They Don’t Know What To Do Or They Don’t Know How To Do It.

[Extradry Martini]

I have not made myself clear; these people knew WHAT would be the result, and thus they queued, but that didn't know WHY that would be the result.

Which is why those who do know "why" should be more heavily penalised than those who only comprehend "what".

I count amongst those bond holders. They know "why".

Why?

I mean, why do you say that they know why? I go into a branch of a bank and someone tells me to put money into a 1y bond because it pays more interest. What do I say - "no thanks I don't want more interest"? Why would I say that, so why should I know why?

Depositors only know "what" and have extended faith in the system on pure trust.

Current account depositors of a bank should be protected because their intent was not to "invest" to seek interest, but only to "park" their earned cash, for a time, in a place that has, for many years, been considered a safe parking lot - rightly or wrongly.

D

So what about deposit account holders?

[Injin]

where are savers (eg current account) in the pecking order when a bank goes p-o-p?

Nowhere. Either the government or the insurance bails them out or they are last in line.

why do old people keep money at home? are they ahead of the curve or what happened when they were young to make them do this?

They would be ahead of the curve if money wasn't worthless in the event of them actually needing it at home.

[uncle rogi]

from the tone of the OP can i assume that you finally got round to watching I.O.U.S.A then EDM ?

[R K]

where are savers (eg current account) in the pecking order when a bank goes p-o-p?

why do old people keep money at home? are they ahead of the curve or what happened when they were young to make them do this?

Savers are unsecured creditors.

Banks are licenced by the FSA and bank savers are covered by the FSCS compensation scheme.

That's it.

[Extradry Martini]

where are savers (eg current account) in the pecking order when a bank goes p-o-p?

why do old people keep money at home? are they ahead of the curve or what happened when they were young to make them do this?

They are there with all the other senior unsecured, unsubordinated creditors. The government gioves a guarantee of £35k (now £50k I believe).

Edited February 20, 2009 by Extradry Martini

[KingBingo]

Maybe your having a bad day. You seem to be intent on having a good argument for the sake of it. I ask a perfectly reasonable couple of question and you come flying back with pithy one sentence comebacks. Almost exactly the kind of thing in your previous threads you have criticised others for.

You start off by saying:

Let’s start with the US: As you all know, the Geithner speech the other say was woefully short on detail. This, in my view, is because the problem they are facing is not that they don’t know what to do, it is that they do not know how to do it – in other words, they are finding the micro decisions too much a stumbling block for carrying out the macro decisions.

OK

For example, we can all – rightly I think – say that we may not be able to get these assets off the banks’ balance sheets and get them to lend again until we have had large-scale nationalisation and the balance sheets can be studied microscopically.

So you favour nationalistion, ok, reasonable view to take. I’m not sure that can be achieved better in public ownership than private, but it’s a judgment call so fine, lets run with it.

But even if that is the case, how do we do nationalise the banks?

Good question, lets tackle that.

A natural first answer to this question is to say that the equity holders get nothing, but the debt holders get repaid.

Not natural to me, as I have already stated, debt is investment.

Now a thousand apologizes if my bank regulation knowledge is lacking and the same degree of ring fencing does not exist in legal terms a deposit can be used to buy head office carpets. But I somewhat doubt if it doesn’t crop up in the regulations somewhere. And besides it has been a working understanding that the central bank will support banks for their deposits. But that digressing. The real issue your getting at here is determining the level at which a nationalized bank pays off those who put money into it.

As per…

But the very bottom rung of debt holders own what are called “tier one” bonds which are bonds, but are no different from preference shares – they pay a regular, high, coupon, are perpetual and the holders get paid out just before the ordinary shareholders in a liquidation. Do you pay those back in full? If so, how do you square that with the preference share holders who are considered equity?

I would say no, but I see the point your leading up to which is.....

If so, how do you square that with the preference share holders who are considered equity? If not and you don’t repay them, how do you square that up with repaying the next level up in the capital structure? It is the difficulty in answering these questions which is holding them back. But they need to make a decision of some sort, bull-doze it through and live with the consequences -

Ok, so a line has to be drawn, quite agree. So when I suggest that investors who motivation is safeguarding of assets should be for other uses you come back with this hissy fit about how to draw the distinction.

