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Guest BAREBEAR_soon to be ALIVA

What Would Have Happened If We Hadn't Saved The Banks ?

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Guest BAREBEAR_soon to be ALIVA

So a few banks would have gone to the wall and would have been swallowed up by other banks.There were some that were relatively clean.

Why didn't they just let it happen ?

All you hear is we had to save the financial system, nobody say's why.

And then theres quantitive easing, what would happen if they hadn't done it ?

Lastly if a big bank were to go under I assume someone would take over their mortgage business etc. even if it was the government.

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The truth is no one knows as the outcomes would have been totally unpredictable.

However my guess is massive debt deflation would have been unleashed, massive defaults on debts as the majority is completely unsustainable, for me in this climate anyone with a loan pre crash over 1x earnings would default and be unable to pay.

I would also guess there would have been huge social unrest.

All guesses as it's impossible to know what would have happened.

But remember Lehmans was allowed to go bust and that panicked everyone enough to crash interest rates and get printing.

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The truth is no one knows as the outcomes would have been totally unpredictable.

However my guess is massive debt deflation would have been unleashed, massive defaults on debts as the majority is completely unsustainable, for me in this climate anyone with a loan pre crash over 1x earnings would default and be unable to pay.

I would also guess there would have been huge social unrest.

All guesses as it's impossible to know what would have happened.

But remember Lehmans was allowed to go bust and that panicked everyone enough to crash interest rates and get printing.

but in spite of lehmans crashing, the banks remain...indeed, large chinks of lehmans were sold off.

The worry was AIG...not a bank, yet involved in the CDS game, cos the poor dears thought if it looked like insurance, provided insurance, was chargable as insurance, that it WAS insurance.

Its not of course, its different, its an unregulated self cancelling fee earning machine. (they'll be selling them on QVC soon)

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Guest BAREBEAR_soon to be ALIVA

I wonder if there was anyway the government could have done nothing and waited for the outcome, then stepped in if neccessary?

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but in spite of lehmans crashing, the banks remain...indeed, large chinks of lehmans were sold off.

The worry was AIG...not a bank, yet involved in the CDS game, cos the poor dears thought if it looked like insurance, provided insurance, was chargable as insurance, that it WAS insurance.

Its not of course, its different, its an unregulated self cancelling fee earning machine. (they'll be selling them on QVC soon)

So Lehmans sold of their Chinese operations?

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So Lehmans sold of their Chinese operations?

rubbery chinese operlations.

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I wonder if there was anyway the government could have done nothing and waited for the outcome, then stepped in if neccessary?

As I said they did with Lehmans, Paulson let it go bust. At which point his trousers turned brown and we started to get coordinated rate cuts by the worlds central banks.

And as Bloo said there's AIG which does appear to be a keystone to the entire system.

I would suggest that everything is so interlinked everything would fail, even the banks which are seen as good. Once debt destruction starts there will be no stopping it.

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So a few banks would have gone to the wall and would have been swallowed up by other banks.There were some that were relatively clean.

Why didn't they just let it happen ?

All you hear is we had to save the financial system, nobody say's why.

And then theres quantitive easing, what would happen if they hadn't done it ?

Lastly if a big bank were to go under I assume someone would take over their mortgage business etc. even if it was the government.

A re run of the 1930's great depression....

http://www.amazon.co.uk/Great-Crash-1929-P...s/dp/0140136096

Massive misery for millions, but a few VI cheer leaders on HPC whooping it up cos House prices fell more than they were expecting.

Provided of course it wasn't their banks that went bang.

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Guest BAREBEAR_soon to be ALIVA

If nobody knows the outcome if they'd done nothing why then everytime Brown accuses the Tory's of being a do nothing party they dont simply turn round and say that would have been the best and cheapest way. Instead Cameron just shuts up and looks guilty.

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My feeling is that it would of killed off high-level enterprise for decades. We would probably have relied on local bartering which would substantially lower our quality of life. Most loans would have defaulted eventually leaving asset prices savaged beyond all recognition. I am aware this situation would appeal to some posters on here, but I believe that we are in the ideal situation now with debt deleveraging taking place at a sensible rate. It does appear that we will eventually recoup some of the money invested in the banks and hopefully sensible regulation will be in place (unlikely knowing government's nature of making the same mistakes repeatedly).

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A re run of the 1930's great depression....

http://www.amazon.co.uk/Great-Crash-1929-P...s/dp/0140136096

Massive misery for millions, but a few VI cheer leaders on HPC whooping it up cos House prices fell more than they were expecting.

Provided of course it wasn't their banks that went bang.

banks were saved during the great depression, the governments went to great lengths to interfere with everything, food, prices, banks, lenders.

