Tuesday, Nov 24, 2009
Spent it all proping up housing market?
Telegraph: Britain has run out of money, the CBI is told
And finally, there is the whole question of financial reform. On this front, Mr Strauss-Kahn was almost apocalyptic in his warnings. It was vital, he said, that the world got this right, for another banking bailout of the size just seen would be socially unacceptable for democratic societies. It would not be possible to bailout the banks again, either politically or fiscally, so if we are faced with another financial crisis five years down the line, the consequences would be catastrophic.
Posted by waitingtobuy @ 06:24 PM (871 views) Add Comment
7 Comments
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1. peter_2008 said...
What happened a year ago, would be remembered as the financial equivalent of Munich Agreement. Gordon Brown asked bankers for peace in exchange of the blood of taxpayers and unborn children of this country. Gordon came back in triumph and proudly claimed that he had saved the world and we all shall “go home, and sleep quietly in beds.”
The temporary calmness in the financial market is nothing more than some phony peacetime bought with huge amount of blood money. At some point, the bankers will wake up and say “oh, fuxk the agreement, ve vant to fuxk everyone on zhis planet.” And what is Gordon going to do? Oh, he won’t be PM by then, so fuxk the Conservatives, I guess.
2. mark wadsworth said...
Peter 2008, that made me smile.
Sure, next time they might not be so daft as to try bailing out banks. They'll just invent negative council tax or something and give the money directly to people with mortgages.
3. Colin said...
Waitingtobuy......interesting article, don't get YOUR headline though, no mention of the housing market anywhere in the post. You'll be waiting a very long time I think.
4. waitingtobuy said...
Colin---as the question mark at the end of the headline infirs ,thats my opinion of where the bailout money(most of it) has gone.Where do you think its gone?
5. waitingtobuy said...
Colin--fogot to mention.I sold at the peak for 300k,thats on deposit @3.3% = £9900 per year.I am renting a 3 bed det bungalow @ £695 =£8340,Iam in no rush!!!
6. kruador said...
The bailout money filled the hole in the bank balance sheets left by the implosion of improperly-valued assets (both property and non-property), upon which a very large amount of lending had been issued.
It's basically money that never existed being used to replace other money that never existed, except that the taxpayer is now on the hook for the interest on it. Where did the bailout money come from? We borrowed it. As government is a AAA borrower that borrowing can be rated at nearly its full face value so it actually has double the effect, both increasing the assets and the capital gifted to the bank. Share capital does not have to be repaid, we hope to get our money back by selling the shares (that were created) to someone else once the share prices have rebounded sufficiently. In theory we could also get some income from dividends if the shares are dividend-bearing but I don't think they are.
High-level economics is a shell game.
This problem will recur while the rule for having enough funds (to cover withdrawals) permits variably-priced assets to be counted; a drop in the price of those assets causes the rule to be violated and the economy, which depends on ever-growing credit, grinds to a halt as no more credit can be extended. You see, as the market prices of the assets increases, the bank can extend ever more credit. By extending credit, customers can bid up the prices of assets bought with that credit and hence inflate the nominal market prices of the assets the bank is holding, and we have a positive feedback loop. If the price of the assets drop, however, the bank finds itself overextended, limits lending, customers find it harder to get credit and tend to seek better value, the assets drop further, so it's positive feedback in the other direction.
What we need is a system with negative feedback, so that increases in price tend to cause decreases in credit available and vice versa, so you get stability rather than boom/bust.
7. letthemfall said...
kruador
Of course, that -ve feedback used to be raising interest rates, which rather went out of fashion.