2008 Alternative Histories

[Up the spout]

We should have let all banks fail --- and then lined up ALL those involved in ANY way with fraud & LIAR LOANS up against the wall --- and shot them all by firing squad. Let the world know that all fraudsters will be executed.

That would have been the best thing EVER that SHOULD have happened.

Then the Presidents and parties who campaigned for a wider ownership of houses would have to admit they were wrong. Both the GOP and Democrats were at fault, trying to buy votes of the poorer classes.

[Up the spout]

Poppycock. That's what they told the politicians in order to secure their bailouts.

No, you close the doors over the weekend. You declare the bank a form of temporary bankruptcy. You wipe out key creditors in a certain order...shareholders, bondholders, depositors take a haircut. All the staff are officially sacked and have their bonuses annulled and their pensions wiped out. They have to re-apply for their jobs at a new wage level.

Then, having sacked the top management and largely cleaned up the books,perhaps creating a bad bank too to work thru legacy issues, you helicopter in new management and re-capitalise the bank.

You open the doors when ready with a healthier bank that can continue functioning rather than having a bailed out zombie on the high Street and all the wrong people running away with taxpayer money

That would've been possible with Glass-Steagall or similar in place. Without it banks were gambling with all of the money x 10, for example AIG alone was bailed out to the tune of $85 billion which was more than just the pensions of the 116,000 employees. I agree those bankers responsible for the losses should've been jailed, but kicking the global economy in the nuts because of some greedy bankers seems like overkill to me.

[long time lurking]

The first would be mass redundancies in the banks - tens of thousands laid off. Soon funding for many companies would dry up, governments' central banks would try to cover the shortfalls but the morass of companies in hoc would exceed all attempts to keep funding open, so you'd get mass redundancies in all sectors - tens of millions laid off. This would lead to people hoarding anything whilst the shops and cashpoints still had anything to supply. Soon they wouldn't as many of those companies supplying food would either be bankrupt or not have anything to supply as countries with farming would lock down exports. Society would break down as utility companies stopped receiving payments, roaming hoards of previously law-abiding men would take anything they could to feed their loved ones, any remaining trading companies would be ransacked of their goods and close down, epidemics break out and hospitals wouldn't be able to cope with no utilities or staff, martial law could only protect those with connections, all public services except the Armed Forces vanish, probably resulting in civil conflict and, ultimately, global wars over diminishing resources.

You are a banker and i claim my five pounds ,either that or you have found the ransom letter

[porca misèria]

You are a banker and i claim my five pounds ,either that or you have found the ransom letter

An obvious apologist for them.

Remember the spin at the time? Each bailout as it came was to protect the rest of the system. It didn't.

The more interesting counterfactual question: if we hadn't had the headless chicken act with Northern Rock that started it, could that in fact have averted the wider crisis? Those queues of depositors looking to get money out could've easily have been avoided just by the Chancellor of the day and other talking heads standing up and describing the Depositor Protection rules (which were a small fraction of what they are now, but would still have reassured vast numbers of small savers).

[Up the spout]

You are a banker and i claim my five pounds ,either that or you have found the ransom letter

Ooh no, just an amateur armchair economist. For money I teach (not economics, you'll be glad to hear). I have no agenda, if the banks had all been allowed to fail I'm simply predicting carnage, I suppose an 'agenda' could be I don't want to see my family starve to death. But continue with your name calling all you like, I went to an all boys school so had plenty of practice ignoring it (although the name calling online by people hiding behind their keyboards seems to be practiced more easily, if we were in a pub you'd keep to yourself and you know it).

An obvious apologist for them.

Remember the spin at the time? Each bailout as it came was to protect the rest of the system. It didn't.

The more interesting counterfactual question: if we hadn't had the headless chicken act with Northern Rock that started it, could that in fact have averted the wider crisis? Those queues of depositors looking to get money out could've easily have been avoided just by the Chancellor of the day and other talking heads standing up and describing the Depositor Protection rules (which were a small fraction of what they are now, but would still have reassured vast numbers of small savers).

