Tuesday, Jun 09, 2009
Sounds ominous.
Telegraph: IMF tells Europe to come clean on bank losses
The International Monetary Fund has called on eurozone governments to take urgent steps to clean up the banking system as losses mount, and advised the European Central Bank to prepare "all unconventional options" in case the crisis deepens.
Posted by flintster1994 @ 08:56 AM (666 views) Add Comment
7 Comments
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1. paul said...
Fat chance. The UK Politburo won't even tell its own people what the banks are up to let alone Brussels.
2. stillthinking said...
Indeed ominous. We should remember that all the high jinks of government, namely deposit guarantee and so far failed attempts to reflate asset prices have been in -anticipation- of major losses. Now we are getting to the actual real losses themselves, not the friendly smoothed over predicted version.
As lending is a high multiple of capital, and capital losses for the banks in commercial property alone are estimated at 100billion, it is difficult to see that the efforts of the BoE have been sufficient to recapitalise the high street and the government will be unable to extend increasing debt past next year.
If, in the case of the UK, the taxpayer cannot realistically cover the banks losses then we are in the situation of default, by either actual default or real printing. In an open global economy there is no easy way to carry out either. So I suppose we must hope that the taxpayer can carry that much debt, a kind of circular default as we are both taxpayer and bank depositor at the same time.
What is the true betrayal by Labour, which I think is why they are all running now, to get out of public sight, is that although both rich+poor must pay to cover the missing funds, only the rich have funds which need covering. So there will be an upwards transfer of wealth. As our trade rebalancing goes on, we will find that we have to sell into markets at lower prices while embedding higher taxation into wages, so the prognosis that we are going to be considerably poorer in real terms in the future, which isn't so visible yet, is unfortunately very true.
3. stillthinking said...
Indeed ominous. We should remember that all the high jinks of government, namely deposit guarantee and so far failed attempts to reflate asset prices have been in -anticipation- of major losses. Now we are getting to the actual real losses themselves, not the friendly smoothed over predicted version.
As lending is a high multiple of capital, and capital losses for the banks in commercial property alone are estimated at 100billion, it is difficult to see that the efforts of the BoE have been sufficient to recapitalise the high street and the government will be unable to extend increasing debt past next year.
If, in the case of the UK, the taxpayer cannot realistically cover the banks losses then we are in the situation of default, by either actual default or real printing. In an open global economy there is no easy way to carry out either. So I suppose we must hope that the taxpayer can carry that much debt, a kind of circular default as we are both taxpayer and bank depositor at the same time.
What is the true betrayal by Labour, which I think is why they are all running now, to get out of public sight, is that although both rich+poor must pay to cover the missing funds, only the rich have funds which need covering. So there will be an upwards transfer of wealth. As our trade rebalancing goes on, we will find that we have to sell into markets at lower prices while embedding higher taxation into wages, so the prognosis that we are going to be considerably poorer in real terms in the future, which isn't so visible yet, is unfortunately very true.
4. britishblue said...
Whilst it is highly fashionable to use any article to knock the UK plc, the source article is about Europe. It is commonly thought that many banks in Europe have been less clean in communicating their toxic assets than the UK. Remember in the UK, the government has been far more willing to overttly bail out the banks which is not the case in Germany. The UK isn't alone in the banking crisis. I have just visited Eastern Europe where it seems that every other person has a mortgage in Swiss francs and has been catipulted into negative equity through swingeing changes in the exchange rate
Still thinking @3. I have a view that the upward transfer of wealth will be from the 'new' middle classes. The underclasses ie. people who have never worked and know the system, or the lower classes who have been looked after by the tax credit sytems will be largely protected. But the new middle classes with mortgages, negative equity, credit cards, tax bills and who do not get government hand outs etc will find that their wealth is being redistributed upwards. The saying, 'we are all middle class now', will become redundant and most people will find themselves working class again i.e. having just enough to pay the essentials. These new middle class, who are going to become working class will also vote in a right of centre government at the next election. So expect social fireworks in the next few years
5. mountain goat said...
Stillthinking - not sure I follow your wealth transfer from poor to rich argument. One could argue that the rich pay more tax. I think the problem is debts. Both rich and poor have debts, although apparently higher earners also tend to have higher debts, bigger mortgages etc. So perhaps that supports your argument. Devaluation will favour people in debt just as high inflation does.
The IMF seems to be aiming this warning at Euro-zone Europe. I believe this area is very vulnerable especially because of lending to former East-bloc Europe. Anyone else contemplating shorting Euro stoxx?
6. stillthinking said...
Well, perhaps my argument for wealth redistribution upwards from the poorest does not really hold water. I suppose we must wait and see where the burden of honouring deposits will fall.
My argument though, is that taxation that specifically targets those with sizable deposits is equivalent to just defaulting on those deposits i.e. RBS can pay out your 100k savings but only if you pay 100k in taxation.
But, that isn't suggested, so given that the burden -must- fall on those who don't have deposit accounts to protect. So probably I am wrong to suggest poor and rich, because what I mean is have-savings vs. don't-have-savings. Example, somebody with a stable job and a large but serviceable mortgage will be required to contribute to general default risk through taxation, and personal default risk through banks costs.
Even that is just blather ... what I mean is that in so far as savers don't take the losses, they must be made good by those who are not savers. Like moving debt servicing costs to taxation rather than debt holders. Basically wealth redistribution and I don't see that necessarily the "rich" bear the heaviest burden. I think the UK losses will be such that they will move down the taxation scheme. Taxation on the rich to 50%, not enough, add in increases to the layer below, still not enough, and so on until everybody is affected.
7. stillthinking said...
Let me put it another way, perhaps there are many people on this site who have realised good profits by anticipating the housing market, and selling up prior to the crash, and I do appreciate there was a financial risk involved.
However, if I am dragged in personally to support these profits because they turn out to be based on the banks incorrect lending levels, then I feel I have a right to reject the idea that I support those profits, if they don't stand up on their own. After all, nothing to do with me personally.
That might be a much clearer argument, I am worried for purely selfish reasons about the consequences of taxation on me personally. Replace "poor" with "stillthinking" and my previous argument makes much more sense.