Why Are Banks So Important

[dubsie]

The last 20 years we've all seen many UK companies go to the wall, often with very little help from the government. So please explain why we're helping banks that have taken such huge risks. They have taken the risk and made a lot of money in the process but now it's all going wrong they want a hand out in excess of £30 billion.

Who does this £30 billion belong to, I don't understand. Does it belong to us....if not where does this sum of money come from.

[Injin]

The last 20 years we've all seen many UK companies go to the wall, often with very little help from the government. So please explain why we're helping banks that have taken such huge risks. They have taken the risk and made a lot of money in the process but now it's all going wrong they want a hand out in excess of £30 billion.

Who does this £30 billion belong to, I don't understand. Does it belong to us....if not where does this sum of money come from.

Because the bankers own the government and have for a very long time.

Banking is the greatest scam ever in the history of the world. It's paper for oil, gold, nations and empires and it's not going to stop just because some of the accounting is askew.

People who actually make things on the other hand, can go die in a fire.

[Dr Doom]

The £30 billion handout is new money injected into circulation,

however you will notice they avoid mentioning this.

This reduces the purchasing power of all money already in circulation.

The result is we pay the price of their excesses via inflation.

[Guest tbatst2000]

The £30 billion handout is new money injected into circulation,

however you will notice they avoid mentioning this.

It is, although I would expect that it will be taken out of circulation again by issuing gilts. Effectively, the BoE will be lending the UK government's credit rating to various banks for a small spread - a pretty crappy business in my opinion but, ironically, one that the BoE may well end up making some money at.

[Guest tbatst2000]

The last 20 years we've all seen many UK companies go to the wall, often with very little help from the government. So please explain why we're helping banks that have taken such huge risks.

I suppose you have to look at the alternative - don't bale them out and the banking system collapses totally shafting all of us in the process. A big industrial company going under just doesn't have the same chance of inflicting total meltdown on the rest of the economy so doesn't get the same help. My personal view is that, as well as lending banks money at a higher rate than they would otherwise pay, there should be some kind of fine imposed of a substantial proportion of profits from the period in question - a bit like the way banks fine you or me if we go overdrawn. Don't think that'll ever happen though.

[bearish_rat]

Hi,

To move from the conspiracy nearer to the truth:

Banks allow commoditisation of assets which in turn allows the economy to operate and for people to borrow against the future (instead of trading beads that you currently own). In this way we can invest to build things on the basis of returns we will make from them. This is why everybody is so anxious to keep it 'balanced' and why bubbles (or depressions) are so bad for the system.

The 30bn the government has lent out will be added to the national debt and the government will issue bonds to finance the borrowing. The point is that they will pay a higher rate to borrow the money than they lend it out at - meaning that we the taxpayer will pay the difference - or subsidise the support given to the banks. On another thread this morning it has already been annouced that the US will need to issue more bonds as the amount they have already pumped in means that the American Government is running out of petty cash.

However, if the alternative is a crash this is a reasonable price to pay to maintain the system - which much to Injun's dismay does mean that I don't have to take beads into the market and try and persuade Mr Tesco are worth my week's shopping.

Oh and the absolute worst situation to occur would be for the government NOT to borrow the money that it then loans out as it would cause massive inflation -and as Mr Mugabe has proved this leads to other problems.

[Injin]

Hi,

To move from the conspiracy nearer to the truth:

Banks allow commoditisation of assets which in turn allows the economy to operate and for people to borrow against the future (instead of trading beads that you currently own). In this way we can invest to build things on the basis of returns we will make from them. This is why everybody is so anxious to keep it 'balanced' and why bubbles (or depressions) are so bad for the system.

The 30bn the government has lent out will be added to the national debt and the government will issue bonds to finance the borrowing. The point is that they will pay a higher rate to borrow the money than they lend it out at - meaning that we the taxpayer will pay the difference - or subsidise the support given to the banks. On another thread this morning it has already been annouced that the US will need to issue more bonds as the amount they have already pumped in means that the American Government is running out of petty cash.

However, if the alternative is a crash this is a reasonable price to pay to maintain the system - which much to Injun's dismay does mean that I don't have to take beads into the market and try and persuade Mr Tesco are worth my week's shopping.

Oh and the absolute worst situation to occur would be for the government NOT to borrow the money that it then loans out as it would cause massive inflation -and as Mr Mugabe has proved this leads to other problems.

