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I Think Saving The Banks And Cutting Interest Rate Was Right

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A lot of people on here think the banks should have gone bust. I am interested in how in their view this would have played out.

Would the savers have lost all their money and all the debts been written off?

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OK

A lot of people on here think the banks should have gone bust. I am interested in how in their view this would have played out.

Would the savers have lost all their money and all the debts been written off?

The savers with money in the dodgy banks, eg Northern Rock & Icelandic banks, over the FSA limit, would have lost it. Those of us with our money in less exposed banks would have been okay and would have enjoyed sensible interest rates now. It all comes down to whether or not people should suffer the losses associated with their own poor investment/savings decisions.

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OK

A lot of people on here think the banks should have gone bust. I am interested in how in their view this would have played out.

Would the savers have lost all their money and all the debts been written off?

You'll never prove it one was or another.

In my mind one of the governments primary roles is to ensure social stability, so it did right in saving the banks.

Where it went wrong was allowing them to get too big to fail in the first place and allow the whole housing bubble to develop.

I note that still the government doesn't seem too keen on addressing either of these issues.

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The savers with money in the dodgy banks, eg Northern Rock & Icelandic banks, over the FSA limit, would have lost it. Those of us with our money in less exposed banks would have been okay and would have enjoyed sensible interest rates now. It all comes down to whether or not people should suffer the losses associated with their own poor investment/savings decisions.

Most of the banks were dodgy although I would be OK with the £85,000 limit the company I work for with over 10,000 employees wouldn't have been able to pay wages if they had taken such a big hair cut.

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Most of the banks were dodgy although I would be OK with the £85,000 limit the company I work for with over 10,000 employees wouldn't have been able to pay wages if they had taken such a big hair cut.

Actually, it wasn't £85K then.

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You'll never prove it one was or another.

In my mind one of the governments primary roles is to ensure social stability, so it did right in saving the banks.

Where it went wrong was allowing them to get too big to fail in the first place and allow the whole housing bubble to develop.

I note that still the government doesn't seem too keen on addressing either of these issues.

I am not trying to prove it. Just understand how the alternative would have worked.

Most people come up with one liners I would like to understand exactly how every thing would have been done so I can work out the merit of their argument.

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I am not trying to prove it. Just understand how the alternative would have worked.

Most people come up with one liners I would like to understand exactly how every thing would have been done so I can work out the merit of their argument.

Why?

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I am not trying to prove it. Just understand how the alternative would have worked.

Most people come up with one liners I would like to understand exactly how every thing would have been done so I can work out the merit of their argument.

It's too complex to call and most people only factor in stuff that is relevant to them. Idealism can often look good until it is examined in detail.

For example, imagine this scenario. You are a foreign business about to purchase 200K of UK manufactured equipment. The UK banking system goes into lock down. Do you transfer the 200K to your suppliers UK account that they are asking for ?

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Why?

think of all that debt wiped out.

the pain of bankers and hedgies losing their shirts.

thousands would have lost savings....saying that, most savers are WAY below the then limit of what...£35K.

Trouble with UK was that the entire banking system owes external banks...many dominoes would have fallen, but in reality, the decision to save those was not ours to make....the bankers bought their risks, they should have been made to live with them.

Same in japan all those years ago...Zombie economy, yet the bankers remained just about unscathed all this time.

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It would only be a % above the £85k. Basically, enough to cover the bad lending decisions. The BoE was always there to provide liquidity - that is a different issue.

After any such 'bail-in' the bank would still operate - in fact they would have come out operating on a much better footing rather than trying to deny they have bad debts. They could have kitchen - sinked it.

(EDIT: The issue you refer to can easily be resolved with full reserve accounts - you receive no interest but you don't particpate in those FRB-related lending risks. That would be appropriate for a business's working capital)

I think there is a lot to be said about the "positive money" idea. I would like TPTB to examine the pro's and con's.

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think of all that debt wiped out.

the pain of bankers and hedgies losing their shirts.

thousands would have lost savings....saying that, most savers are WAY below the then limit of what...£35K.

Trouble with UK was that the entire banking system owes external banks...many dominoes would have fallen, but in reality, the decision to save those was not ours to make....the bankers bought their risks, they should have been made to live with them.

Same in japan all those years ago...Zombie economy, yet the bankers remained just about unscathed all this time.

Strangely enough, I did quite well out of it. As soon as it became obvious that Labour were going to prop up Northern Rock come what may and guarantee all amounts without limit, I transferred over 50% of my Sterling funds into NR at 7% and 100% of my Euros into their Guernsey subsidiary at 4.5%, all fixed for a year. Nice little earner while it lasted and makes up for the lower rates now.

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. Idealism can often look good until it is examined in detail.

This I agree with.

So why don't we examine it in detail?

