Tuesday, Oct 28, 2008
And the numbers just keep on growing exponentially
Telegraph: Toxic debt losses now £1,800bn, say Bank
The Bank's estimates on the size of writedowns facing banks, insurers and hedge funds – published today in its Financial Stability Report – have more than doubled since its last update in April, and raise the spectre of massive new provisioning by Britain's troubled lenders. Royal Bank of Scotland, for one, is expected to reveal another £4bn of writedowns on Friday.
In the UK, the Bank calculates, "mark-to-market losses" have hit £123bn compared with the £63bn estimated in April. To date, Britain's lenders have collectively written down less than £20bn, though the Bank conceded that the market may be overstating the losses by reflecting "substantial discounts for uncertainty".
Posted by flintster1994 @ 08:42 AM (559 views) Add Comment
6 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. matt_the_hat said...
These things equal out - one mans loss is another mans gain - and you didn't even realize you were playing
2. sneaker said...
How much of this revision is just due to Sterling having plummeted...?
3. uncle tom said...
It all comes down to the fact that a lot of perceived wealth was actually an illusion. After the high of imagined affluence comes the cold turkey of reality..
Wealth that never really existed is now visibly vanishing.
Once people come to terms with that, the next era can dawn..
4. malct said...
from last night - is this exponetial collapse?
As it took orders for just 115 new lorries in the last three months.
Thisismoney: Volvo truck sales plunge 99.7%
The depth of the recession was revealed today as truckmaker Volvo admitted demand across the Continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months. That compares to orders totalling 41,970 in the third quarter of 2007. Global orders for Volvo slumped 55% in the last three months while Scania, of which Volvo has majority control, said its western Europe truck orders collapsed by 69%
Posted by malct @ 06:27 PM 6 Comments
5. Neo-serf said...
Real figures:
http://uk.youtube.com/watch?v=1nttuh8oHYw
6. Kruador said...
@matt_the_hat: not really, these are collapses in the value of the assets that loans were secured on and so the amount that banks believe they can recover if the loanee defaults. That's not a real loss, just a drop in projected future income. But it has to go down on the balance sheet where it wipes out real capital. Banks are not allowed to trade insolvent, i.e. where their obligations exceed their capital.
Now we come to fractional reserve banking. Banks have been able to leverage their capital to loan out multiple times. Historically this might have been 9 times capital but it's been allowed to grow and to be leveraged by other organizations without fractional reserve limits, and to be hidden behind CDOs and other securitised debts, which effectively means they've been lending without reserve limits. That, after all, is how they were able to continue lending way beyond ordinary levels of risk.
In good times, a small increase in the value of the asset causes a larger percentage increase in the bank's balance sheet. However, on the way down, a small decrease causes a larger percentage decrease.
Let's say the bank has £10,000 capital and it lends you £100,000 to buy a house. Your property appreciates by £10,000. The bank could now expect to recover £110,000 if you default, leaving £20,000 after deleting the £90k created - the original capital plus the £10k appreciation. All is good - we made 100% profit. However, if the value decreases by £10k, it can now only recover £90k which is what was created - the original £10k of capital was destroyed and we have no money to pay out to depositors who want their savings back. A drop of £20k and we now have to borrow £10k to pay back depositors which isn't permitted.
The bailout hasn't handed any money to bankers. It's just a slush fund of capital to allow the banks to continue to write down asset values so they can continue to trade without going insolvent. The question is whether £50bn is enough to cover the losses, which it won't be if the housing market does fall the 50% I'm expecting.
The solution is simple: banks must not be allowed leverage. A fiat currency is fine, but banks must not be allowed to create money whether gold-backed or not.