has been quite successful, but now the very people that the UK wanted to attract are being villified as tax evaders.

 

In my view the whole thing is totally unjustifiable and morally reprehensible - and that goes for the IOM tax cap too.

 

That people earning millions should pay proportionally less tax than some of the poorest people in society is just plain wrong.

 

This was bound to cause embarassment eventually, and the sooner the whole sorry farce is scrapped the better.

 

S

I have to agree with you on the morality, but nevertheless, it is a fact. The blame should not be aimed at those who took advantage in a feeding frenzy on tax dodgers, but a more considered and less knee-jerk response in the hopes that it is got right in future.

[gazza]

The UK resident non-dom tax rules were formulated to attract high net worths just like our own £100,000 tax cap. As such it has been quite successful, but now the very people that the UK wanted to attract are being villified as tax evaders.

 

In my view the whole thing is totally unjustifiable and morally reprehensible - and that goes for the IOM tax cap too.

 

That people earning millions should pay proportionally less tax than some of the poorest people in society is just plain wrong.

 

This was bound to cause embarassment eventually, and the sooner the whole sorry farce is scrapped the better.

 

S

 

but u have to look at the reason why theres a cap on the rich,

 

if u bring them over with cheap tax, thay will spend more cash where thay live, which boosts local pockets,

well thats what its ment to do