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The savers with money in the dodgy banks, eg Northern Rock & Icelandic banks, over the FSA limit, would have lost it. Those of us with our money in less exposed banks would have been okay and would have enjoyed sensible interest rates now. It all comes down to whether or not people should suffer the losses associated with their own poor investment/savings decisions.

If I remember correctly, the deposit part of Northern Bank was completely solvent. Their only problem was re-financing their off-balance sheet loan book which was funded on the wholesale market. I don't know how you think these 'safe' banks would have faired okay if others were dumping onto the market similar assets to their own, for crazy-wacky prices

Edited by Police

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Surely it's a waste of effort. Hindsight is 20/20 vision and the circumstances will be different in the future.

Got anything better to do on a slow Monday evening?

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If I remember correctly, the deposit part of Northern Bank was completely solvent. Their only problem was re-financing their off-balance sheet loan book which was funded on the wholesale market. I don't know how you think these 'safe' banks would have faired okay if others were dumping onto the market similar assets to their own, for crazy-wacky prices

In our case we had many accounts, all under £35K, and a substantial amount in NS&I. The ones who would have suffered would have been the ones who stuck the lot in the bank with the highest interest rate.

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Would the savers have lost all their money and all the debts been written off?

Why would all debts have to be written off? Wouldn't some other banks have been able to buy the bad debts at a discount to make it worthwhile?

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Why would all debts have to be written off? Wouldn't some other banks have been able to buy the bad debts at a discount to make it worthwhile?

I was thinking that once a bank had gone out of business they wouldn't be able to afford to pay for court cases and bailiffs.

Say you had a house with a mortgage and you couldn't pay the mortgage because the company you work for couldn't afford to pay your wages after their money had been taken in a hair cut. would it be right for you to lose you house under this circumstance?

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I was thinking that once a bank had gone out of business they wouldn't be able to afford to pay for court cases and bailiffs.

Say you had a house with a mortgage and you couldn't pay the mortgage because the company you work for couldn't afford to pay your wages after their money had been taken in a hair cut. would it be right for you to lose you house under this circumstance?

Mortgage debts wouldn't have been written off, they're secured. The govt would have had to set up a so-called 'good' bank and acquire the rights to the assets through that.

The really critical problems would have manifested themselves in the wider economy - profitable, well-run enterprises would have been forced to the wall for lack of working capital.

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It should have been the bond holders after the equity holders. (excluding the complicated stuff).

If you were a bond holder in a bank and you just lost all your money. Would you be prepared to put money into a new bank that was starting up?

Would you be happy if your pension was cut because of the losses?

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I am not trying to prove it. Just understand how the alternative would have worked.

Most people come up with one liners I would like to understand exactly how every thing would have been done so I can work out the merit of their argument.

How it would have worked, is that we would have avoided a massive moral hazard problem.

People who'd made bad investment decisions would have lost their capital and been out of the game (or been reduced players in it). People who'd made good investment decisions would have still been in the game, and making all (or certainly more of) the investment decisions going forward. Result, good investment decisions and efficient allocation of capital.

What we have instead is a system where i know that it doesn't matter whether i make a good investment decision or not because the government is going to rig the market to pick the winners it wants. Whether i'm that winner or not depends upon ever changing political whim. This results in a very poor allocation of capital based on how i think the market will be rigged in the future.

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Those of us with our money in less exposed banks would have been okay

Actually, it wasn't £85K then.

Strangely enough, I did quite well out of it...

In our case we had many accounts...

Yup, off to Cannes later.

Gosh, really Bruce? You have lots of money in lots of different bank accounts? Why haven't you mentioned this fascinating, vital and really useful bit of breaking news with fellow HPCers before?

Oh wait, you have. Hundreds of times.

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Most of the banks were dodgy although I would be OK with the £85,000 limit the company I work for with over 10,000 employees wouldn't have been able to pay wages if they had taken such a big hair cut.

Insuring bank deposits creates moral hazard.

If i believe that the goverment will bail out my losses i seek the highest return with no conaideration of risk, because i believe the risk to me is zero.

If i believe that nobody will bail me out, then i would only put my money in a bank after appropriate due diligence. If we all do that, then money flows out of the dodgy banks, and the whole banking sector becomes less risky.

Where banks fail, companies that have done appropriate due diligence stay in business. Those that haven't go bust. This is a good thing, not a bad thing.

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Insuring bank deposits creates moral hazard.

If i believe that the goverment will bail out my losses i seek the highest return with no conaideration of risk, because i believe the risk to me is zero.

If i believe that nobody will bail me out, then i would only put my money in a bank after appropriate due diligence. If we all do that, then money flows out of the dodgy banks, and the whole banking sector becomes less risky.

Where banks fail, companies that have done appropriate due diligence stay in business. Those that haven't go bust. This is a good thing, not a bad thing.

But wouldn't company's with lots of cash in the banks been given a hair cut and company's with loads of debt been ok if the banks had gone bust?

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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