Another name caller, how brave and mature of you.

People weren't worried about getting their money back, but were worried about going through endless paperwork to do so. If you remember the world was crashing, people were concerned the government would put them at the bottom of a very long list.

EDIT: For naughty words.

Edited January 30, 2016 by Up the spout

[long time lurking]

Ooh no, just an amateur armchair economist. For money I teach (not economics, you'll be glad to hear). I have no agenda, if the banks had all been allowed to fail I'm simply predicting carnage, I suppose an 'agenda' could be I don't want to see my family starve to death. But continue with your name calling all you like, I went to an all boys school so had plenty of practice ignoring it (although the name calling online by people hiding behind their keyboards seems to be practiced more easily, if we were in a pub I'd punch you in your face and you know it).

Iceland did not turn into the Mad max scenario you described they jailed bankers they gave every investor an hair cut they wrote off personal debt for large parts of the population they had few hard years yes, but they are in a far better situation now than most of the west ,this is fact yet you defend your hypothetical mad max scenario where the sky would have fallen in if we did not all bow to the bankers needs

I just find it hard to believe these views are still held almost ten years on when there is actual proof it would have not turned out that way

At the time of the crisis believing the mad max scenario would have been understandable ...but ten years down the line ...really

BTW no one has called you any names ,just questioned your line of thinking and you have taken offense ,that's what happens around here others will always either question or agree ,if you are going to start threatening people because they don` t agree with you.may i suggest you ...feck off now

[Up the spout]

Iceland did not turn into the Mad max scenario you described they jailed bankers they gave every investor an hair cut they wrote off personal debt for large parts of the population they had few hard years yes, but they are in a far better situation now than most of the west ,this is fact yet you defend your hypothetical mad max scenario where the sky would have fallen in if we did not all bow to the bankers needs

I just find it hard to believe these views are still held almost ten years on when there is actual proof it would have not turned out that way

At the time of the crisis believing the mad max scenario would have been understandable ...but ten years down the line ...really

BTW no one has called you any names ,just questioned your line of thinking and you have taken offense ,that's what happens around here others will always either question or agree ,if you are going to start threatening people because they don` t agree with you.may i suggest you ...feck off now

Eh? Why are you telling me to feck off? How wonderfully polite of you. I've been called or been accused of being, yesterday and today, a BTLer, an Estate Agent, a banker, and an 'apologist' for bankers (not sure I even know what that's supposed to look like, ha ha).

So I don't agree with the current conspiracy theories about how letting the banks all fail would've been good for the economy. Nor do many academic economists who have a lot more training, intelligence and skin in the game than I do. It doesn't mean I apologise, ha ha, for some multinational companies I have nothing to do with, I certainly don't work for them, I don't pay them anything as I have no debt, I don't enable them in any way or support them, and I have no reason to spend time on here, stating something I believe and being accused of being all of those things, by idiots who resort to name calling because they cannot put together a logical, well-thought out argument.

And ten years is a long time to hold a grudge. It may be healthier to accept the words of those economists because there's f*** all any of us can do to change the situation. That isn't what I'm doing, it's just a nice byproduct of reading a lot about the crisis since before it started. If you disagree then by all means I'll listen, name calling is just a waste of time and electrons.

But your correct about the threat, I regretted that as soon as I'd posted it. I don't seem to be able to edit my posts so will be more careful in the future.

Edit: Found it! Ha ha!!

Edited January 30, 2016 by Up the spout

[SpectrumFX]

Eh? Why are you telling me to feck off? How wonderfully polite of you. I've been called or been accused of being, yesterday and today, a BTLer, an Estate Agent, a banker, and an 'apologist' for bankers (not sure I even know what that's supposed to look like, ha ha).

So I don't agree with the current conspiracy theories about how letting the banks all fail would've been good for the economy. Nor do many academic economists who have a lot more training, intelligence and skin in the game than I do. It doesn't mean I apologise, ha ha, for some multinational companies I have nothing to do with, I certainly don't work for them, I don't pay them anything as I have no debt, I don't enable them in any way or support them, and I have no reason to spend time on here, stating something I believe and being accused of being all of those things, by idiots who resort to name calling because they cannot put together a logical, well-thought out argument.

