Monday, Jun 21, 2010
Let's hope so
Reuters: Britons say government will get it right on economy - poll
Britons expect the economy to deteriorate over the next year but are optimistic that the coalition government's policies will pay off eventually, a poll showed on Monday.
Posted by mr g @ 04:33 PM (1680 views) Add Comment
28 Comments
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1. paul said...
Naiivety at best. They won't get it right. Chiefly because they never have and I can see no reason why now should be any different.
2. simon68 said...
The most worrying time bomb in UK is the private sector debts.
The total banks lending to private sector is 6 times UK’s GDP.
UK’s GDP is 1,455 billion pounds; so total banks credit to private sector in UK is 8.73 trillion pounds.
http://img706.imageshack.us/img706/8939/capitaladequacy.gif
3. simon68 said...
In United States the ratio of banks’ private sector lending to GDP is about 320% and China is about 100%. But UK is having a lending ratio of 600%, wow really Debts Kingdom not United Kingdom.
4. peter said...
I don't share the general public's optimism.
Yes, this lot may do better than the last lot, which isn't saying much, but I don't think they will get the economy right.
Don't forget that Cameron, Osborne et al totally failed to see the crash coming. Right up to the end, Osborne was coming out with daft things like 'sharing the wealth' or whatever he called it. Also the coalition depends on a lot of LibDems who are practically socialists.
As soon as the intelligentsia with all their boondoggles, cosy university lectureships and fake charities sees the prospect of cuts they will squeal the house down. And I am not optimistic that anyone will have the steeliness to face them down.
5. drewster said...
simon68 - That graph only goes to 2007, do you have anything more recent?
6. simon68 said...
There is no update chart after 2007. I guess BOE or FSA don't want public to view the true picture.
But you can work out the percentage increase or decrease to present. The multiple has been reduced after 2007 by about 15% to 20%.
7. maihem said...
@simon68 that lending figure is only a problem for the banks shareholders. Banking service will remain needed so it won't even be a problem for the staff who'll all just move to other banks.
8. Tartaglia said...
The triumph of hope over experience - a bit like supporting the England football team!
9. simon68 said...
To: maihem
It depends on the quality of banks’ loans. If it is reckless lending and turn out to be non-performing or even bad loans and banks capital adequacy won’t be able to cope with the loss; then I am afraid the bill need to foot on tax payers in terms of tax rise or benefits cut.
10. simon68 said...
To: maihem
The repayment of loans to significant extent depends on future earnings or GDP growth and interest rate movements.
See example in United States (The “problem” of private sector debt):
http://www.marketoracle.co.uk/Article20418.html
11. dbc reed said...
@Peter
Rather than practically socialist a lot of Lib Dems ,especially the Orange Book types are free market fundamentalists so extreme that they make even New Labour look practically socialist.
12. simon68 said...
Unlike economy in BRIC countries which rely on capital investments in infrastructure, manufacturing, natural resources exploration, exporting; UK’s economy is replying on consumption, housing bubble, bank lending and public sector expenditures.
Therefore, I don’t see any impetus for growth in UK for the next 20 years; so the GDP growth would not be more than 2% in the years ahead.
13. maihem said...
@simon68 no, the tax payer doesn't have to pay bad private sector loans. The banks can go bust for they're own follies.
14. simon68 said...
To: Maihem
If George Osborne allows any British bank to fail, it will fret the market causing other banks run in UK. It is equivalent to a sovereign debts default.
See what happened in Icesave bank and the subsequent collapse of the nation’s largest bank and melt down of currency/sovereign debts. What foreign depositors would do is to withdraw all monies from Britain if there is a bank run in UK. That why I keep 90% of my wealth in Asia as I don’t believe any politician in UK would dare to upset electorate in spending cut.
“In late September 2008, it was announced that the Glitnir bank would be nationalised. The following week, control of Landsbanki and Glitnir was handed over to receivers appointed by the Financial Supervisory Authority (FME). Soon after that, the same organisation placed Iceland's largest bank, Kaupthing, into receivership as well.”
15. simon68 said...
June 22 (Bloomberg) -- The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan.
“They’ll gain an increasing place in reserves because of diversification,” European Central Bank governing council member Christian Noyer said in a June 16 interview with Bloomberg News in Paris.
Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. currency and euro, Alexei Ulyukayev, the first deputy chairman of the nation’s central bank, said in an interview in Moscow on June 15. The International Monetary Fund may add the Aussie and loonie to a basket of currencies it uses in transactions, strategists at UBS AG, the world’s second-largest foreign-exchange trader, predict.
16. mark wadsworth said...
Simon68, Maihem:
1. If you take an individual bank's balance sheet, you'll find about a sixth of its assets are real loans to real people or businesses and a sixth of its liabilities are real deposits from real people or real bonds held by real people. The rest of it is loans to or from other financial institutions etc.
2. So if we were to merge all UK banks (whether in real life or purely as an accounting exercise) the total assets of Megabank would be about one sixth of the total of all individual banks.
3. Next, we might find that the value of the mortgage assets (loans made BY banks are assets from the bank's point of view) are worth (say) twenty per cent less than the amount originally advanced. So let's write these down by twenty per cent.
4. The assets and liabilities sides have to balance, so somebody has to bear that loss on the liabilities side (depositors or bond holders). Let's assume shareholders are wiped out. The split between deposits and bonds is (say) 50/50.
