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Merv Wanted To Recap Banking System In March '08

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http://ftalphaville.ft.com/blog/2010/12/15/437726/king-of-the-wikileaks-and-global-bailouts/

Earlier this month we learned that the Bank of England governor had some naughty things to say about the then-future UK chancellor and prime minister. Now we find out that as early as March 2008 — before Lehman Bros collapsed that September — King was thinking of mobilising wealthy countries to recapitalise the world’s banks.

The US embassy cable via the Guardian, with our highlights:

1. (C/NF) Since last summer, the nature of the crisis in financial markets has changed. The problem is now not liquidity in the system but rather a question of systemic solvency, Bank of England (BOE) Governor Mervyn King said at a lunch meeting with Treasury Deputy Secretary Robert Kimmitt and Ambassador Tuttle. King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative,
King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks.
END SUMMARY
Systemic Insolvency Is Now The Problem
————————————–
2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged.
He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital
. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.
Unblocking Illiquid Mortgage-Backed Securities
——————————————— -
3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs. He said we need to find an auction system where banks could move paper they want to sell without fear of stigma that the market views selling at a low price as a sign that a bank is in trouble. King said, however, he did not yet know how to structure such an auction and that further dialogue was needed. Kimmitt acknowledged the need to find ways to unblock these markets and said we should remain in touch bilaterally as well as in the G-7, the Financial Stability Forum, and the central banks.
A Possible Approach To Recapitalization
——————————————— -
4. (C/NF)
The G-7 is almost dysfunctional on an economic level, said King.
Key economies are not included, especially those that have large and growing pools of capital.
King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer.
King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.
Comment
——-
5. ©
The King proposals were not casual ideas developed in the course of luncheon conversation. It was clear that his principal objective in the meeting was to outline his outside-the-box thinking for Kimmitt.
King included very few details about his proposals and was content to present broad concepts, thereby planting the seeds for future discussion. END COMMENT.
6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;
SIPDIS Robert Saliterman, Spokesman, International Affairs, U.S. Treasury; Warren Chane, ECONOFF. UK: Mervyn King, Governor, Bank of England; Chris Salmon, Private Secretary.
7. (U) Deputy Secretary Kimmitt has cleared this message.
Visit London’s Classified Website:
http://www.state.sgov.gov/p/eur/london/index.' rel="external nofollow">
cfm TUTTLE
Visit London’s Classified Website:
http://www.state.sgov.gov/p/eur/london/index.' rel="external nofollow">
cfm TUTTLE

If we remember correctly what followed (pretty much across the global board) were a spate of emergency liquidity measures. It wasn’t until September 2008 — after Lehman had collapsed — that the UK actually moved to recapitalise its banks.

Insolvency, not illiquidity.

6 months before Lehman went down.

RBS, Barc, HSBC and Lloyds.

:ph34r:

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It was already too late by then.

Crooks.

One wonders what discussions went on between BoE and RBS/Goodwin directly in the period between March '08 and when Goodwin claimed the RBS failure was a drive-by shooting.

Darling has claimed Goodwin insisted RBS was solvent right up until the moment it went down. Merv appears to be telling the US Treasury Dept it wasn't solvent even 6 months prior to that, rights issue notwithstanding.

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One wonders what discussions went on between BoE and RBS/Goodwin directly in the period between March '08 and when Goodwin claimed the RBS failure was a drive-by shooting.

Darling has claimed Goodwin insisted RBS was solvent right up until the moment it went down. Merv appears to be telling the US Treasury Dept it wasn't solvent even 6 months prior to that, rights issue notwithstanding.

None at all...the FSA were the regulators in charge of capital requirements and adequacy.

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One wonders what discussions went on between BoE and RBS/Goodwin directly in the period between March '08 and when Goodwin claimed the RBS failure was a drive-by shooting.

Darling has claimed Goodwin insisted RBS was solvent right up until the moment it went down. Merv appears to be telling the US Treasury Dept it wasn't solvent even 6 months prior to that, rights issue notwithstanding.

It looks to me like Fred the Shred is going to end up on the sacrificial altar. Hope he knows a good plastic surgeon.

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First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance.

So the economy was being run on the basis of to avoid the stigma. No wonder it all went pear shaped.

