Tuesday, October 14, 2008

Ros Has Got It Right

Protecting Icesave depositors, was it a mistake?

Dr Ros Altmann, an independent policy adviser says:" The Government's decision to protect 100% of all retail deposits in the Icelandic bank IceSave is the most dangerous, misguided act of the credit crisis so far."

Posted by renting2 @ 10:16 AM (939 views)
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10 thoughts on “Ros Has Got It Right

  • Er… well…. maybe .. but why is this particular example such a sure-fire winner? It is up against some pretty stiff competition.

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  • Sky News Live – mortagage and finance leaders being questionned by MPs at Westminster.

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  • Comments are great….. Its all very well until its your turn. Then there is this little special reason as to why you should be bailed out. Do you have the currency of your convictions? and the cohonas? Chances are if you do then you will be lean , very, very mean and highly capable .. which is just what the free-market ordered.

    Get of the couch.. take the iPod out of your ears .. watch a little less football … one less Coronation St. re-run a week and keep one eye on what people are doing with your money (savings , investments, pensions)

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  • mark wadsworth says:

    ? it might be the silliest, but it is far from the worst in absolute terms.

    It is quite clear than in terms of risk-reward, depositors expected the smallest rewards and should therefore be the last to accept any of hte losses.

    The losses should be borne by shareholders first, and once they are wiped out, by bondholders – preferably by debt-for-equity swaps. Bondholders’ entitlements are not reduced by such swaps, they are merely converted from short/medium term claims to permanent claims.

    Yesterday’s bail out didn’t help share prices much, but it has had a positive effect on bond prices, so the very people who should have been taking the losses on the chin are the ones who benefitted most. And the gummint cannot now withdraw the guarantees/bail out etc because the bondholders (including a lot of pension funds) will start wailing that this has led to bond prices falling again.

    Ah, the law of Unintended Consequences. Wins every time.

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  • More post hoc wisdom. Dr Altmann is implying that savers should accept the risk of losing money if chasing high returns. A rate of 6.3% against ~5% inflation? That’s about the interest on an index-linked bond. Wonder if she has her cash under the mattress.

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  • mark wadsworth says:

    @ WK, re ‘special reason why you should be bailed out’, the self same Dr Ros campaigned long and hard for insolvent pension funds to be bailed out at taxpayers’ expense. That is what is particularly infuriating about her comments.

    @LTF, The Icelandic banks were offering slighthly higher interest rates than UK banks, that is a simple fact. So the reward was there, and the simple fact that Iceland is a tiny country that is not even in the EU should have suggested that there was SOME risk involved.

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  • Enough Already says:

    Everyone knows that the first £50000 is guaranteed. Why people should get back over the £50000 is beyond me.

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  • mark w:
    True, it was riskier for the reasons you say, especially given its explosive “growth”. But what also annoys me about RA, as well as the inconsistency you mention, is that neither she, nor most others it seems, warned as about NR, B&B, or, come to that, RBS. Financial experts are particular good at foresight when looking over their shoulder.

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  • if anyone is thinking of parking a large sum with a bank and is uninformed about its soundness there are lots of financial advisers around. It’s up to the individual to seek the best advice, not to plead ignorance after the fact. If banks offer higher rates there has to be an assumption that the risk is higher. The fact that the higher rate only just beats inflation is neither here nor there.

    The average taxpayer is less well-off than anyone who can afford to park £50k+ with a bank – one of the comments was about the problem of having so much money to save that there aren’t enough banks if you can park only £50k with each. Why should anyone earning £25k and struggling guarantee such a person’s savings?

    Of course all this misses the point, which is that these deposit guarantees are primarily on behalf of banks and the banking system, not customers, just as bailouts are for banks rather than people with mortgages. And to cover the backsides of government/regulators, which allowed a shaky bank to operate here (and councils which invested in Icelandic banks and ask ‘how were we supposed to know?’)

    How have yesterday’s nationalisation’s affected depositor guarantees? The £50k per bank is based on ownership, not brand, and (part)nationalisation has altered the ownership structure.

    Also, will the consolidation that’s going on affect how Libor is calculated? What was once inter-bank may now be intra-bank. Govt ownership of any two banks may free up lending between them and artificially bring down Libor. Any ideas?

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  • The thing I can’t understand, loads of comments about how high the interest rates in Icesave were, but from memory they were only offering 6.5% odd on instant access, there are plenty of UK banks that offer that sort of rate at least for the first year before they drop it hoping you can’t be bothered to switch to another account. Now if they were offering 8-9% I could understand the fuss, but, correct me if I’m wrong, I don’t think they were.

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