When they stopped interfering, the depression ended in months. they prolonged it for years.

woof woof..................pssssssssssssssssssssssssssss

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No doubt someone would have been happy to take on the assets of the failed banks (e.g. the mortgage book) at the right price or free, but who would want the liabilities (e.g. deposits) if these outweighed the assets? My understanding is that this is really why it all went ar5e over t1t, the banks took deposits and put the (highly leveraged) capital in dubious subprime lending here there and everywhere. Now it seems that a lot of that money isn't going to come back, who is going to cover the deposits when their owners ask for them back? It would be pretty bad for society to have people losing their life savings, so the government has decided to cover them for the time being in the hope that the bad assets produce at least some return during the lifetime of the loans, better assets can be set up from now on, and in some years' time all the cr4p will have worked its way through the system. God knows what the gap between assets and liabilities is going to be, but we are going to find out because we are going to pay for it.

Great job b4nkers, really earning those phone number salaries!

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I will re-post my previous statement with the same caveats.

First caveat: I am not involved in banking so my understanding of the processes and interactions is limited.

The problem that the world banks faced was that by letting the market know they would not support the banking industry, they knew all of the banks would suffer a run and investors would have fled.

By pre-empting this and nationalising the banks (restricting cash withdrawl if necessary), they could have continued running the banks as before using public funds to lubricate the system rather than support it while the books were investigated and assets marked to market.

This would have led to the realisation that many creditors would not be repayed in full and asset prices would have entered a downward spiral as debts were written off and assets repriced. If necessary QE could have been used to counteract deflation, although personally I would have been happy to see prices and wages fall (the only difference is psychological).

This whole event would be disruptive both economically and politically, but ultimately we would be left with a free market where people who borrowed too much or speculated in assets with no sound financial underpinning would be punished, and companies who are profitable without needing to continually refinance their debt would stay in business and flourish.

I have no idea how long this process would take, but I expect a year or two for things to stablise fully.

Instead we have rewarded companies and individuals who borrowed money that they otherwise could never have payed back and we are creating a precident where we reward greed and stupidity going forward. Burdening ourselves with huge debts and inefficient companies may have provided short term stability, but it doesn't seem like a sound underpinning to a productive economy going forward.

Not being an economist I am sure this view may seem naive to many, but I would love to know why this would not have been a better long term outcome.

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The banks needed saving for one reason - the method of accounting used.

They have lots of assets and liabilities on their balance sheet. The assets are valued according to the current trading price of similar assets. If you allow a couple of banks to go down, these assets must be sold, and they end up selling cheap, which then instantly reduces the value of all banks assets, potentially forcing them all into insovency.

That's why the central banks started buying these dodgy assets at a moderate mark down.

You have to remember, with banking, REGULATION is the only thing stopping the banks creating infinite quantities of credit money. These same regulation can force the entire system into insolvency in a flash though.

And lots of people still think that this is a good way to run the monetary system...

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banks were saved during the great depression, the governments went to great lengths to interfere with everything, food, prices, banks, lenders.

When they stopped interfering, the depression ended in months. they prolonged it for years.

woof woof..................pssssssssssssssssssssssssssss

After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday

It took till the oubreak of WW2 for US GDP to recovery to it's pre crash level.

Now why don't you shoot your other foot.

Edited by Flash Gordon

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After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday

It took till the oubreak of WW2 for US GDP to recovery to it's pre crash level.

indeed, when they stopped rescuing the 8,256 others that should have failed near the beginning, the recession ended.

sales of arms helped of course. but not in the UK, France, Germany, Spain, indeed, Uk only recently paid off its war debt.

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So a few banks would have gone to the wall and would have been swallowed up by other banks.There were some that were relatively clean.

Why didn't they just let it happen ?

All you hear is we had to save the financial system, nobody say's why.

And then theres quantitive easing, what would happen if they hadn't done it ?

Lastly if a big bank were to go under I assume someone would take over their mortgage business etc. even if it was the government.

There would have been a run on the ATM network and nobody would have been able to withdraw any money.

Companies wouldn't have been able to get the money from their accounts to pay staff wages.

Basically the whole economy would have collapsed.

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There would have been a run on the ATM network and nobody would have been able to withdraw any money.

Companies wouldn't have been able to get the money from their accounts to pay staff wages.

Basically the whole economy would have collapsed.

How about if the banks had been nationalised with temporary restrictions on withdrawls? That would have kept everything "business as usual" while the assets and liabilities were sorted out.

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How about if the banks had been nationalised with temporary restrictions on withdrawls? That would have kept everything "business as usual" while the assets and liabilities were sorted out.

That's basically what happened, except for the restrictions on withdrawals part.

There's no way to escape the assets vs liabilities problem, the only question is who should pay if a bank's assets<liabilities... Savers (=creditors) in that particular bank? The taxpayer? The government decided to step in to keep things ticking over while everyone figured out how to price the assets correctly, but if there is a shortfall it will almost certainly be the taxpayer who covers it.

