Monday, May 11, 2009
Why we should have let the banks go bust
MoneyWeek: Why we should have let the banks go bust
Banks crippled by their own reckless lending should have been allowed to fail. But now, having bailed them out once, we'll have to do it again. And that could ruin us for years to come.
Posted by damien @ 12:06 PM (794 views) Add Comment
8 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. crunchy said...
Perhaps the taxpayers burden will be lessened when the markets drop like a stone and slow investors footsie some of the bill.
2. confused76 said...
John (Stepek),
your "punchy" advice is like a salad, not too punchy if served after a week.
the inflation horse has long bolted, and thank you for responsibly arguing that useful infrastructure projects should be funded after having let all the banks fail. Because, you know, you can let one irresponsible bank fail, but that owes money also to "responsible" banks.
the real irresponsible is people like you venting your lungs knowing no fatcs.
zombie zombie, this was the mantra a few months ago, like the Y2K armageddon that never happened. happy to see that Money Weak gets on the case, eventually.
what do you do now, buy gold of course!!! I have that friend who sells bullions, he's got a line long three miles out of his shop, but he's got no bullions left, so why the long line?
there were two asset classes overvalued, one was housing, relying on cheap credit to pump up the asset prices, and corporate debt, also using leverage. Stocks... investors leverage always been minimal, valuations were fair. "the markets dropping like stones" from where? mining and oil are 50% undervalued from here. remember stocks discount nominal growth not real.
3. icarus said...
Yes, they can go bust because they have decoupled from the real economy.
The financial system has replaced industrial growth by financial wealth-creation. It is extractive, not productive, It's geared towards directing savings into speculation, bubbles and windfalls. It invests in what is already there - property, shares, stamps, coins, art etc.- rather than in capital formation that raises living standards. It's based not on equity finance but on debt, collateral-based trade credit and mortgages. Land is not a factor of production but a generator of rents and tolls, reducing the flow of income and adding to society's debt overhead. Property and credit are costs (rent, interest) rather than benefits. Debt grows faster than production and incomes, so creditors have to lend so that debtors can pay interest and not default, or debtors have to inflate their way out of debt, not by earning but by inflating asset values. When these ruses fail we have blow-outs = defaults and bailouts paid for by future taxpayers.
The system is a pyramid scheme needing new money flowing in at the bottom from pension or mutual funds, bank credit, money markets etc., a Ponzi scheme that needs to grow exponentially. The values of assets and liabilities are what accountants and lawyers say they are. Insiders cash out and search constantly for the greater fool.
Look at the suburban sprawls, especially in the US and especially in Florida. Farmlands, wetlands, habitats and aquifers have become empty suburban sprawl rotting on balance sheets, postapocalyptic concrete blocks with false gables set in weed-strewn ex-farmlands, home to squatters, stray dogs and shopping trolleys - all with theoretical addresses. Their sole function was to shower wealth on Wall Street down the supply chain of developers, engineers, builders, local politicians, planners and lobbyists.
And just what is this "credit" that needs to get flowing again? Where is it going to go? Consumers? Nope. Their bubble wealth has gone and they're deleveraging. More overbuilding of property? Nope. Equipment and software? Big companies with a market can obtain long- and short-term finance anyway. That leaves small/medium companies which are having a bad time in recession and are therefore risky. Even if their equipment/software investment increased substantially this increase would be a tiny part of GDP.
Let the banks go bust? Good idea but it won't happen because of their political clout and because politicians go down the path of least resistance.
4. greytornado said...
I have thought for a while that the whole problem is like a giant pyramid scam. Trouble is; the bale outs will get increasingly bigger. The next one that's looming will sink the ship. Only solution is to buy something with your money while you still can. Gold is looking very good - the price is being kept down. Oh - and if I am wrong - can someone explain why the Chinese who are worried about all the paper they are holding, have recently increased the national pile of gold - they have admitted in the last couple of weeks that their gold reserves have gone from some 600 tonnes to 1,00 tonnes? To my knowledge, no other State has increased their gold reserves by this sort of amount for donkeys years.
5. greytornado said...
An eagle eye will spot the typo - that should have been 1,000 tonnes - a nought missed off - sorry !!
6. rotten tomato said...
@ Icarus
You hit the nail right on the head. To sum up what you said above in one word: feudalism
The financial elites of the Western world, have decided that a throwback to feudalism is what is needed for us and the world, where the peasants own nothing, but work like slaves to pay their masters in the castles. Of course to lull the peasants into accepting all this, and a reduction in living standards and health care with glee, comes the heavily financier supported green priests of the new ecology and CO2 footprint religion.
Do a quick search to see who are the founders of the WWF and who sits in the control room at Greenpeace, and you should be surprised.
Oh, and take a look at this site while you're at it: http://green-agenda.com/index.html
7. icarus said...
@ rotten tomato - I know about the WWF, the 1001 Club (and who runs it and where they live) and about Operation Lock.
8. hpwatcher said...
The system is a pyramid scheme needing new money flowing in at the bottom from pension or mutual funds, bank credit, money markets etc., a Ponzi scheme that needs to grow exponentially. The values of assets and liabilities are what accountants and lawyers say they are. Insiders cash out and search constantly for the greater fool.
A very good point. But I only see this as a UK problem......China doesn't have this issue? The UK simply doesn't produce anything........it's as simple as that!