And they talk about trying to retain credibility :lol::lol:

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http://ftalphaville.ft.com/blog/2010/12/15/437726/king-of-the-wikileaks-and-global-bailouts/

Insolvency, not illiquidity.

6 months before Lehman went down.

RBS, Barc, HSBC and Lloyds.

:ph34r:

I think that Lloyds may have been ok before they were forced to take on HBOS, who you missed from your list. The rest of them raised capital.

What is worrying is that these banks were reporting record profits. Why would they need recapitalising?

The only reason is that those profits, and the associate bonuses, were fraudulent. In which case, there is no point in recapitalising, as it just encourages the fraud to continue.

Why werent the directors of these banks prosecuted for balance sheet fraud?

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I think that Lloyds may have been ok before they were forced to take on HBOS, who you missed from your list. The rest of them raised capital.

What is worrying is that these banks were reporting record profits. Why would they need recapitalising?

The only reason is that those profits, and the associate bonuses, were fraudulent. In which case, there is no point in recapitalising, as it just encourages the fraud to continue.

Why werent the directors of these banks prosecuted for balance sheet fraud?

Because........

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I think that Lloyds may have been ok before they were forced to take on HBOS, who you missed from your list. The rest of them raised capital.

What is worrying is that these banks were reporting record profits. Why would they need recapitalising?

The only reason is that those profits, and the associate bonuses, were fraudulent. In which case, there is no point in recapitalising, as it just encourages the fraud to continue.

Why werent the directors of these banks prosecuted for balance sheet fraud?

its an accounting trick, this bankers profit lark....sell a mortage of £100K at 3%, and over the term theres £150K or so of profit.....depends on how much ahead they booked the profit.

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I think that Lloyds may have been ok before they were forced to take on HBOS, who you missed from your list. The rest of them raised capital.

What is worrying is that these banks were reporting record profits. Why would they need recapitalising?

The only reason is that those profits, and the associate bonuses, were fraudulent. In which case, there is no point in recapitalising, as it just encourages the fraud to continue.

Why werent the directors of these banks prosecuted for balance sheet fraud?

It wasn't my list.

It was Merv's list from the wikileaks cable. I've just lifted it from the AV article.

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"King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations."

Says it all, three years of extending the pain and all for nothing. King ******ed up.

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It wasn't my list.

It was Merv's list from the wikileaks cable. I've just lifted it from the AV article.

You posted it, so you have to take responsibility for it.

You are not an MP in expense claiming mode by any chance are you?

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You posted it, so you have to take responsibility for it.

You are not an MP in expense claiming mode by any chance are you?

I think the salient point here is this:-

The problem is now not liquidity in the system but rather a question of systemic solvency

(for the sake of clarity that's lifted from the article and not made up by me - do I have to qualify every post with this from now on?)

The FSA's role is to ensure no banks are trading whilst insolvent. I suspect that would also be a criminal act.

If Merv was telling Hank Paulson's dept. UK banks were insolvent then it rather beggars beliefe the FSA were not aware our banksters were trading whilst insolvent.

Puts an entirely different perspective on the 'illiquidity' spin. I guess the issue is for how long do you permit PLCs which are also banks to trade insolvently. The time line here would suggest for at least 6 months, probably longer. Which suggests systemic criminality rather than just an unforeseen 'accident' due to problems in America does it not?

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I think the salient point here is this:-

(for the sake of clarity that's lifted from the article and not made up by me - do I have to qualify every post with this from now on?)

The FSA's role is to ensure no banks are trading whilst insolvent. I suspect that would also be a criminal act.

If Merv was telling Hank Paulson's dept. UK banks were insolvent then it rather beggars beliefe the FSA were not aware our banksters were trading whilst insolvent.

Puts an entirely different perspective on the 'illiquidity' spin. I guess the issue is for how long do you permit PLCs which are also banks to trade insolvently. The time line here would suggest for at least 6 months, probably longer. Which suggests systemic criminality rather than just an unforeseen 'accident' due to problems in America does it not?

at last, vindicated...Ive been saying its a SOLVENCY problem since 2007....obvious really.. Banking is ALL about lying.

