No Future

[Cambon]

It seems a lot of major banks are going to be implicated in the LIBOR scam - the lawsuits against them are likely to be horrendous - figures of several hundred billion have been speculated. If that does transpire what future for the banks?

 

Including the BoE by all accounts.

All central banks and their associated governments are implicated. I think we will see this disappear as it is too big to be allowed to continue. That said, it is not clear that any laws were broken or that anyone has really lost out in monetary terms. It is likey that most people have actually gained by having lower rates on mortgages and loans than they might have had.

[manshimajin]

I am increasingly wondering if the current and traditional method of handling economic failures in the banking system are working.

 

My start point is that banks do not create wealth. They move Person A's wealth to Person B so that he/she can either create more wealth with it or pay someone else who will.

 

Over the past few years money has been passed by governments into banks to shore up balance sheets rather than to pass it on to wealth creators to stimulate economies. The end result is not only austerity due to reduced economic activity but also, because of this, a failure to reduce the risks on the banks' balance sheets. This has been accompanied by major moral risk as banks have shown themselves incapable of cutting back on their dangerous remuneration practices.

 

An alternative might have been (and still might be) for governments to pass this money into the economy in ways that stimulate economic activity and thus reduce balance sheet risks at the banks. One way of doing this would be to use the records of the taxation system to feed money out into the economy instead of just taking it out.

 

For example If you had been going to put in, say, £50 billion to bolster the banks instead of doing that give each household £3000 (I am using UK for convenience). Do this in the form of vouchers that have 3 months to be spent either to pay down debt or to purchase goods.

 

Spending this money would go immediately into retail or debt repayment, which in turn will require orders to be fulfilled which in turn stimulates economic activity and/or writes down debt on the banks' balance sheets. It is slower to get into the system but it does more economic good on the way through the system.

 

As for the moral hazzard of doing this - is it any worse than giving the money to banks who do not use it productively but do pay high bonuses in recessionary times?

 

Equally by stimulating the economy you:

• Raise VAT income
  
• Reduce unemployement payment outgoes
  
• Create a positive stimulus to society
  
• Get the wheels turning faster
  

A problem I see is that the economic solutions are being put forward by people who are steeped in traditional bank-centered concepts which IMO are clearly not working in terms of getting out of austerity. It requires courage to do things differently, which I do not think is present in the existing economic structures.

 

Australia did do something like this at the start of the global financial crisis and it is part of the reason they have not dipped into negative growth and are currently going along at about 4% GDP growth and unemployment levels below German ones.

 

P.S. Let me give an example I came across this morning in conversation with a family I know in Ireland. Husband and wife are well qualified and in secure employment. They have saved 60% towards a deposit on a home. They have been looking for a 40% mortgage - which would cost less to service than they are paying in rent at present. Their mortgage broker has just informed them that at the moment Irish banks are seeking 70%-80% DEPOSITS before they will lend! There is no doubt that the irish banks messed up on a monumental scale. In consequence, ignoring the massive injections from the ECB, they have needed about €100 billion from the State (which it has borrowed) to stay afloat. But, as in the example of the folks I know above, this massive capital injection is just basically sitting there shoring up a balance sheet not generating wealth. It seems to me to be a major misuse of money for nothing to happen with it.

[Albert Tatlock]

I like that Mansimajin, I would add to that a drop in VAT of 1/4 at the same time too.

 

It's government's failing to reduce their operating costs, seeking more taxation, all while re-enforcing the 'imaginary money' system (which caused all these problems in the first place). All of which are having a major impact on private industry and jobs - which is where the 'real money and the real economy' are generated in the first place.

[Cambon]

Easiest way to achieve this is to do something like scrapping VAT for a year. That would put a massive amount of money into the economy, and stimulate growth. Unfortunately, they cannot do that du to EU regs.

[Lxxx]

I am increasingly wondering if the current and traditional method of handling economic failures in the banking system are working.

 

My start point is that banks do not create wealth. They move Person A's wealth to Person B so that he/she can either create more wealth with it or pay someone else who will.

 

Over the past few years money has been passed by governments into banks to shore up balance sheets rather than to pass it on to wealth creators to stimulate economies. The end result is not only austerity due to reduced economic activity but also, because of this, a failure to reduce the risks on the banks' balance sheets. This has been accompanied by major moral risk as banks have shown themselves incapable of cutting back on their dangerous remuneration practices.

 

An alternative might have been (and still might be) for governments to pass this money into the economy in ways that stimulate economic activity and thus reduce balance sheet risks at the banks. One way of doing this would be to use the records of the taxation system to feed money out into the economy instead of just taking it out.

 

For example If you had been going to put in, say, £50 billion to bolster the banks instead of doing that give each household £3000 (I am using UK for convenience). Do this in the form of vouchers that have 3 months to be spent either to pay down debt or to purchase goods.

 

Spending this money would go immediately into retail or debt repayment, which in turn will require orders to be fulfilled which in turn stimulates economic activity and/or writes down debt on the banks' balance sheets. It is slower to get into the system but it does more economic good on the way through the system.

