Monday, Sep 29, 2008
There is no free money
Guardian: Banks will bear losses from B&B nationalisation
Banks make their money from loans. Surviving banks will have to pay the losses of B&B, NR etc(!). So, money made from loans is required to refund the government. So, mortgage holders will be liable for the bailout. Note, this isn't guarantee money, as in I will make good lets hope it doesn't come to that, this is real money from the banks future capital. Causing financial services to relocate before they get stung, and also causing mortgage costs to correspondingly increase for the remainder.
Posted by stillthinking @ 03:05 PM (919 views) Add Comment
11 Comments
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1. paul said...
Ah. Now this looks a bit more like it.
Mutually Assured Destruction for the financial services industry. Make them self-regulating. I think I like the sound of that.
2. renting2 said...
The final bill will rest with the little people whether they are customers or taxpayers or a mixture of both.
3. paul said...
Yes, but not before the banks have paid for their industry's past misdemeanors.
After all, the burden of the costs will not be spread uniformly across the industry, so unless some banks are willing to risk a huge hit in market share, they'd be wise to take this cost on the chin.
4. renting2 said...
LSE down 4.5% today. They obviously don't like the news so far!
5. paul said...
That's actually a good thing. They banking shares stocks have been buoyant based on the hope that they'd get off scott-free as aprt of any bailout.
6. mark said...
barclays look good value
7. Fjcruiser said...
No banks look good value. They are all bankrupt.
8. icarus said...
It looks as though Santander have cherry-picked the best bits while UK banks are on the hook for several billion.
9. harold said...
no free money?
BS
UK tax-payers have already put in £4 billion into the BB deal, which they will never get back. How many schools is that?
10. stillthinking said...
Hold on. What if house prices do in fact drop 40% and we go into a recession ? When did this prediction go out of the window ?
If there are 40% declines and high unemployment then the banks won't be able to refund the government. This idea only works if the crisis has passed, when actually no it hasn't. The situation is expected to worsen until Q4 2009 (my opinion is a really long deflationary recession like Japan).
When exactly are the banks expected to start payments? In 5, 10 years from now?
This is the government fobbing the situation off as a 'lack of confidence' again, when the problem is that a large amount of debts are not going to be repaid. The problem is squeezed mortgage holders, but the solution is to move the problem onto squeezed mortgage holders in the future?
Spreading the risk of mortgage default among all mortgage holders ? Um... The banks already do this and the view of the funds giving them short term loans was that in the ->long term<- they were going to be busted.
Moving a funding crisis solution into the future, when the problem is expected to be worse in the future, doesn't seem like a good way to get the taxpayer off the hook to me. Banks don't have to declare their profits in the UK anyway. I agree that existing mortgage holders need to pay for the real cost of their mortgages, including the default rates, but...
I reckon once the bill has gone to the taxpayer, the banks will never take it back. Who would ?
11. Luckyjim said...
It is only banks who will have to cover the loses. Other FSA members like Insurance Companies, Pension Funds and BUILDING SOCIETIES will not have to contribute to the losses of a bank/banks.
So the little man will pay - unless he takes his custom to a building society.