And ten years is a long time to hold a grudge. It may be healthier to accept the words of those economists because there's f*** all any of us can do to change the situation. That isn't what I'm doing, it's just a nice byproduct of reading a lot about the crisis since before it started. If you disagree then by all means I'll listen, name calling is just a waste of time and electrons.

But your correct about the threat, I regretted that as soon as I'd posted it. I don't seem to be able to edit my posts so will be more careful in the future.

Edit: Found it! Ha ha!!

It wasn't a question of whether we let the banks fail or not.

The banks failed.

What we did next was prop them up without dealing with the underlying causes of that failure. That's not a conspiracy theory. It's reality.

Edited January 30, 2016 by SpectrumFX

[long time lurking]

So I don't agree with the current conspiracy theories about how letting the banks all fail would've been good for the economy

Iceland is not a conspiracy it`s fact ,tiny country buy population Massive banking system in comparison, compared to any other country in the west ,its in far better shape now than the rest of the west

They have leant from there mistakes jailed the people who put them in that situation and are far better off that's not conspiracy

Right the way through the 2000`s i worked there for a month or so a year (Aluminium ) i seen exactly the same happening there to what was happening in the UK up until the crsah ,been there once since 2009 that was 2013 the difference in the attitude to debt from the ordinary guy in the street is stark

even though plenty had their mortgages anuled /reduced

The above IMO is the reason the rest of the world pushes the conspiracy line, people have become averse to debt ....no good for the banking system is it

Iceland is doing great and that is fact not a conspiracy a nor a hypothetical scenario ..i lean towards believing what i see and fact you are welcome to believe what you want but except everything will be question around here

[billybong]

In reality the consequences couldn't have been that bad (for the general economy) because they're apparently back to their old tricks using similar financial "vehicles" under different names and apart from some tinkering they've really done little or nothing to prevent it ever happening again - despite all the promises made at the start of the crisis.

Edited January 30, 2016 by billybong

[Bland Unsight]

The more interesting counterfactual question: if we hadn't had the headless chicken act with Northern Rock that started it, could that in fact have averted the wider crisis? Those queues of depositors looking to get money out could've easily have been avoided just by the Chancellor of the day and other talking heads standing up and describing the Depositor Protection rules (which were a small fraction of what they are now, but would still have reassured vast numbers of small savers).

This is wrong. Northern Rock's problem was their sudden inability to roll their borrowings from the wholesale money markets. Their balance sheet was predominantly funded with money borrowed from other institutions. When these lenders got nervous NR became insolvent as no institutional investors would lend to them so that they could pay back existing institutional investors who did not want to continue lending to them.

The queues in the Hight Street were good telly but even if every penny of NR's retail deposits had stayed where it was, they would still have been bust.

This is basically Financial Crisis 101.

While wholesale funding to Northern Rock grew markedly, there was no correspondingly rapid growth in its retail funding. On a group basis, retail deposits and funds made up £9.9 billion of the liabilities of Northern Rock at the end of 1997.63 By the end of 2006, retail deposits and funds had only grown to £22.6 billion, compared with the six-fold increase in Northern Rock’s assets. This means that, as a proportion of the total liabilities and equity of Northern Rock, retail deposits and funds had fallen from 62.7% at end-1997 to 22.4% at end-2006. This figure is low when compared to other banks that were previously building societies: at the end of 2006, Alliance & Leicester's proportion was 43% and Bradford & Bingley's was 49%, for example. Dr Ridley confirmed Northern Rock’s position in relation to its retail funding, stating that “we had a smaller retail deposit book than many other institutions, although there are many like us overseas”.

Source: House of Commons Treasury Committee, The Run on the Rock

The same report makes it clear that NR approached the Bank for assistance on or before Thursday 13th September 2007 and the run by retail depositors began the next day, 14th September, after the BBC had broadcast that NR were is serious trouble on the evening of 13th September.