 

As for the moral hazzard of doing this - is it any worse than giving the money to banks who do not use it productively but do pay high bonuses in recessionary times?

 

Equally by stimulating the economy you:

• Raise VAT income
  
• Reduce unemployement payment outgoes
  
• Create a positive stimulus to society
  
• Get the wheels turning faster
  

A problem I see is that the economic solutions are being put forward by people who are steeped in traditional bank-centered concepts which IMO are clearly not working in terms of getting out of austerity. It requires courage to do things differently, which I do not think is present in the existing economic structures.

 

Australia did do something like this at the start of the global financial crisis and it is part of the reason they have not dipped into negative growth and are currently going along at about 4% GDP growth and unemployment levels below German ones.

 

P.S. Let me give an example I came across this morning in conversation with a family I know in Ireland. Husband and wife are well qualified and in secure employment. They have saved 60% towards a deposit on a home. They have been looking for a 40% mortgage - which would cost less to service than they are paying in rent at present. Their mortgage broker has just informed them that at the moment Irish banks are seeking 70%-80% DEPOSITS before they will lend! There is no doubt that the irish banks messed up on a monumental scale. In consequence, ignoring the massive injections from the ECB, they have needed about €100 billion from the State (which it has borrowed) to stay afloat. But, as in the example of the folks I know above, this massive capital injection is just basically sitting there shoring up a balance sheet not generating wealth. It seems to me to be a major misuse of money for nothing to happen with it.

 

 

All very good points, but the change you mention is akin to turkeys voting for Christmas.

[Nom de plume]

It is true that Australia did give out a $1,000 'Plasma Bonus' to families, but they also invested $42 billion into the construction industry on the 'Building the Education Revolution BER' scheme.

 

The construction game is known as the 'great multiplier' owing to its knock on affect on every other industry.

 

Australia is somewhat different also - WA funds the economy there with its massive natural mineral supply, in particular iron ore.

 

Their exports are huge.

 

I am increasingly wondering if the current and traditional method of handling economic failures in the banking system are working.

 

My start point is that banks do not create wealth. They move Person A's wealth to Person B so that he/she can either create more wealth with it or pay someone else who will.

 

Over the past few years money has been passed by governments into banks to shore up balance sheets rather than to pass it on to wealth creators to stimulate economies. The end result is not only austerity due to reduced economic activity but also, because of this, a failure to reduce the risks on the banks' balance sheets. This has been accompanied by major moral risk as banks have shown themselves incapable of cutting back on their dangerous remuneration practices.

 

An alternative might have been (and still might be) for governments to pass this money into the economy in ways that stimulate economic activity and thus reduce balance sheet risks at the banks. One way of doing this would be to use the records of the taxation system to feed money out into the economy instead of just taking it out.

 

For example If you had been going to put in, say, £50 billion to bolster the banks instead of doing that give each household £3000 (I am using UK for convenience). Do this in the form of vouchers that have 3 months to be spent either to pay down debt or to purchase goods.

 

Spending this money would go immediately into retail or debt repayment, which in turn will require orders to be fulfilled which in turn stimulates economic activity and/or writes down debt on the banks' balance sheets. It is slower to get into the system but it does more economic good on the way through the system.

 

As for the moral hazzard of doing this - is it any worse than giving the money to banks who do not use it productively but do pay high bonuses in recessionary times?

 

Equally by stimulating the economy you:

• Raise VAT income
  
• Reduce unemployement payment outgoes
  
• Create a positive stimulus to society
  
• Get the wheels turning faster
  

A problem I see is that the economic solutions are being put forward by people who are steeped in traditional bank-centered concepts which IMO are clearly not working in terms of getting out of austerity. It requires courage to do things differently, which I do not think is present in the existing economic structures.

 

Australia did do something like this at the start of the global financial crisis and it is part of the reason they have not dipped into negative growth and are currently going along at about 4% GDP growth and unemployment levels below German ones.

 

P.S. Let me give an example I came across this morning in conversation with a family I know in Ireland. Husband and wife are well qualified and in secure employment. They have saved 60% towards a deposit on a home. They have been looking for a 40% mortgage - which would cost less to service than they are paying in rent at present. Their mortgage broker has just informed them that at the moment Irish banks are seeking 70%-80% DEPOSITS before they will lend! There is no doubt that the irish banks messed up on a monumental scale. In consequence, ignoring the massive injections from the ECB, they have needed about €100 billion from the State (which it has borrowed) to stay afloat. But, as in the example of the folks I know above, this massive capital injection is just basically sitting there shoring up a balance sheet not generating wealth. It seems to me to be a major misuse of money for nothing to happen with it.

[pongo]

give each household £3000 (I am using UK for convenience). Do this in the form of vouchers that have 3 months to be spent either to pay down debt or to purchase goods.

 

We should not be looking for ways to perpetuate continued over consumption simply for the sake of keeping a broken model going. Besides which stimulus has continually failed already. Better to let the austerity bite a little.

 

The people who borrowed too much to buy rubbish (expenive cars, gadgets for landfill, Sky TV, video games etc) - or who bought over priced property, are just as much to blame as the govts and the bankers. People who have already been living carefully should not have to pay for any of this economic nonsense. Let the people who created these problems work it off.

