Friday, Dec 26, 2008
Interesting; too light on the important stuff though.
BBC News: Who was to blame for UK slowdown?
"Blame it on the Yanks and the banks."
That - according to Westminster watchers - was the way ministers were told to deal with questions about the economic crisis.
Dodgy US mortgage lending led to a crisis of confidence in the global banking system and now a savage economic downturn in most highly developed countries.
Posted by beartil2010 @ 07:34 AM (1154 views) Add Comment
12 Comments
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1. beartil2010 said...
I draw your attention to a disingenuous line:
'In 2001, major UK banks lent out almost exactly the same amount of money that they had on deposit from customers. By mid-2008 they were lending over £700bn more than they were taking in deposits.'
In other words, in 2001 UK banks lent out, in one year, the total volume of money they had from all their customers, ever, in total! It cannot be as it sounds otherwise capital reserve ratios would be 50%. No explanation of fractional reserve lending, and no condemnation of those that control the interest rates, although IRs are mentioned.
Getting closer to the truth though IMO.
2. goweresque said...
A reasonable assessment, despite being from the BBC! Still can't make the final jump to pointing out who has been in charge of the nations finances these last 10+ years, and who particularly 'did nothing' about the massive credit bubble in the last 5 years. (Incidentally would that not be a good line of attack for the Tories "GB was the 'do nothing' chancellor who did nothing to stop the house price bubble, the credit explosion, the reckless bank borrowing on the money markets and reckless lending etc etc"?)
3. braindeed said...
goweresque said...
(Incidentally would that not be a good line of attack for the Tories "GB was the 'do nothing' chancellor who did nothing to stop the house price bubble, the credit explosion, the reckless bank borrowing on the money markets and reckless lending etc etc"?)
....and all the time not a cheep out of any Tory leader, because no politician would dare piss on the bonfire of 'greater wealth' - thin ice there ( and a cheap, weak ,transparently partisan argument)
4. mark wadsworth said...
@Beartil - I think you have missed the point.
What the sentence you quoted means is that until 2001 or so, the total volume of lending = total volume of deposits. Banks raised relatively little money by bonds, securitisation, money markets and all that nonsense.
This was a good system (that has served the Nationwide well) because
a) There is then a natural upper limit to the amount that banks can lend out
b) It forces them to lend carefully, because they know that if there's any tomfoolery going on, customers could withdraw all their deposits immediately
c) The deposits that UK banks take are largely from UK depositors, and the money they lent out was largely to UK mortgage borrowers or UK businesses. That keeps things stable.
Banks did NOT, repeat NOT, makes loans in the space of one year = the entire deposits they had ever taken. What the sentence means is that UP UNTIL 2001, the entire loans that were still outstanding = the entire amount of money on deposit.
5. paul said...
Indeed Mark.
"Blame it on the Yanks and the banks." according to 'Westminster Watchers'. Hmmm.
The most disingenuous line is the first - it is disingenuous because it conflates an observation of who is to blame with an explanation of the blame, while being ambiguous about the observation source. Who exactly are these 'Westminster Watchers'? Politicians of course.
This statement is a bit like saying "All the prisoners are innocent according to prison insiders."
Again, shame on the BBC for using such a cheap reasoning trick to divert blame.
6. jack c said...
Nothing new (IMO) in this article from the Beeb - bit of a watered down assesment of what's really been going on and less so of what's to come - the reporters might wake up to the seriousness of the economic situation in the UK when their employer is seeking extra funding from the Gov to pay their wages - yep it wont be too long before personal financial circumstances start dictating for many that they simply can't pay the TV licence. Napoleon tried to dismiss Great Britain as a “nation of shopkeepers" - now we are just a nation of dog walkers, beauty therapists and tanning studios.
7. crunchy said...
Who was to blame for UK slowdown? or more likely...... Who was to blame for GLOBAL slowdown?
Central banks and the powers behind them, that most dare not admit to.
My opinion!
8. crunchy said...
Look out for many more banks to be picked up for peanuts in 2009. Making sense?
9. beartil2010 said...
Interesting, thanks Mark. There's not enough detail for us to even analyse it.
For instance, if you look at the UK market as a closed market, and all the money loaned = money as desposits, then the fractional reserve ratio does not matter, as all the money lent out comes back in as deposits. So, whether a bank has a 50% capital ratio, or a 5% capital ratio, the money volumes are still equal?
I think taking one year as an example and using it to evidence a trend is a huge mistake, and is what the article is trying to get you to do. The system was not stable in 2001 - or any other year, for that matter.
Whatever the specifics of this quote (and I would love to know), the main fact remains, that the people who are most to blame are not mentioned, I think we can all agree on that at least.
10. stillthinking said...
"How did banks lend more than they had on deposit?"
Totally misleading. There is no such thing as deposits anyway, much better to call them "bank liabilities". As in, obligations=liabilities.
Also, "total volume of lending = total volume of deposits" -must- always be true even after 2001.
"Mortgage securitisation enables future lending " totally puts the cart before the horse. The banks had to sell their obligations because their "capital reserves (HA)" (better would be transmission mechanisms) were broken i.e. deposits were being drawn down for -foreign goods- faster than debt repayments were being made. The only way for the banks to make good was to sell the obligations(debt due) to the foreigners.
Mortgage securitisation, in other words, was the method of handing I.O.U.s to the Chinese in return for their goods, and -absolutely nothing- to do with enabling future lending.
Lending volumes are completely arbitary. Consider;
Peter has a hammer, John has a chicken. Peter wants to borrow "money" secured against his hammer to buy the chicken.
As a banker intermediary I could put in my ledger a liability for Peter of "ten pounds" and an obligation to John for "ten pounds".
OR
As a banker intermediary I could put in my ledger a liability for Peter of "a trillion pounds" and an obligation to John for "a trillion pounds".
It doesn't matter which. Also "CAPITAL RESERVES" is pure nonsense. There is no real capital, and there are no reserves. If I have an I.O.U from Farmer Styles for ten eggs, then functionally it might act as ten eggs, but it is not really ten eggs in itself. Debts are -worked- off, but work is not a physical object which can be owned and stored. Assets are but you take my drift.
Fractional reserves are an aspect of gold currency backing, because there is really some gold at the bank. It does not make sense to consider banking under a fiat currency as having any aspect of fractional reserves, because there are -no- reserves, just entries in a ledger.
Crunchy @7, the root cause of the global slowdown is the fact that the Chinese and other net creditors are -not- spending their IOUs, with a side sauce for the UK of massive fake socialist state expansion.
11. crunchy said...
10. stillthinking Thanks for your opinion/info.
I was referring to the setting of interest rates which you cannot deny has been a factor in this lending binge..
The banks that completely overleveraged right to the very end has not helped, but there money and hard assets have been consolidated and off shored. Out of sight. The bailout is bankrupting America. Where is it going?
If one was able to trace the bailout money I am sure it would give us all a clearer picture. All of it! Over 8 trillion dollars and counting.
12. beartil2010 said...
Interesting info from stillthinking. So now we have 'Fractional no reserve' banking? The money multiplier just keeps getting bigger.
Until now of course. So glad I have no debts!