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I can't seem to access the www.state.sgov.gov website. I wonder why not.. :P

It's interesting to see the naming convention. I'll bet there is also a www.state.tsgov.gov which would be really interesting.

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I think the salient point here is this:-

(for the sake of clarity that's lifted from the article and not made up by me - do I have to qualify every post with this from now on?)

The FSA's role is to ensure no banks are trading whilst insolvent. I suspect that would also be a criminal act.

If Merv was telling Hank Paulson's dept. UK banks were insolvent then it rather beggars beliefe the FSA were not aware our banksters were trading whilst insolvent.

Puts an entirely different perspective on the 'illiquidity' spin. I guess the issue is for how long do you permit PLCs which are also banks to trade insolvently. The time line here would suggest for at least 6 months, probably longer. Which suggests systemic criminality rather than just an unforeseen 'accident' due to problems in America does it not?

Yes, it was quite apparent that we had banks trading insolvently. I wonder what would have happened if the BoE had been in charge, would they have become insolvent, and would they have been closed down as they should? We will never know.

If they were insolvent, then a huge amount of crime has been committed by these banks, and the BoE were in the know, and dont appear to have done anything about it.

Recapitalising is a silly thing to do if you give the money to the same criminals who stole the previous capital.

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Just a further thought, does this revelation mean that the BoE knew that RBS were insolvent when their rights issue was undertaken?

And does that in turn mean that the RBS board also knew?

Does anyone know the phone number of an honest cop?

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It wasn't my list.

It was Merv's list from the wikileaks cable. I've just lifted it from the AV article.

Hows about Lloyds were in the crapper and the leak is telling us this and the forced buy of hbos was a cover. King wouldn't have been saying that unless there was a fire causing the smoke. Which begs the question what was it they covered up by saying Lloyds are now distressed by the purchase of hbos, surely that little gem is still waiting to bite back.

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Hows about Lloyds were in the crapper and the leak is telling us this and the forced buy of hbos was a cover. King wouldn't have been saying that unless there was a fire causing the smoke. Which begs the question what was it they covered up by saying Lloyds are now distressed by the purchase of hbos, surely that little gem is still waiting to bite back.

Then you have the magnificent "we don't need no bailout" Barclays that secretly received $47 billion via the back door of the Federal Reserve.

They're all a bunch of lying, thieving scoundrels...

Edited by Toto deVeer

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Hows about Lloyds were in the crapper and the leak is telling us this and the forced buy of hbos was a cover. King wouldn't have been saying that unless there was a fire causing the smoke. Which begs the question what was it they covered up by saying Lloyds are now distressed by the purchase of hbos, surely that little gem is still waiting to bite back.

Possibly true. But since the takeover all the announced losses have been mainly the HBOS ones. It also appears that HBOS were in receipt of a secret loan before the takeover, Lloyds didnt have one as far as I know.

Of course the mystery is, why did the Lloyds board take on a bank it knew was bust, that it was bust too is certainly a motive.

We need a wikileak to give us the truth on Lloyds, and as of yet, we dont have it.

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Yes he ******ed up - long before this event though.

If any accusations were to fall to King, he could happily retort he was powerless to act, since it was Brown who neutered the BOE.

He could argue it was the FSA who should have been acting.

They were all 'aware' of the problem. Even if any one of them did have a concious, It would have meant them walking into the Fuhrer Bunker at Number 10 announcing the catastrophic news.

It would have been on par of announcing to Hitler the fall of the 6th army at Stalingrad, it meant the end of the road of no more boom and bust.

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If any accusations were to fall to King, he could happily retort he was powerless to act, since it was Brown who neutered the BOE.

He could argue it was the FSA who should have been acting.

They were all 'aware' of the problem. Even if any one of them did have a concious, It would have meant them walking into the Fuhrer Bunker at Number 10 announcing the catastrophic news.

It would have been on par of announcing to Hitler the fall of the 6th army at Stalingrad, it meant the end of the road of no more boom and bust.

Then the PM could have made the chief executives of the failed banks members of the House of Lords while pointing out that no member of the House of Lords ever allowed a bank to fail on their watch without commiting suicide... http://en.wikipedia.org/wiki/Friedrich_Paulus#Stalingrad

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