I’m not suggesting the line is not blurred by

the myriad ways in which a person, or business can deposit or lend money to a bank.

but the underlying point remains that is should be entirely possible to identify a level at which retail investors are looking to safeguard money and earn a decent rate of interest and the level at which you get profession bond analyst reviewing a bond issue on the market to decide if its worth investing in.

On face value, you seem to be yelling at everyone who suggests a level could be found, while in your OP your saying that this inability to find a level means

the consequences of wavering before fixing the banks are likely to be worse than the consequences of not getting all the details right while doing it.

So I really don’t see what you’re getting at.

Indeed your threads normally start out from a reasonable position and you address an important point.

Here you just seem to be making vague statements about a need to do something, and then finding reasons to be condescending towards anyone that address your points. I find your responses so far very disappointing. I can only imagine your so deadest on having a argument rather than a discussion is your bored and wanna pick fight.

[Extradry Martini]

Maybe your having a bad day. You seem to be intent on having a good argument for the sake of it. I ask a perfectly reasonable couple of question and you come flying back with pithy one sentence comebacks. Almost exactly the kind of thing in your previous threads you have criticised others for.

You start off by saying:

OK

So you favour nationalistion, ok, reasonable view to take. I’m not sure that can be achieved better in public ownership than private, but it’s a judgment call so fine, lets run with it.

Good question, lets tackle that.

Not natural to me, as I have already stated, debt is investment.

Now a thousand apologizes if my bank regulation knowledge is lacking and the same degree of ring fencing does not exist in legal terms a deposit can be used to buy head office carpets. But I somewhat doubt if it doesn’t crop up in the regulations somewhere. And besides it has been a working understanding that the central bank will support banks for their deposits. But that digressing. The real issue your getting at here is determining the level at which a nationalized bank pays off those who put money into it.

As per…

I would say no, but I see the point your leading up to which is.....

Ok, so a line has to be drawn, quite agree. So when I suggest that investors who motivation is safeguarding of assets should be for other uses you come back with this hissy fit about how to draw the distinction.

I’m not suggesting the line is not blurred by but the underlying point remains that is should be entirely possible to identify a level at which retail investors are looking to safeguard money and earn a decent rate of interest and the level at which you get profession bond analyst reviewing a bond issue on the market to decide if its worth investing in.

On face value, you seem to be yelling at everyone who suggests a level could be found, while in your OP your saying that this inability to find a level means

So I really don’t see what you’re getting at.

Indeed your threads normally start out from a reasonable position and you address an important point.

Here you just seem to be making vague statements about a need to do something, and then finding reasons to be condescending towards anyone that address your points. I find your responses so far very disappointing. I can only imagine your so deadest on having a argument rather than a discussion is your bored and wanna pick fight.

No, I am not yelling, I am saying that making a distinction between lending depositing and investing is ridiculous, because it is completely arbitrary and subjective and any attempt to do it would defeat the purpose of doing it. It would be impossible to find a way to repay one senior depositor/lender/bondholder and not another and to do it with any kind of fairness at all.

So, my point about making a decision is to do something. Draw one or more lines through the capital structure. This may not be fair, but at least you are treating everyone in each tier the same way. After all, everyone who buys tier one debt or even any other kind of subordinated debt knows what they are buying.

Edited February 20, 2009 by Extradry Martini

[ParticleMan]

should be entirely possible to identify a level at which retail investors are looking to safeguard money

One could take the view that the government only needs to guarantee returns of up to the risk free rate; literally, unwind all interest payments (and compounding) and reapply the risk free rate to funds (of whatever sort) on deposit (to derive the balance owed).

This will tend to achieve your intent - the return of saved (as opposed to invested) capital.

[getdoon_weebobby]

They are there with all the other senior unsecured, unsubordinated creditors. The government gioves a guarantee of £35k (now £50k I believe).

what about northern rock tho where the govt have guaranteed the lot?

[Extradry Martini]

what about northern rock tho where the govt have guaranteed the lot?

They guaranteed the lot and then they nationalised it, yes, so it is government risk now.

[Methinkshe]

Why?

I mean, why do you say that they know why? I go into a branch of a bank and someone tells me to put money into a 1y bond because it pays more interest. What do I say - "no thanks I don't want more interest"? Why would I say that, so why should I know why?

Because, as Injin says, the banking system has been fraudulently sold to the general public so that most people cosider a bank account to be a parking lot. They do not understand the risk and have deliberately (imo) been kept in the dark about the risks.