5. For political reasons, ordinary deposit and current account holders get privileged status (which is fine by me), so the loss has to be borne by bondholders. As we know, banks bonds are trading at a lot less than par value (say 60p in the £1). So if we write down assets side from £100 to £80, on the liabilities side we have £50 deposits and current accounts, so by definition bonds must be £30 (which they are in real life, because £50 nominal sells in the market for only £30, or 60p in the £1).
6. All it then requires is for £20 of (repayable) bonds to be converted to (non repayable) share capital.
7. Hey presto, banks recapitalised, nobody has "lost " anything that they hadn't already lost, job done, not a penny of taxpayers' finest is required.
8. In a roundabout way, this is what they did with NR, B&B and so on or CIT Group in the USA, and all banks are doing this to some extent (part-cancelling bonds and issuing shares instead - it's called a debt for equity swap).
Problem solved. I've been saying this since September 2007.
17. simon68 said...
“In a roundabout way, this is what they did with NR, B&B and so on or CIT Group in the USA, and all banks are doing this to some extent (part-cancelling bonds and issuing shares instead - it's called a debt for equity swap).”
But the question is who injected funding into NR, B&B, CIT Group in financial turmoil?
It’s again the Government who did it.
The existing shareholders would probably reject bonds conversion into equities, in that it will dilute their interests in the bank. It’s likely that shareholders don't have alternatives since objection means the bank will need to wind up its business.
18. mark wadsworth said...
Simon68, yes of course, in the very short term, the government might have to step in to prevent a run on the bank by depositors - but this doesn't need cash, it just requires a solemn guarantee that whatever deal is struck between shareholders and bondholders will not affect depositors (or staff).
As you say, shareholders don't have alternatives, and neither do bondholders - it's basic insolvency law, has been for centuries. We don't need to invent new rules.
19. simon68 said...
“in the very short term, the government might have to step in to prevent a run on the bank by depositors - but this doesn't need cash, it just requires a solemn guarantee that whatever deal is struck between shareholders and bondholders will not affect depositors (or staff).”
Guarantee won’t be enough for capital adequacy purpose. What government did is to swap gilts or treasury notes for toxic assets held by banks, and keep those toxic assets in government vault.
20. simon68 said...
If the bonds that stand in banks’ liabilities are sufficient to weather the financial storm, there shouldn’t be need to ask governments for bail out.
21. mark wadsworth said...
Simon68, yes I know that's what the government did. But it was entirely unnecessary. Either they are stupid or corrupt (I'll give the UK govt the benefit of the doubt on this one, they were just stupid, but what happened in the USA was quite clearly corrupt)
With NR in particular, which was three-quarters bond financed, a one quarter write down on mortgage assets would have led to one third of bonds being converted to share capital. Big deal, you invest in a business and you accept risks and rewards. Anybody who'd taken a few minutes time and trouble to actually look at their actual balance sheet would have noticed this.
22. simon68 said...
See this:-
http://img163.imageshack.us/img163/2780/externaldebts.gif
23. simon68 said...
NR is one of the most aggressive operators in mortgage lending business.
I guess the bad loans hole shouldn’t be shallow.
24. simon68 said...
A Guardian examination of Northern Rock's books has found that £53bn of mortgages - over 70% of its mortgage portfolio - is not owned by the beleaguered bank, but by a separate offshore company.
The mortgages are now owned by a Jersey-based trust company and have been used to underpin a series of bond issues to raise cash for Northern Rock. It means the pool of assets available to provide collateral for Northern Rock's creditors, including the Bank of England, is dramatically reduced, calling into question government claims that taxpayers' money is safe.
Among the findings are:
• Mortgage loans of over 90% of the purchase price of a house have soared to £16bn, from £2.7bn, in the space of three years.
• Loans have exceeded the value of the property on nearly 2,500 mortgages, with a value of £263m. Three years ago, the figure was just £13m on 158 properties.
• 10,000 Northern Rock customers are a month or more in arrears on their mortgages, on loans worth nearly £1.2bn. At the end of 2003, there were only 2,500 in the same difficulties, with mortgages worth £168.8m.
• In 2003 Northern Rock repossessed 80 properties. Last year more than 1,000 properties were repossessed. By the end of September this year 912 properties had already been repossessed.
http://www.guardian.co.uk/business/2007/nov/23/northernrock.bankofenglandgovernor
25. Jpdoyle said...
simon68..."A Guardian examination of Northern Rock's books has found"
Why are you reporting news from three years ago? What is the situation with Northern Rock now?
26. Simon68 said...
Now? Zombie Bank!
What Does Zombie Bank Mean?
A bank or financial institution with negative net worth. Although zombie banks typically have a net worth below zero, they continue to operate as a result of government backings or bailouts that allow these banks to meet debt obligations and avoid bankruptcy. Zombie banks often have a large amount of nonperforming assets on their balance sheets which make future earnings very unpredictable.
27. simon68 said...
Now? Zombie Bank!
What Does Zombie Bank Mean?
A bank or financial institution with negative net worth. Although zombie banks typically have a net worth below zero, they continue to operate as a result of government backings or bailouts that allow these banks to meet debt obligations and avoid bankruptcy. Zombie banks often have a large amount of nonperforming assets on their balance sheets which make future earnings very unpredictable.
28. Mark Wadsworth said...
"What Does Zombie Bank Mean? A bank or financial institution with negative net worth."
Meaningless. Let's imagine a house worth £90k with a £100k mortgage on it. The owner has negative net worth. That does not mean that the house itself is not a perfectly good house, it is not a "Zombie House". The tricky bit is working out who picks up the tab for the £10k shortfall, the lender or the borrower, but that is a minor issue compared to the fact that it is a perfectly good house.