Friday, Jan 23, 2009
Third bailout necessary
Telegraph: Barclays, RBS and Lloyds need £80bn more in capital, analyst warns
The warning will fuel fears that Royal Bank of Scotland, Lloyds Banking Group and Barclays may be fully nationalised, coming after a week in which share prices in all three banks have more than halved. Nomura added that the latest Government bail-out measures "do not change the key issue of the unknown and potentially unlimited losses of the banking system, and therefore whether it will ultimately require further capital injections".
Posted by gardeniadotnet @ 10:16 AM (453 views) Add Comment
5 Comments
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1. troy said...
Before the war, most money was "borrowed" into existence by businesses wishing to invest. Since the war, the main burden of debt has shifted to private individuals, and in particular to the increasing numbers of people taking out larger and larger mortgages -- and now increasingly remortgaging their property, as unrestrained bank lending allows prices to inflate, and the newly "wealthy" tap into their "equity".
OUR ECONOMY RELIES
on DEBT to FUNCTION
by Gillian Swanson
Prosperity, May 2005
http://www.prosperityuk.com/prosperity/articles/debt1.html
yup today is troy's 'Prosperity' day.
2. troy said...
J K Galbraith described this process as "a method so simple the mind is repelled".
Since you borrowed the money to buy something, this new money will immediately be paid into somebody else's bank account, to play its part in the functioning of the economy.
It is now indistinguishable from any other money going the rounds. But it did not exist before you "borrowed" it, and it has been created, pound for pound, in tandem with an equal quantity of debt.
The result of this system is that someone, somewhere in the UK is responsible for repaying all but 3% of the money in circulation -- that is, the availability of this money for spending is limited by the imperative of paying it back.
Once paid into an account, money "borrowed" into existence in this way also serves to boost total bank reserves, enabling the enormous balloon of "credit" to continue.
Moreover, this money actually belongs to the lending institutions which created it, rather than to the nation.
3. stillthinking said...
Indeed.
Also, lest we forget, capital is really only required as "insurance" against default. Default being pretty much the only problem a bank can every have. All of this bailout money is going in to replace losses from defaults/anticipated defaults. Which are unfortunately going through the roof! Hence the inflate or die approach.
The administration should worry specifically about collapse in demand, being the root cause of defaults, rather than the defaults themselves. Tragically, GB has closed the door on tax reductions and cuts in government expenditure (key voters). That door will reopen when we meet Mr.IMF again, just without the tax cuts.
4. george monsoon said...
Let them fail. It will be messy for us all, but in the long run, proper banking will rise up and replace the current dog doodoo
5. plato said...
I think the pattern is pretty obvious now......... Severe drop in share value.........won't be allowed to fall..........nationalisation...........further capital injections........... All planned by the bought and paid for.
Obvious, no doubt about it, stake my no formal education in the industry on it!