So what about deposit account holders?

I made an edit to include these depositors but decided against posting. But, yes, they should also be included.

Look, it is not the average current account holder, deposit account holder, ISA account holder that has brough the banking systems to its knees - it is those who KNEW and UNDERSTOOD the system and how it could be worker to their personal advantage - and on the whole these people in the know were not Joe Public but insiders - those WITHIN the banking fraternity. It is THEY who should now suffer the losses.

And, I know, we are now going to get back to pension funds, and old grannies like me who may have held, say, inherited Natwest shares for ever - since before they were even National and Provincial - and depend on dividends for their old age - and reasonably so.

Which brings me back to my initial post - way back on page 1 or maybe 2 - that whichever way I look, this crisis has no solution within the curent framework. There are too many side consequences, knock-on consequences, unfair consequences, unintended consequences, so that every which way I look, there is no acceptable way out.

Hence my following posts that suggested the only way out is to let the old system continue to implode and start a parallel system - a global currency. Not what I want, but the only way I can see politicians resolving this issue - and politicians MUST resolve issues (however badly) to keep their jobs - much as surgeons must surge if they want to keep their jobs! The alternative is an Injin-style anarchy. Persoanlly I'd prefer the latter - at least personal initiative and courage and other individual character traits would be tested - but I think we'll get the former - we will all become obedient one-world citizens. Except, I won't!

[Injin]

They guaranteed the lot and then they nationalised it, yes, so it is government risk now.

With the endlessly recursive problem being that the government doesn't have anything of it's own.

The government can't fix anything economic, it's a 100% destructive enterprise.

[Extradry Martini]

With the endlessly recursive problem being that the government doesn't have anything of it's own.

The government can't fix anything economic, it's a 100% destructive enterprise.

Precisely, which is exactly why soveriegn credit risk is rising so much - the more they guarantee, the more their own credit rating falls.

[Extradry Martini]

Because, as Injin says, the banking system has been fraudulently sold to the general public so that most people cosider a bank account to be a parking lot. They do not understand the risk and have deliberately (imo) been kept in the dark about the risks.

I made an edit to include these depositors but decided against posting. But, yes, they should also be included.

Look, it is not the average current account holder, deposit account holder, ISA account holder that has brough the banking systems to its knees - it is those who KNEW and UNDERSTOOD the system and how it could be worker to their personal advantage - and on the whole these people in the know were not Joe Public but insiders - those WITHIN the banking fraternity. It is THEY who should now suffer the losses.

And, I know, we are now going to get back to pension funds, and old grannies like me who may have held, say, inherited Natwest shares for ever - since before they were even National and Provincial - and depend on dividends for their old age - and reasonably so.

Which brings me back to my initial post - way back on page 1 or maybe 2 - that whichever way I look, this crisis has no solution within the curent framework. There are too many side consequences, knock-on consequences, unfair consequences, unintended consequences, so that every which way I look, there is no acceptable way out.

Hence my following posts that suggested the only way out is to let the old system continue to implode and start a parallel system - a global currency. Not what I want, but the only way I can see politicians resolving this issue - and politicians MUST resolve issues (however badly) to keep their jobs - much as surgeons must surge if they want to keep their jobs! The alternative is an Injin-style anarchy. Persoanlly I'd prefer the latter - at least personal initiative and courage and other individual character traits would be tested - but I think we'll get the former - we will all become obedient one-world citizens. Except, I won't!

OK, so you say that anyone who is ignorant of how banks work gets repaid - how do you work out who is whom?

Edited February 20, 2009 by Extradry Martini

[KingBingo]

No, I am not yelling, I am saying that making a distinction between lending depositing and investing is ridiculous, because it is completely arbitrary and subjective and any attempt to do it would defeat the purpose of doing it. It would be impossible to find a way to repay one senior depositor/lender/bondholder and not another and to do it with any kind of fairness at all. So, my point about making a decision is to do something. Draw one or more lines through the capital structure. This may not be fair, but at least you are treating everyone in each tier the same way. After all, everyone who buys tier one debt or even any other kind of subordinated debt knows what they are buying.

