Sunday, Jul 26, 2009
But you promised.....
Guardian: Darling tells banks to live up to lending promises
Darling puts on his stern look and tells the banks they failed to keep their promises to improve lending facilities in exchange for taxpayer support. Either (a) he's committed tens or hundreds of billions in exchange for nothing more than a verbal, easily broken promise from cowboys who played fast and loose with the financial system or (b) despite the bailouts banks are having real problems lending but Darling doesn't understand what those problems are or (c) he's misleading us.
NB it's illegal to keep badgers as pets but you can rescue them as long as you hand them in shortly thereafter.
Posted by icarus @ 07:01 PM (1280 views) Add Comment
11 Comments
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1. stillthinking said...
Strange that they wouldn't want to lend and make profits...
I think the banks cunning plan is to wait and wait until the old duff debts need to be rolled over i.e. when mortgage agreements come up for renewal, the worst ones presumably rolling over by 2010. Arguably, a new arrangement is a new loan, certainly this is true if you switch banks. So, as long as they keep their powder dry, they can wait holding Darling's fresh capital, provided for the purpose of genuine -fresh- loans, and gradually switch old loans over into "fresh" loans. Appearing to all intents to be making fresh loans, but actually not, just moving the taxpayer money onto the old debt structure.
This shows up because there is no credit expansion, the give away for sneaky bank non lending, but then just argue the toss over the details of whether something is a fresh loan or not. What exactly can Darling do? I think nothing.
The only fresh loans are going to originate from the newly arrived foreign banks, with the sting in the tail that as they are better placed and not having to cover losses, there will be a migration away from UK based banks to foreign owned UK banks, and then the UK bank losses will be gradually exposed as Darling cannot dictate terms to new banks.
2. Blinktoofast said...
I saw that picture before in an old Thunderbirds episode. The one where there's an emergency and they run around on bits of fishing line before saving the world. Still, no guarantees that fiction is a predictor of the future.
3. icarus said...
stillthinking - and what's your take on Darling's point about the scarcity of business credit?
4. Tpbeta said...
I wonder how much demand for credit there really is. We know the housing market is trading very low. We can suspect that lots of big companies are more interested in deleveraging - especially those with big commercial property portfolios. Probably only small businesses who really need the credit at the same level. And they're hardly a good bet in times of recession.
5. Hammered said...
I think the fact that we have the chancellor trying to shame the banks into lowering their rates through the media tells us a great deal about the New Labour way of trying to manager the economy. Not happy with printing money, dropping interest rates to their lowest in history and ballooning the budget deficit to trigger illusory economic growth, they also want to talk the market into doing what they want it to do. Lenders do not want to lend because they calculate that in this falling market they are going to lose money if they do it at rates lower than those currently offered.
People are going bankrupt, losing their jobs, being repossessed at frightening rates. We're in the greatest recession since the 1930's for crying out loud, is it any wonder they're reluctant to lend!? It's like the myth last year that we were all going to 'talk' ourselves into a recession. The market does not have ears to listen to your bleatings AD!
6. mander said...
Because Darling does not understand derivatives. It is not about cash or capital the banks need to hold but it is about the toxic derivatives that hunt the banks.
7. icarus said...
maybe somebody should have shown Darling this:
http://bulletin.aarp.org/states/hi/articles/banks_still_standing_amid_credit_rubble.html
Gist - in the US before the credit crisis banks provided less than a third of the $25 trillion of outstanding loans in the US. The other 70% came from traditional bond markets or the newer securitised loan markets. Companies went to the securitised markets for cheap loans - mainly from abroad, or to commercial paper markets for short-term loans or to corporate bond markets for long-term loans. Most of that 70% got blown away by the financial crisis and, to make matters worse, banks were of course no longer able to package and send out their loans to the securitised loan markets. Hence badly impaired banks - no longer able to get rid of loans and free up their cash to make more loans - were tasked with taking up the 70% ($17 trillion) slack.
The solution : f*** the banks (or as Marin Wolf more politely puts it "costs imposed by the failings of finance (should be) properly internalised within the sector"). Then governments should print their own money (it's currently brought into existence by the unaccountable private banking sector) backed by 'the full faith and credit of the US, UK etc' and loaned out the way Darling wants..
8. icarus said...
make that 'Martin Wolf'
9. stillthinking said...
I think Darling has a very good point about scarcity of credit for business being destructive, but he can't whistle up overnight his own banking infrastructure, so he is left whining because he already handed over state guarantees. He should have let the banks go bust and dished out the losses (in a socially sensitive way) when he had the chance, like Sweden. They do look like zombie banks now, but a difference in Japan is that they never let foreign banks compete against their domestics, I think Citibank was the only one, because banking allows a kind of imperialist expansion. We on the other hand are complete sluts and don't care who we borrow from.
Considering that China is blocked from ownership of assets which are of national importance, how is it going to be possible for a Chinese bank to extend loans using those assets as security? If they can never take ownership? Anyway, I think the presence of foreign banks will be revealing because they are perfectly placed for a squeeze against the weak UK banks, who will be forced to dispose of their loan book at brutally low prices in order to cover the savers who switch from a UK to a foreign(yet UK presence) bank. That is why there are so many coming over.
What I would do, is offer a high savings rate, and cover the costs of that by grossly underpaying for existing mortgage debt e.g. I can offer 10% savings rate -and- take mortgage debt fixed at 5%, IF I can buy those mortgages for 50% of their face value. Or I could hold my nerve, and fund speculation against the value of sterling by using my foreign currency reserves to back credit creation of sterling sold into another currency. There must be a million ways you can profitably blackmail a government that cannot raise interest rates if you are a bank.
10. icarus said...
Tpbeta @4 said 'I wonder how much demand for credit there really is'.
OK, let's see. Consumers are lacking housing bubble 'wealth' and are deleveraging, so not too much demand there. House prices are falling so only the deluded want mortgages. Demand for credit from the construction sector to build houses and commercial space? Nope. Investment in equipment and software? A lot of that is done by big companies which fairly easily get short- and long-term credit anyway. Equipment and software by SMEs? If you fixed the banks they could lend for investment by SMEs in equipment/software as long as this isn't considered too risky in a recession. This kind of investment by this kind of company may be 2-3% of GDP. If a fixed banking system gave these companies credit to increase this investment by 25% this increase would come to less than 1% of GDP.
So "not a lot" is the answer to your question.
11. Tpbeta said...
icarus said...
""Not a lot" is the answer to your question."
I think that's right, in which case we're in a Balance Sheet Recession, in which case an awful lot of what most people thought was true isn't. It also means (if you follow the Richard Koo argument) that ZIRP and QE could last for another 4 years without having any effect whatsoever on the wider economy either deflationary or inflationary. It would, however keep house prices decline relatively slow. Explains a lot in fact.