Thursday, January 29, 2009

How the bailouts could break us all

How the bailouts could break us all

The logical consequence of the banking bail-outs is full nationalisation, says Adrian Ash. But where is the money going to come from, and what happens if it all goes wrong?

Posted by damien @ 02:04 PM (1037 views)
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5 thoughts on “How the bailouts could break us all

  • from here perhaps

    Thursday, Jan 29, 2009This years news that somehow slipped through the netDormroom derivatives: Profiting From Bernanke’s Super-Fed and Obama’s Newer Deal
    An in depth appraisal of the bigger picture with many thoughtful comments to widen it’s value as an info resource.
    Less than $40 billion a year ago, the excess reserve deposits held by the Federal Reserve has ballooned to $860 billion. The banks can also deposit printed money into a Fed category called “Deposits with Federal Reserve Banks, other than reserve balances,” which is what the Supplementary Financing and General Accounts also fall under.
    The “Other” subsection of these deposit accounts, which can be construed to represent bank deposits, has increased from $281 million in September to $15 billion today. Both the reserve and non-reserve deposits comprise another huge pool of excess liquidity on the Fed’s balance sheet that doesn’t immediately affect circulated currency.

    Posted by troy @ 11:13 AM (76 views)

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  • mark wadsworth says:

    The money will keep coming out of taxpayers’ pockets until there is none left. THis won’t work, and nationalisation won’t work.

    Debt-for-equity swaps or similar will work just fine.

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  • stillthinking says:

    How does it work just fine if the equity has lost 40% of value but the debt is still the same? Sounds a lot like asking for debt relief rather than restructuring so I can’t see anybody taking the deal.
    For example, Barclays can’t issue shares to gain capital, being equivalent.
    Companies can’t exchange high real debt for low value shares.
    Home owners can’t partially sell their homes back to the bank because even that portion of their home is a) losing value and b) what would be the point, whether you call it rent or mortgage repayment doesn’t change the fact that their debts are too high.

    Also, a period of nationalisation, where an indebted company is taken over, existing shareholders wiped out, and then privatised again is the -equivalent- of the ultimate debt-for-equity swap.

    Surely the problem is that whether the debt is backed by an asset falling in value propped up only by falling employment, or the debt is backed up only by diminishing profits and possible closure, the debt is -more- than the equity. Mortgages are more than house prices, company debt is more than profits and bank liabilities are more than assets. So there is no good swap to be made.

    So I don’t follow you, unless you mean something else. If I had funds in a collapsing company, I would want my money out, not shares.

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  • stillthinking says:

    “Defending bank savers against bank default means using bank savings as their own guarantee. ” This is good line. I hope the meaningless of the Brown circle catches on i.e. there is no real guarantee apart from taxpayer debt.

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  • dohousescrashinthewoods says:

    Shock: Government uses worthless paper to buy real assets, ends up owning the lot and ditches the paper.

    Sounds like a masterstroke to me, at any “price” in paper.
    Print, buy, bust the currency, keep the value.
    This looks like an uber-state appropriating assets.

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