Well thank you for a more sensible non-hostile reply. Perhaps you could go to the logic next step and say at what level you believe money should be returned/safeguarded. Rather than invite others to do so and then leap on those replies as ridiculous on the basis that life isn't black and white and your marvelous ability to see grey.

[bogbrush]

OK, but as I say, you can't do that without already having a system in place, in which case it makes more sense to nationalise the banks.

No, it is nonsense to nationalise the banks.

You seem to want to wave your fairy wand and make it good for everyone. Why are you so in awe of the banks? I want to make people pay the price of their error, albeit I have a soft heart for innocents caught up in it.

Given the apparant impossibility of saving depositors according to you, then the obvious choice is to bust the businesses, stuff the depositors, buy the infrastructure and replace the bank with a retail finance centre, then wait for private groups to fill the void. Given the critical nature of the job, do it staged and manage the transition.

I know this takes no account of how incredibly difficult it all is, but there you go.

Edited February 20, 2009 by bogbrush

[getdoon_weebobby]

They guaranteed the lot and then they nationalised it, yes, so it is government risk now.

why do people fart about with 50 here 50 there when can put it all in N.Rock ?

[bogbrush]

Here you just seem to be making vague statements about a need to do something, and then finding reasons to be condescending towards anyone that address your points.

Seems so doesn't it? Lots of complaints but no solutions, apart from nationalise them and pay everyone off in full, which is patently absurd.

[waitingscot]

JWism is bogus for sure.

But so are the cranks who believe Russell was a mason. There is no evidence for that whatever.

Lol! Incorrigible!

Just steer clear of JWs, okay? They are a modern cult founded by a 33rd degree mason - nothing to do with Christianity.

There are many "forgeries" of true Christianity, and many are very good - until one takes a closer look; they have to be if they are to be passed off as the true thing - just as a forged banknote has to be good in order to deceive.

[Methinkshe]

OK, so you say that anyone who is ignorant of how banks work gets repaid - how do you work out who is whom?

Ask the bankers. It was they who sold their services to the general public with a particular slant emphasised and all risk in such small print that I couldn't read it with a magnifying glass and my optician-prescribed glasses together - even if I could get to page 13 of their terms and conditions.

Maybe the Advertising Standards agency should be brought in.....

Although, fact is, both you and I know that there is no practical way of making this kind of disctinction - which, I repeat, is what I said in my original response to your OP.

Which is why, imo, a new global currency is becoming more likely by the day.

Edited for typos.

Edited February 20, 2009 by Methinkshe

[Minos]

My worry is that this becomes much, much worse than a simple depression....

Cheer up mate. You'll likely die some time in the next 50 years or so - in the grand scheme of things it's not too long a time to suffer.

[waitingscot]

Hang about, hang about - are you a JW?

The most unorthodox JW I have ever come across!

Back to 144,000!

Bugger.

[Injin]

Precisely, which is exactly why soveriegn credit risk is rising so much - the more they guarantee, the more their own credit rating falls.

But as the government pays for things, it has to steal, which means that the economy suffers.

Which makes things worse, which means the government has to bail out more stuff, which it has to fund by stealing, which makes the economy worse.

Nothing to do with credit risk - even if it were paying for things through taxes it can't do so beynd a certain point - around 50% of GDP - and this it blew passed some time ago.

[GregG]

Nice one!

Can you project the timing of the Rapture now?

Don't you find it a little strange that we are seriously contemplating and discussing a single global currency and a new world order as a possible way out of this mess. Precisely what the Church father's predicted would happen nearly 2000 years ago.

Somehow countries have had ups and down, crashes and crisis for centuries and yet this time around there is a call for a single world currency in order to provide a "stable" economic system, stop economic protectionism, etc.

Religious issues aside, it is hard to see how a single world currency would not amount to utter slavery of all of us to the people/person who ran the Novus Ordo Seculorum given the obvious corruption and greed of the people in power today.

[Sledgehead]

For example, we can all – rightly I think – say that we may not be able to get these assets off the banks’ balance sheets and get them to lend again until we have had large-scale nationalisation .... A natural first answer to this question is to say that the equity holders get nothing, ...

And what again was your exist strategy?

Oh yeah, sell the shares back to:

1 ) people you completely f@cked;

2 ) find a new bunch who can't remember how you f@cked over the last bunch;

1 and 2 both require the passage of about 10->15 years. Patient are we?

Edited February 20, 2009 by Sledgehead