Further, whilst for those with deposits under £35,000 there was no danger of a loss above those limits, the real possibility of NR collapsing into bankruptcy existed and therefore with no practised and swift bank resolution regime in place even people with deposits of less than £35,000 were taking a real risk leaving their money in NR as they could end up cut-off from the money for a non-trivial length of time.

The only way that the government could have put a stop to the run immediately was to guarantee all deposits or take action that was sufficiently credible to convince retail investors that there was essentially no chance of the bank going bust in an uncontrolled way which would result in the assets and and liabilities (including retail deposits) getting tied up in a bankruptcy.

To suggest that somehow a bit of jaw-jaw about deposit insurance would have done the trick is not really an analysis that can bear the burden of thoughtful reflection. Essentially both NR's collapse and the NR retail deposit run (which was just a sideshow) were symptoms of a deeper systemic crisis, hence, for example, the tax payer still owns most of RBS and RBS keep posting losses, for year after year after year, because the banks really were buggered.

Edited January 31, 2016 by Bland Unsight

[wonderpup]

Strangely however some of the same people who in 2008 were telling us that the fate of the markets was inextricably linked to the real economy are now to be seen on Bloomberg claiming that the recent instability in the markets is mere froth to be ignored because the markets do not reflect the reality of the real economy.

So it may be that what we bailed out in 2008 was not some vital element of civilization but a collection of high stakes gamblers who just happened to have a gift for apocalyptic overstatement.

And even it it's true that the state had to stand behind the banking institutions there was no reason it had to stand behind the bonus and pension entitlements of the people who had brought those banks to this sorry state- people like Fred Goodwin should have been wiped out before a penny in bailouts was forthcoming- after all the state is quick to renege on contracts to it's own employees on the basis of affordability- but in the matter of the contractual rights of failed banksters they simply caved in without a fight.

[Ah-so]

The first would be mass redundancies in the banks - tens of thousands laid off. Soon funding for many companies would dry up, governments' central banks would try to cover the shortfalls but the morass of companies in hoc would exceed all attempts to keep funding open, so you'd get mass redundancies in all sectors - tens of millions laid off. This would lead to people hoarding anything whilst the shops and cashpoints still had anything to supply. Soon they wouldn't as many of those companies supplying food would either be bankrupt or not have anything to supply as countries with farming would lock down exports. Society would break down as utility companies stopped receiving payments, roaming hoards of previously law-abiding men would take anything they could to feed their loved ones, any remaining trading companies would be ransacked of their goods and close down, epidemics break out and hospitals wouldn't be able to cope with no utilities or staff, martial law could only protect those with connections, all public services except the Armed Forces vanish, probably resulting in civil conflict and, ultimately, global wars over diminishing resources.

I'm with you on this one.

It would have been the end of transaction banking services for more than 50% of people and the economy that would have been the problem.

[Up the spout]

I have a degree in economics, I spend an unhealthy time studying macro economics, I am a published author in micro economics in education. Many of you probably work in some service sector or other, and are probably upset and unfulfilled.

Oh Iceland jailed 29 bankers, oh the banks should've been left to rot, oh your pensions, social services, visits to the shops, jobs all don't matter. You are bunch of idiots, fuelling each other with moronic, self-serving ********.

[Bland Unsight]

I have a degree in economics, I spend an unhealthy time studying macro economics, I am a published author in micro economics in education. Many of you probably work in some service sector or other, and are probably upset and unfulfilled.

Oh Iceland jailed 29 bankers, oh the banks should've been left to rot, oh your pensions, social services, visits to the shops, jobs all don't matter. You are bunch of idiots, fuelling each other with moronic, self-serving ********.

This is kind of awesome. Just quoting it to preserve it really.

[long time lurking]

I have a degree in economics, I spend an unhealthy time studying macro economics, I am a published author in micro economics in education. Many of you probably work in some service sector or other, and are probably upset and unfulfilled.