[ScotsAlan]

I blame corporate greed myself. There are too many levels of money men taking a skim off the top.

 

When I read of multinational companies laying off 10s of thousands of staff, more often than not they are doing so because of a drop in profits. They are not making a loss, they are just not making as much money as the bankers want.

 

I know this is very simplistic, but here is the way I see things.....

 

We were all encouraged in the 80's to take out private pensions. The money goes to the investors to invest, to make money for our retirements so they say. But a large proportion of course goes into other pockets. So the banks and investment companies have billions of our money to invest. And they also have our tax money, our charity donations etc etc etc.

 

So a bank then uses your money to buy the company you work for. But the bank needs the company to make a massive profit so the bankers can take their share and then send you a pension statement to show how great they are. But when the company you work for don't make the massive profit you get laid off to save money. Because the bank's cut takes precidence and they want their money. I don't see how this can be sustainable.

 

The whole system uses OUR money to put many of us out of work.

 

So, my reasoning is that is is not the borrowers who are at fault, it's the investors. We give our money to the banks to make money for us. They do that by increasing profits at the expense of jobs.

 

I think the current system will produce a more divided society with an enormous wealth gap.

 

That's my ramble over :-)

[Tweek]

I think it was all caused by Wombles. Undeground, overground....you never know where they are those basta*ds.

[manshimajin]

give each household £3000 (I am using UK for convenience). Do this in the form of vouchers that have 3 months to be spent either to pay down debt or to purchase goods.

 

We should not be looking for ways to perpetuate continued over consumption simply for the sake of keeping a broken model going. Besides which stimulus has continually failed already. Better to let the austerity bite a little.

 

The people who borrowed too much to buy rubbish (expenive cars, gadgets for landfill, Sky TV, video games etc) - or who bought over priced property, are just as much to blame as the govts and the bankers. People who have already been living carefully should not have to pay for any of this economic nonsense. Let the people who created these problems work it off.

 

I can understand your point. My counter argument is that we have been spending trillions around the world to shore-up what is essentially the money transfer system (the banks) whilst ignoring the fact that the banks do not create wealth. It may well have been better to let the banks go bust in the first place rather than subsidising them so massively and so continuously. But if we are going to print and lend money into the financial system IMO we should do so in a way that stimulates economic activity.

[pongo]

we have been spending trillions around the world to shore-up what is essentially the money transfer system (the banks) whilst ignoring the fact that the banks do not create wealth. It may well have been better to let the banks go bust in the first place

 

Yes. The banks should have been allowed to go bust. And, from now on, if something is deemed too big to fail then it should be broken up.

 

Though I can definitely see a good case for bailing out domestic savers if a bank goes down - which is half way towards what you were saying.

 

We now have a system under which investment banks can make huge profits on precarious investments at impossible odds in the full knowledge that if their bets go bad they will be bailed out by tax payers. If they win, they win big - if they lose they break even. It's stupid.

[Lxxx]

we have been spending trillions around the world to shore-up what is essentially the money transfer system (the banks) whilst ignoring the fact that the banks do not create wealth. It may well have been better to let the banks go bust in the first place

 

Yes. The banks should have been allowed to go bust. And, from now on, if something is deemed too big to fail then it should be broken up.

 

Though I can definitely see a good case for bailing out domestic savers if a bank goes down - which is half way towards what you were saying.

 

We now have a system under which investment banks can make huge profits on precarious investments at impossible odds in the full knowledge that if their bets go bad they will be bailed out by tax payers. If they win, they win big - if they lose they break even. It's stupid.

 

The system needs to crash and burn. Unfortunately the fortunes of many economies (the UK's more than any) are so dependant on and entwined with the financial sector that for it to fail implies crashing the economy to a certain extent. However in my opinion that's a price worth paying to build a fairer and juster system in it's place. If only.

[pongo]

I don't believe it is such an all or nothing thing. When you listen to people - nearly all of the problems they identify are around issues of common sense - e.g. not taking silly risks, paying your bills, being responsible for your own debts, not spending what you haven't got, not buying in a bubble etc. The same for govts, banks, individuals.

[Lxxx]

I don't believe it is such an all or nothing thing. When you listen to people - nearly all of the problems they identify are around issues of common sense - e.g. not taking silly risks, paying your bills, being responsible for your own debts, not spending what you haven't got, not buying in a bubble etc. The same for govts, banks, individuals.

 

The current financial system is corrupt to the core. It is staffed by crooks and thieves and what is coming out in America at the moment is highlighting that as they have led the way for the past decade. If we are to ever move to a fairer monetary system then this one needs to crash and burn as you can't just tinker round the edges and expect it to change.

[Cambon]

If we are to ever move to a fairer monetary system then this one needs to crash and burn as you can't just tinker round the edges and expect it to change.

It will not happen. The governemnt bailed out Northern Rock. It could not afford to bail out HBOS or RBS. It bought into RBS and tricked Lloyds into buying HBOS, whilst hiding the extent of HBOS's debt. Then the government bought into Lloyds.

 

The bail out figures are eyewatering. It will never happen.