Sunday, January 10, 2010

Are we revolting?

Funding and the patriotism test

I came across this on Max Keiser's YouTube channel. The rating agency Moody's have been thinking about creating a 'social cohesion' index. Basically, the idea is to try to quantify the risk of a popular backlash against sovereign debt repayment. Considering the rating agencies track record in recent years, I doubt they'll produce anything of use to gilts investors but the perspective on debt repayments caused by bad banking seems to be changing. As we've seen in Iceland, there has to be a limit to how much money you can expect to squeeze out of people.

Posted by quiet guy @ 04:47 PM (992 views)
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3 thoughts on “Are we revolting?

  • fallingbuzzard says:

    The thing about the UK is that we get appeased and say nothing, then feel a bit unhappy but say nothing, then we’re not at all happy but decide its best not to rock the boat and say nothing, and then suddenly we all freak out. More or less on a 15-20 year cycle. Thats what the social cohesion index is about.

    And as for Iceland, why should they compensate British savers that went over the agreed compensation limits? In fact, why should the UK taxpayer compensate NR savers that went beyond the agreed compensation limits? The answer is that we shouldn’t but no-one dares say it.

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  • @fallingbuzzard

    Not really. NR savers should have been compensated – this is a common but misguided argument that customers should carry the risk of a bank collapsing. However if customers were going to be expected to carry the same risk as the bank’s employees and directors, should customers not also get rewarded when the bank does well – by sharing in the bonus pot? After all, if customers are bearing the solvency risk, should they not have some say in how the bank is run too, in order to protect their interest? Otherwise the risk as asymmetrical an illogical.

    In addition, that risk is already borne by shareholders. And this precisely is the difference between shareholders and customers – consumers of an organizations services should not be bearing undue risk exposure without influence.

    Unless you’re advocating that all banks should be mutuals?

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  • fallingbuzzard says:

    I believe that the UK taxpayer (every tax payer) should not have compensated Northern Rock savers over the £32k limit, up to the £32k limit, yes, that was the clear arrangement. Beyond that was the point that at which consumers, albeit a very small number of them, were taking undue risks. Same with Icesave.

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