Oh Iceland jailed 29 bankers, oh the banks should've been left to rot, oh your pensions, social services, visits to the shops, jobs all don't matter. You are bunch of idiots, fuelling each other with moronic, self-serving ********.

They still have shops .social services and pensions jobs along with less mortgage debt, (yes they had a world of pain for a relatively short time), and i think we will soon see how strong their banks are in comparison to the bailed out European banks

The Icelandic banks still have some ammunition as well, as their interest rates are around 6% ,yet the EU banks are still bound to emergency rates six years on, negative next ?...this is fact not theory,yet you still claim they made the wrong decisions

[SpectrumFX]

I have a degree in economics, I spend an unhealthy time studying macro economics, I am a published author in micro economics in education. Many of you probably work in some service sector or other, and are probably upset and unfulfilled.

Oh Iceland jailed 29 bankers, oh the banks should've been left to rot, oh your pensions, social services, visits to the shops, jobs all don't matter. You are bunch of idiots, fuelling each other with moronic, self-serving ********.

And you're still wrong

[Ah-so]

So you are saying the new bail-in regime agreed by the EU in the post storm peace is wrong?

I don't care what your title is. An emotional call to respect your title and qualifications rather than the quality of your arguments is poor.

Those who lump an entire board as one entity often display personality flaws.

EDIT: by the way, it is not as though there wasn't a legal framework for bank bankruptcy with a set order of various investors to take their pain - just that the weak and feeble minded Brown decided not to follow it and overturned the entire legal framework on the hop. They could have then just recapitalised the banks and got them working again. All at much lower cost and speedier resolution.

There was an insolvency framework in 2008,but it was no different to that of any other company. Banks are very different because of liability structures.

You state that they could, "have just recapitalised the banks and got them working again." This is what they did do, albeit with taxpayers' money.

If you mean that there could have been some bail-in in 2008,I must disagree. Whilst debt for equity swaps on a voluntary basis are quite common for troubled companies, it would have been for too complicated and taken far too long for banks. The alternative would be to do it as part of the administration process, but the same would have applied. Normal companies trade through administration if the administrator thinks that there is a worthy business. This relies on the ability not to repay creditors for a periods of the process.

The problem with banks is that previously retail bank accounts and bondholders were legally held as pari passu creditors ie they had to be treated the same.

For a period, bank accounts would need to have been frozen. It would have been very messy indeed. No access to cash, not getting paid etc.

The obvious answer is some kind of emergency legislation like in Iceland. One thing that Iceland had on its side was that is domestic banking system was very different to its overseas real estate based business. The dividing line between protecting domestic retail customers and letting the overseas operations fail could be clearly seen. I don't think you get that in the UK - the domestic market is also a global market. There may also been differences in our legal systems and the role of EU membership, but I am not qualified to speak. It also imposed capital controls - again not realistic for the UK.

A big mistake on RBS in particular was not taking a 100% shareholding in the company. But this does not change the fact that the govt had very few options other than to bail out the banks when it did. The process of getting a bail-in regime in place has taken a long time and effort, and that is with the backing of the Treasury.

[winkie]

Yeah, don't worry, we've been there and done that a long time ago on HPC

Well worth repeating.....

[Guest]

Maybe we did have to spend the billions of taxpayer's money to 'keep the cash machines running'.

But as a condition of the bailout the boards and senior management of those failed banks should have been sacked. And government investigators should have been sent in post-crisis to go over the books and investigate what had been going on.

Years after the crash we were still uncovering different kinds of fraudulent or dodgy behaviour - LIBOR, money-laundering, etc.

Instead all we got was business as usual - with bank bonuses given to the same set of executives, plus even cheaper central bank money continuing to bid up London house prices and make life harder for those of us not working in finance.

The banks aren't fit for purpose. They still prefer to lend to BTLers rather than to businesses. The goal of any state intervention should have been to protect depositors under the FSCS limit, not to protect the 'system'.

Iceland did the right thing.