Apart from the fact that you've ignored the most important part of banking - they protect against inflation by giving interest rates.

Interest rates which wouldn't be needed if the bank wasn't there in the first place.

People have to accept legal tender because a man with a gun says they have to, and if they don't provide him with some every so often they will have all their real wealth confiscated and get stuck in a room with criminals such as armed robbers, rapists etc. the pounds wealth comes from people with no pounds doing desperate things to get some.

It's up to Mr. tesco what he wants to accept as valuable, not some demented scotch halfwit with an army.

That is, if you believe in the free market and aren't some form of communist.

Your support for a system based upon coercion of other human beings is sickening. (unless it's based upon ignorance, then it's just ignorant)

[stormymonday_2011]

Hi,

To move from the conspiracy nearer to the truth:

Banks allow commoditisation of assets which in turn allows the economy to operate and for people to borrow against the future (instead of trading beads that you currently own). In this way we can invest to build things on the basis of returns we will make from them. This is why everybody is so anxious to keep it 'balanced' and why bubbles (or depressions) are so bad for the system.

The 30bn the government has lent out will be added to the national debt and the government will issue bonds to finance the borrowing. The point is that they will pay a higher rate to borrow the money than they lend it out at - meaning that we the taxpayer will pay the difference - or subsidise the support given to the banks. On another thread this morning it has already been annouced that the US will need to issue more bonds as the amount they have already pumped in means that the American Government is running out of petty cash.

However, if the alternative is a crash this is a reasonable price to pay to maintain the system - which much to Injun's dismay does mean that I don't have to take beads into the market and try and persuade Mr Tesco are worth my week's shopping.

Oh and the absolute worst situation to occur would be for the government NOT to borrow the money that it then loans out as it would cause massive inflation -and as Mr Mugabe has proved this leads to other problems.

I expect the government will try to pull the usual three card trick of higher taxes, lower public spending and allowing sterling to devalue. That way they can skin both the taxpayers and those who buy gilts. The problem is that both UK and US governments have triple deficits to worry about - government borrowing, negative trade balances and ballooning personal debt amongst the taxpaying population. I do not think this is sustainable even over the medium term.

[bearish_rat]

I expect the government will try to pull the usual three card trick of higher taxes, lower public spending and allowing sterling to devalue. That way they can skin both the taxpayers and those who buy gilts. The problem is that both UK and US governments have triple deficits to worry about - government borrowing, negative trade balances and ballooning personal debt amongst the taxpaying population. I do not think this is sustainable even over the medium term.

I do tend to agree - I suppose why I find myself on these forums having a bit of a rant....or laugh as the case may be.

Perhaps democracy and capitalism can't work together as whilst people know that hard choices need to be made - they can't bring themselves to make them because of the personal impacts.

So to my personal favourite - the rule of the philosopher king or a nice benign dictatorship. ;-)

(edited for irony)

Edited September 20, 2007 by bearish_rat

[TortoiseYid]

A banking system is an essential requirement of civilisation.

They can be traced back to the earliest recorded eras of human society.

No banks = no currency, no wages, no employers, no industry. Nothing

A full-scale total banking collapse leads back to us being hunter/gatherers. Society would cease to exist.

Over the top I know, but that's why the world governments have to preserve the banking system at all cost. It's not an option.

Banks need to be highly regulated to prevent any threat to the system. In general they are, but the last decade has seen the investment banks realise that they can make huge amounts of money with new "products" in the areas of derivatives, debt, and commercial paper.

These were not regulated like other bank sectors because:

1. The regulators had no idea how they worked.

2. They made everyone a lot of money.

3. Politicians won elections because the economy boomed.

The regulators have been behind the curve for the last 15 years. What has happened since August 9th is that people have realised that these new financial models do not work indefinitely.

The central banks/regulators/government are now embarking on a damage limitation exercise, but we have no idea how successful this will be.

Expect to see rafts of new banking regulation over the next few years, but it's all way too late.

Boom and bust, same as throughout history. But the banking system has to survive, trust has to be restored.

[Solvent Celt]

I suppose you have to look at the alternative - don't bale them out and the banking system collapses totally shafting all of us in the process. A big industrial company going under just doesn't have the same chance of inflicting total meltdown on the rest of the economy so doesn't get the same help. My personal view is that, as well as lending banks money at a higher rate than they would otherwise pay, there should be some kind of fine imposed of a substantial proportion of profits from the period in question - a bit like the way banks fine you or me if we go overdrawn. Don't think that'll ever happen though.