To the average person/business, a bank deposit is as good as cash and if that belief were broken it would be the end of saving and lending for a long time and almost certainly a depression.

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That's basically what happened, except for the restrictions on withdrawals part.

Apologies, I meant nationalise as in: let them fail, then run them without taking on responsability for the liabilities (as I believe we did with Northern Rock).

Other than that I am starting to see where you are coming from.

Edited by libspero

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Yes. But at least the debtors wouod have been punished.

As opposed to everybody being punished?

Don't forget it is your money they will be printing to beef up asset prices to keep the banks solvent. Your money to pay off the creditors.

Edited by libspero

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Apologies, I meant nationalise as in: let them fail, then run them without taking on responsability for the liabilities (as I believe we did with Northern Rock).

We sure did take on responsibility for Northern Rock's liabilities! A bank or building society's liabilities are the savings accounts that people have saved with it, because one day the savers are going to come and ask for their money back. All of those peope queueing up outside of Northern Rock branches to get their life savings back, that was no different in principle to a creditor showing up at your door with a cricket bat demanding their money back.

The government could have stood by and let NR branch managers come out and explain that the money was gone, sorry, too much lost on dodgy mortgages and personal loans. Savers would have got their guaranteed £35k from the Financial Services Compensation Scheme (now £50k) and walked away. However, the government felt it would not have been politically acceptable to leave savers holding the bag (and might have triggered a run on the other banks, collapse in public confidence in the financial system as a whole, rerun of the Great Depression), so it took NR over and guaranteed everything.

None of this would have been necessary if the banks had managed risk properly in the first place and lent out money at interest rates which accurately reflected the riskiness of the loans they were making.

I do wonder sometimes how many b4nkers suspected this insane mispricing of risk was happening but didn't speak out because of fear or because they didn't care as long as the bonus cheques kept coming in the post... Probably not many, I guess they were mostly just caught up in the psychology of the property bubble like everyone else. Difference is, keeping an eye on the fundamentals is their whole ****ing function in a capitalist economy.

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Bear with me:

I think what has happened is that the banking system has been busy printing its own money in the form of bank credit and various derivatives which it has owed to itself internally and treated as fungible with real cashola.

These bets have gone wrong for various reasons. A majority of this fake money would net out internally within the banking system, however the original assets used to leverage this bank credit (property primarily) has lost its ever increasing ponzi value pulling the rug from the whole pyramid.

So ultimately the banks owe eachother a lot of banking credit but are insolvent lacking the real assets with which to back it up. Instead they have assked the taxpayer to monetise this banking credit bubble into real assets (real cash and equivalents) at par to maintain viability.

The taxpayer has been robbed through this process. What if l were to write myself a IOU for £1M give it to mate A who gave mate B a similar note, who in turn gives me a similar note. Then we ask our respective debtors in this circle jerk for for the actual money, none of us have it so we turn round to the taxpayer and expect them to give us the real cash to resolve the IOU's.

I wonder if the banks would be allowed to fail, the gross losses might look impressive but for the most part would be inflicted mutually amongst the banks' accounts. If the government were to protect pensions and deposits (as is currently the case) leaving everything else to fold, and then moving in to facilitate a refloating of the banking infrastructure in a debt for equity bond sale then WHAT WOULD ACTUALLY BE THE ISSUE?

I appreciate pensions represent a great deal of money but outside of bank shares, what exposure does a pension funds actual value have to whether a bank folds or not?

I think we have been sold a con. The banks could have failed and we would have dealt with it. The bigger issue that saving the banks has not and will never address is that we have an economy that was based on mispriced risk and the spending of more wealth than we could generate. Neither of these were sustainable and therefore we must CORRECT to the real equilibrium our economy should be operating at. Painful - YES. Unavoidable - NO

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DabHand, I can't say I entirely disagree with you.

The financial requirements of almost all individuals and businesses (even governments!) are pretty basic: current account to allow day-to-day transactions, savings account/pension to put aside present income for consumption at a future date, loans to allow present consumption (including capital investment) to be paid for in the future. Essentially banks exist to carry out and keep a record of non-cash transactions and to balance the saving and lending requirements that people and businesses have by making changes to the interest rate.

The government and the treasury are together the admin department of the UK public sector, allocating taxpayers' money to government services according to need. The banks are supposed to be the admin department of the UK private sector, allocating savers' money to borrowers according to want/ability to repay. Should we be proud that financial services account for 10% of GDP? Given that the private sector accounts for 60% of the economy, a 17% admin charge seems pretty steep to me.

Banking serves a useful function in the economy, but quite what the circle jerk that has been the City of London since the Big Bang is for, is anyone's guess.

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