[winkie]

Three times he said we need new radical policies......nobody asked what these radical polices would consist of.....any clues what radical polices they be......any ideas?

http://www.bbc.co.uk/programmes/p03j37dr

[SpectrumFX]

There was an insolvency framework in 2008,but it was no different to that of any other company. Banks are very different because of liability structures.

You state that they could, "have just recapitalised the banks and got them working again." This is what they did do, albeit with taxpayers' money.

If you mean that there could have been some bail-in in 2008,I must disagree. Whilst debt for equity swaps on a voluntary basis are quite common for troubled companies, it would have been for too complicated and taken far too long for banks. The alternative would be to do it as part of the administration process, but the same would have applied. Normal companies trade through administration if the administrator thinks that there is a worthy business. This relies on the ability not to repay creditors for a periods of the process.

The problem with banks is that previously retail bank accounts and bondholders were legally held as pari passu creditors ie they had to be treated the same.

For a period, bank accounts would need to have been frozen. It would have been very messy indeed. No access to cash, not getting paid etc.

The obvious answer is some kind of emergency legislation like in Iceland. One thing that Iceland had on its side was that is domestic banking system was very different to its overseas real estate based business. The dividing line between protecting domestic retail customers and letting the overseas operations fail could be clearly seen. I don't think you get that in the UK - the domestic market is also a global market. There may also been differences in our legal systems and the role of EU membership, but I am not qualified to speak. It also imposed capital controls - again not realistic for the UK.

A big mistake on RBS in particular was not taking a 100% shareholding in the company. But this does not change the fact that the govt had very few options other than to bail out the banks when it did. The process of getting a bail-in regime in place has taken a long time and effort, and that is with the backing of the Treasury.

The options were a short period of pain, with a genuine correction and then a genuine recovery, or desperately trying to keep the plates spinning just a little longer while the credit bubble grows ever larger.

You say the former option was not feasible, but it would have been a walk in the park compared to the total collapse that's coming down the line.

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.

- Ludwig von Mises

Edited February 14, 2016 by SpectrumFX

[DabHand]

The first would be mass redundancies in the banks - tens of thousands laid off. Soon funding for many companies would dry up, governments' central banks would try to cover the shortfalls ...SNIP

Banks aren't lending to real businesses employing real people. The funding for lending scheme got eaten by the treatment of BTL as "business".

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/11635734/Finally-banks-are-lending-to-businesses-again.html

Generally real wealth and people/things still exist even when credit vanishes. Sure businesses and even banks fail. The deflationary effect of credit destruction would give ample room for the govt to effectively print any lost wealth (savings and pensions). They would have to balance this against reserve requirement changes to prevent a subsequent period of massive inflation from leveraging this newly unencumbered cash.

If you stop to consider that people in an office pushing numbers around aren't directly creating wealth, allegedly they are matching capital supply with demand more efficiently which they aren't even doing. They appear to be mostly concerned with making themselves money from paper with no societal productivity. All l see is the ballooning of credit which appears to be fungible with real cash (particularly when bailed out by the host govt), none of which is backed by a concomitant growth in real goods.

Consider:

http://www.industryweek.com/competitiveness/financialization-economy-hurts-manufacturing

In recent years, as New Deal regulations were slowly dismantled, financial sector growth accelerated along with high risk-taking and speculation. The employment and total sales of the finance industry grew from 10% of GDP in 1970 to 20% by 2010. The focus of the economy was no longer on making things; it was on making money from paper. The finance industry swelled as the rest of the economy weakened.

The disproportionate growth of finance diverted income from labor to capital. Wall Street profits rose from less then 10% in 1982 to 40% of all corporate profits by 2003.

One of the big problems caused by finance rising and manufacturing sinking is that a low-employment industry replaced a high-employment industry. At its peak, in the mid-twentieth century, manufacturing generated 40% of all profits and created 20% of the nation’s job. Today finance controls 40% of the nation's profits with 5% of the jobs.

Banks have no value. Stuff and people have value. The functions of a bank that are important to the real economy could be recreated digitally in a matter of days.

Banks are a net drain on the economy and median wealth of the population.