Why would the liquidation of a poorly performing bank cause the entire system to collapse?

That's a bit like saying we can't allow Rover to go into liquidation because it will cause the internal combustion engine to stop working.

[Injin]

Bah. I wrote a response and Celt had done it better.

[Parkwell]

Is it time to nationalize banking?

[Injin]

Is it time to nationalize banking?

It is nationalised.

It's time to put it in the free market - drop the legal tender laws and have a free market in currency as well.

Course that would mean the population growing up and accepting that they aren't owed anything, the end of the political system and so on and will never ever happen.

[TortoiseYid]

Why would the liquidation of a poorly performing bank cause the entire system to collapse?

That's a bit like saying we can't allow Rover to go into liquidation because it will cause the internal combustion engine to stop working.

What if the government believed that it would cause the entire system to collapse?

Maybe they did believe the system was at risk?

Plenty of banks have been allowed to go into administration before (BCCI, Barings are recent examples). Why was NR different? We already saw contagion spreading to A&L amongst others before they stepped in.

[Injin]

What if the government believed that it would cause the entire system to collapse?

Maybe they did believe the system was at risk?

Plenty of banks have been allowed to go into administration before (BCCI, Barings are recent examples). Why was NR different? We already saw contagion spreading to A&L amongst others before they stepped in.

Short term pain, long term gain. Risks come with rewards come with risks.

That's capitalism for you.

Having some moron and his socialist minions grab the wheel the moment that the fast asleep public notice all is not well doesn't fix the underlying problems. It makes them worse. Merv is spot on about that.

[Guest tbatst2000]

Why would the liquidation of a poorly performing bank cause the entire system to collapse?

I didn't say that, or, at least, didn't intend to. The point is not that single banks can't be allowed to fail just that they can't be allowed to fail in such a way as to take the rest of the system with them. Had Northern Rock failed under the current system, 2.5 million people would have lost big chunks of their savings - the reaction to which could well have been runs on a load of other banks, hence the systemic risk. The root of the problem, as Mervyn King said during his grilling earlier today, is the crappy protection retail depositors have currently.

[Guest tbatst2000]

The root of the problem

Not, I should add, the root of the problem with Northern Rock itself which was cupidity and pride in unbelievable quantities.

[TortoiseYid]

Short term pain, long term gain. Risks come with rewards come with risks.

That's capitalism for you.

Having some moron and his socialist minions grab the wheel the moment that the fast asleep public notice all is not well doesn't fix the underlying problems. It makes them worse. Merv is spot on about that.

I'm not sure the expression "short term pain" is quite the right phrase for a total banking collapse.

I guess some people might like to restart British society from scratch - housing would certainly be cheap! - but I personally doubt it would be a pleasant period of history to live through.

[Guest tbatst2000]

I'm not sure the expression "short term pain" is quite the right phrase for a total banking collapse.

Depends on how hard you are. If you're the survivalist type who's happy to spend a few years living in a bunker eating cold baked beans then maybe you could view it as short term pain. Personally, I've rather got used to living above ground and not having to fend off marauding barbarians with a machine gun. Each to their own I guess!

[Injin]

Depends on how hard you are. If you're the survivalist type who's happy to spend a few years living in a bunker eating cold baked beans then maybe you could view it as short term pain. Personally, I've rather got used to living above ground and not having to fend off marauding barbarians with a machine gun. Each to their own I guess!

Interesting view of humanity, not backed by any facts though.

[thecrashingisles]

Interesting view of humanity, not backed by any facts though.

You should read up on what's happened in Argentina over the last few years.

[Injin]

You should read up on what's happened in Argentina over the last few years.

I have. The total amount of theft, murder, extortion etc went down. What's so hard to see about that?

[thecrashingisles]

I have. The total amount of theft, murder, extortion etc went down. What's so hard to see about that?

Clearly economic collapse is the true path to social progress!

http://www.washingtonpost.com/wp-dyn/artic...-2003Jan26.html

If you don't accept that example, how about what happened to Russia when the Soviet Union collapsed. This is one that I have first hand experience of.

[Injin]

Clearly economic collapse is the true path to social progress!

http://www.washingtonpost.com/wp-dyn/artic...-2003Jan26.html

If you don't accept that example, how about what happened to Russia when the Soviet Union collapsed. This is one that I have first hand experience of.

Oops. Check your premises. You've taken state predation as a given.